Markets Awaits Philly Fed

Little FX reaction to 9k decline in initial claims to 349k, which is a net negative following the 10K upward revision in the prior figure to 358K. The 4-week moving average rose to 360.5K, the highest since October 2005.

All eyes turn to the Philly Fed survey ( 10 am EST not noon ) for the latest evidence on regional manufacturing. The survey will be especially scrutinized for whether the February figure has rebounded to -10 after collapsing to a recessionary -20.9 in January from December's -1.6. Most notable about the latest plunge is that the -20.9 figure was the worst figure since October 2001, which was a result of the September 2001 attacks. Thus, for the index to post a similar plunge without any acts of terrorism reflects the sudden dip in confidence. The January decline was broad-based, showing -15.2 in new orders from 12 and -1.5 in employment from 3.8. The Philly Fed covers 3 states, ranging from Eastern Pennsylvania, southern New Jersey and Delaware .

Also at 10 am EST is the index of leading indicators seen flat in Jan following -0.1% and -0.2% in Dec and Nov.

Yesterday's Fed downgrade of the economy was more substantial than most forecasts, lowering its 2008 GDP growth projection to 1.3%-2.0% from 1.8%-2.5% made in October and raising its unemployment rate projection to 5.2%-5.3% from 4.8%-4.9%. But the Fed's increase of its inflation forecast to 2.0%-2.2% from 1.7%-1.9% before a subsequent decline in 2009 suggests that a short-term inflation rebound could complicate the Fed's easing task. Nonetheless, the case has proven that even Fed Chairman Bernanke, a central banker favoring inflation targeting, is ready to slash rates at the expense of above target inflation

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Ashraf Laidi
CMC Markets Plc
http://www.cmcmarkets.com/usfx

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