24 February 2010 at 6:58 GMT
Bernanke testimony is the focus for today
Market Comments:
Risk appetite performed a full u-turn early in the session yesterday as, at first, German data disappointed and then US data confirmed the direction. The German IFO readings were below forecast in the business climate and current assessment categories and dragged the overall index lower for the first time in almost a year. This was enough to pull EURUSD back from a 1-week high versus the USD while additional pressure was piled on after Fitch downgraded the ratings and outlook for the four largest banks in Greece.
GBP was also in retreat, reversing easily morning gains, as the testimonies from BOE MPC members before a parliamentary committee contained overwhelmingly dovish undertones. BOE’s Miles was an advocate of expanding the QE programme if the economy worsens. These sentiments were echoed by BOE Governor King and has testimony noted the benefits of a weak pound and would suggest that the Bank would not be adverse to further weakness. It was only BOE’s Tucker who cautioned that reminded the rising risk of inflation in the UK should not be ignored that gave the pound some respite.
The final nail in the coffin for risk was the release of the Conference Board’s US consumer confidence for February which showed a sharp decline after hitting 15-month high in January. The index slumped to 46.0 from an upwardly-revised 56.5 in January, with the indices of present situation and expectations both contributing to the slump while assessments of labor market conditions also deteriorated. However, some analysis may suggest that the index was affected by the seriously-bad weather across the country at the time. Nevertheless, it is worth noting that the weekly ABC consumer confidence reading was also dismal, sliding to -50 from -49 last and remains mired at the same despondent levels for the past two years.
So, with risk on the retreat, the Asian open was partly affected by the headline that the China Banking Regulator had told the nation’s trust companies to tighten lending requirements for real estate developers and banned them from offering loans for land-reserve purchases. In addition, they were told to restrict new lending they provide to local governments’ financing arms. Sentiment at the start was not particularly buoyant – but it wasn’t overly negative either.
Japan’s trade data for January was a small chink of brightness amid the doom and gloom with the trade balance remaining in surplus (just ¥85.2b versus the ¥136b deficit expected). The export sector remained buoyant despite the headwinds of a firmer JPY with annual exports up a dramatic 40.9% with exports to the US showing a stark improvement, gaining for the first time in a year but China remained Japan’s top export destination with exports to China up a hefty 70.9% y/y.
All eyes are now on Fed Chief Bernanke’s testimony later today (or perhaps more importantly the Q&A session following). The stance of “exceptionally low rates for an extended period” is expected to be trotted out again and this may have some impact on the steep US yield curve. Markets will be looking for any reference to exit strategies in the Q&A session and hints on the outlook for inflation. Before Bernanke we see German final Q4 GDP data and Norway unemployment rate while the US session starts with US new home sales and ends with the above-mentioned Bernanke testimony.
Economic Data Highlights
- US Dec. S&P case-Shiller House Prices out at -3.08% y/y vs. -3.1% expected and revised -5.34% prior
- US Feb. Richmond Fed Manuf. Index out at 2, as expected, vs. -2 prior
- US Feb. Consumer Confidence out at 46.0 vs. 55.0 expected and revised 56.5 prior
- US Weekly ABC Consumer Confidence out at -50 vs. -49 expected and -49 prior
- JP Jan. Trade Balance out at ¥85.2b vs. -¥136.0b expected and revised ¥544.2b prior
- JP Jan. Exports out at 40.9% y/y vs. 39.5% expected and revised 12.0% prior
- JP Jan. Imports out at 8.6% y/y vs. 12.1% expected and -5.5% prior
- AU Q4 Wage Cost Index out at +0.6% q/q, +2.9% y/y vs. 0.8%/3.1% expected and 0.7%/3.6% prior resp.
- JP Feb. Small Business Confidence out at 42.3 vs. 41.3 prior
Upcoming Economic Calendar Highlights
(All times GMT)
- GE Final Q4 GDP (0900)
- GE GfK Consumer Confidence (0900)
- Norway Unemployment (0900)
- UK BOE’s Posen to speak (0925)
- EU Industrial New Orders (1000)
- EU ECB’s Bini Smaghi to speak (1000)
- US MBA Mortgage Applications (1200)
- US New Home Sales (1500)
- US Treasury’s Geithner to testify (1500)
- US Fed’s Bernanke to testify (1500)