Yen Falls As Economy Suffers

The dollar fell versus other key currencies but gained against the yen on Tuesday. Equities and risk appetite rose despite weak economic data. The OECD forecasts that the world economy will contract 2.7% in 2009, while world trade will fall 13.2%. US home prices showed record losses, the Chicago PMI was weaker than expected, and US consumer confidence held near a record low. Quarter-end flows in the currency market and window dressing in the stock market dominated trading. The euro rose despite the German higher-thanexpected unemployment rate and eurozone decelerating inflation, which should allow the European Central Bank to be more aggressive in stimulating the economy. Sterling was supported by better-than-expected UK consumer confidence. Better risk appetite and rising commodity prices supported the Australian and Canadian dollars. A sixth straight monthly decline in Canada's GDP limited the Canadian dollar's gain.

The USD/JPY rose on the last day of Japan's fiscal year following more signs of a Japanese deepening recession and improving risk sentiment. Spending, earnings and employment all fell. Japanese PM Taro Aso said his government will compile a new economic aid package. The USD/JPY is just below the 99-area resistance. If this is broken, the pair will likely advance to the 102-area resistance.

Financial and Economic News and Comments

US & Canada

• Home prices in 20 US cities dropped a more-than-expected 19.0% y/y in January, the fastest decline on record, after an 18.6% y/y fall in December, according to the S&P/Case-Shiller composite-20 house price index. The index has declined every month since January 2007, and year-on-year records started in 2001. Home prices fell 2.8% m/m, following December's 2.6% m/m decline.
• Home prices in 10 US cities dropped 19.4% y/y and 2.5% m/m, according to the S&P/Case-Shiller composite- 10 house price index.
• US consumer confidence remained near a record low in March. The Conference Board US consumer confidence index increased less than expected to 26.0 from February's 25.3, the lowest level since records began in 1967, according to the Conference Board. The present situation index declined to 21.5 from 22.3, while the expectations index increased to 28.9 from 27.3.

• The Chicago PMI unexpectedly fell to 31.4 in March, the lowest level since 1980, from 34.2 in February, indicating US business activity contracted for a sixth straight month, the Institute for Supply Management- Chicago Inc. reported. The new orders index increased to 30.9 from 30.6, while the production index declined to 32.7 from 34.7. The employment index increased to 28.1 from 25.2. The prices paid index declined to 34.1 from 37.8.

• Canada's GDP contracted for a sixth consecutive month in January, declining 0.7% m/m, as forecast, after a 1.0% m/m contraction in December, data by Statistics Canada showed. Manufacturing fell 3.1% m/m, while construction declined 3.0% m/m.
• Canada's raw materials price increased a more-than-expected 1.7% m/m in February after an upwardly revised 1.5% m/m rise in January, while the industrial product price increased 0.4% m/m, as forecast, following January's revised flat reading, according to Statistics Canada.

Europe

• Germany's unemployment climbed for a fifth month and more than forecast in March, rising a seasonally adjusted 69,000 to 3.4 million, following February's upwardly revised increase of 50,000, data by the Federal Labor Agency showed. The seasonally adjusted unemployment rate rose more than expected to 8.1% from February's upwardly revised 8.0%.
• The eurozone inflation rate in March slowed to 0.6% y/y, the lowest since records began in 1996, from 1.2% y/y in February, Eurostat reported.

Asia-Pacific

• Japan's unemployment rate rose to a 3-year high of 4.4% in February from 4.1% in January, the Statistics Bureau said. Total unemployment rose to 2.95 million from 2.76 million. The job-to-applicant ratio declined more than expected to 0.59 from 0.67, the largest drop since 1974.

• Japanese labor cash earnings declined a more-than-expected 2.7% y/y in February after a downwardly revised 2.7% y/y decline in January, the Ministry of Health, Labor and Welfare said.
• Japanese household spending fell a less-than-expected 3.5% y/y in February, a 12th monthly fall, after a 5.9% y/y drop in January, according to the Statistics Bureau.
• Japan's construction orders dropped 24.9% y/y in February after a 38.3% y/y fall in January, while housing starts fell a more-than-expected 24.9% y/y following January's 18.7% y/y decrease, according to Ministry of Land, Infrastructure, Transport and Tourism.

Hans Nilsson
Capital Market Services, L.L.C.
www.cmsfx.com

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