YB FX Daily Report – 9th April 2009
The equity markets stayed mostly flat yesterday, as the recent optimism was dented by a weak batch of data. In Germany factory orders fell by 3.5%, which has taken the annual rate of decline down by a huge 38.2%. We have German Industrial production figures released later today, and with last months figure showing a 7.5% drop, it looks like the German manufacturing industry will continuing to have a bad time. There was also some bad news as the financial crisis in Ireland caused the government to lose its AAA rating by Fitch, seeing it drop down to AA+. However the Euro seemed to shake off the bad news and even climb slightly against the Pound, which fell back below 1.11, but has found support around 1.1050.
Over in the US, the release of the FOMC minutes showed Fed members revising down their forecasts for growth and now expect the US economy to flatten out over 2009, before starting a slow recovery next year, as market conditions become more benign and the many stimulus packages start to take hold. Market conditions were described as remaining extraordinarily stressed, but at least not deteriorating. This meeting was the one that decided to kick of the QE by injecting $300bn into longer dated Treasury securities, as well as other measures. The Pound stayed within a range either side of 1.47 through yesterday and overnight.
Asian markets climbed overnight, as an unexpected bounce in Japanese machine orders, raised the prospect of hitting the bottom of the dip. There was also rumours of a Japanese stimulus package of 15.4 trillion yen, which would be very welcome, and has given the Yen a little benefit, no doubt to the Japanese government’s chagrin, taking the GBP/JPY rate further down from Y150
The big event of the day will of course be the MPC rate decision. Of course there’s no decision to actually make, rates will be kept on hold, and although the markets are half expecting some kind of review of the QE measures, there’s no guarantee that the MPC will even make any announcement, as they normally keep silent on a no change decision, although these are unique times so we’ll have to wait and see.
It is really too soon to review the QE measures, rates did drop after their announcement, but have climbed a little since then, some blaming this on King for commenting that they may not use the full amount of money they’ve been allowed to create, although the rise in market optimism is probably more to blame.
The markets are likely to stay range bound before the Easter holiday and the MPC decision, although Sterling looks to be on the defensive this morning.
Have a good extended weekend.
Michael Corcoran | Treasury Solutions Partner |Wholesale Banking | National Australia Bank Limited