Wakeup Call: EURUSD In New All-Time Highs

The USD was on the retreat in the late session yesterday and managed in the Asian session to break the important 1.50 level. Stocks benefited from solid earnings and easing in credit markets.

Overnight News Bullets

• JN Corp Service Price YoY (Jan) out at 0.8% vs 1.4%. Prior 1.5%
• NZ RBNZ 2yr Inflation Expection (1Q) out at 2.7%. Prior 2.7%
• JN Small Business Confidence (Feb) out at 44.3 vs 43.0 expected. Prior 43.5
• GE – IFO: Business Climate at 104.1 vs. 102.9 exp., Current Assessment at 110.3 vs. 107.2 exp., Expectations at 98.2 vs. 98.7 expected.
• SZ UBS Consumption Indicator (Jan) out at 2.191. Prior 2.180
• UK Total Business Investment QoQ/YoY (4Q) out at -0.5%/1.7% vs 0.9%/2.9% expected. Prior 2.0%/6.9%
• SO Slovakia Repo Rate kept at 4.25% as expected
• US PPI (Jan) Headline MoM/YoY at 1.0%/7.4% vs. 0.4%/7.3% expected. Prior at -0.3%/6.3%. PPI Core at 0.4%/2.3% vs. 0.2%/2.2% expected.
• US S&P/CaseShiller Home Price Index (Dec) out at -9.1% vs -9.7% expected. Prior at -7.7%.
• US Consumer Confidence (Feb) out at 75.0 vs. 82.0 expected. Prior at 87.3.
• US Richmond Fed (Feb) out at -5 vs. -12 expected. Prior at -8.
• US House Price Index QoQ (4Q) out at 0.1% vs. -1.0% expected. Prior at -0.2%.
• NZ Building Permits (Jan) out at 3.3% vs. -3.9% prior.
• AU Construction Work Done (4Q) out at -1.0% vs. 2.0% expected. Prior at 2.2%.
• NZ NBNZ Business Confidence (Feb) out at -43.9 vs. -24.9 prior.
  

Markets

• FX: USD-weakness more or less across the board on speculation that rates will soften even further. EURUSD printed new all-time highs at 1.5047 and AUDUSD is close to 2007 highs at 0.9400.
• Stocks: Strong session in Europe with major indices up around 1.4% on strong earnings and optimism with regards to the ratings of the US bond insurers. US following higher despite strong PPI. Asian session generally following with Nikkei up 1.5% and Hang Seng up 2.9%.
• Fixed Income: Bunds continue the downtrend closing below the 50 day MA at 115.47 y'day. Treasuries rose on back of the US data and rate outlook, bounced off on the 50% fibo level at 115-12 – currently at 116-01. JGB's a tad higher at 137.25.
• Commodities: The weaker USD sparked off at rally in commodities. Oil in new record highs at $101.43 – trend resistance coming in at $103.54. Gold April contract sat new highs at $960.60, but has dropped to $959.
  

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What's going on?

• In FX markets, despite very strong US PPI figures, the USD fell on speculation that Bernanke will be in the soft side in tomorrows testimony on the economy before the US Senate and be focusing on the US growth before dealing with inflation. EURUSD is in new highs above 1.50 and we see no signs of near resistance levels.
• The implied probability in Fed Funds Futures indicate that 96% of the market is pricing in at cut to 2.50 pct. on the next rate meeting on the 18th of March.
• Optimism in equity markets as IBM raised their 2008 FY target for this year by US$ 400 million and an additional share buyback programme for US $ 15 million. Our current view is however still that a US recession is getting closer.
• The current good news, which we see out of various sectors (excluding financials and real estate), are mostly based on the positive year 2007. We believe that the changed environment for the US consumer and the banks has not yet been reflected enough in the forecasts. For the European session, we expect the weak USD and the high oil price to limit the upside relative to the market.
  

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