Asian Morning Update 1st April 2008

Dollar fails to breach old lows…

European releases overnight:

March Forecast Actual
Euro-zone CPI (Est) (YoY) +3.3% +3.5%
Italian CPI (P) (MoM) +0.3% +0.5%
Italian CPI (P) (YoY) +3.1% +3.3%
Euro-zone Business Climate Indicator 0.70 0.80
Euro-zone Consumer Confidence -12.0 -12.0
Euro-zone Economic Confidence 100.0 99.6
Euro-zone Industrial Confidence 1.0 0.0
Euro-zone Services Confidence 10.0 9.0

Mixed numbers from Europe with inflation pushing above forecasts and in general confidence numbers ticking lower. That consumer confidence remained stable is a surprise given recent softer indications from the retail PMI. It will be interesting to see how the rest of the PMI releases fair over the course of this week and could set a marker for future numbers.

Even ECB board members are not bouncing with confidence. If they were then interest rates would be higher. Yesterday Liikanen confirmed that by highlighting the continuing risk of a global slowdown. It is clear too that he doesn’t rule out worsening conditions in Europe when commenting “experience and history shows that price stickiness in Europe is higher than for instance in America, so changes take place at a slower pace.”

Even Bafin, the German banking supervisor, is estimating a minimum of EUR 43bn in writedowns and possibly as high as EUR70bn. There are also risks for LBO’s which have been facing problems in meeting debt repayments so the seeds are there to be grown.

And while both ECB and BOE make warnings on second round inflation frankly control is mostly out of their hands as oil prices remain at extremely elevated levels that are causing consumers to hold back on spending as they see their wealth at risk.

These are testing times indeed.

States releases overnight:

March Forecast Actual
Chicago PMI 46.5 48.2
N.Y. Current Business Conditions 43.4 (prior) 46.3

There was limited data from the States with just the Chicago PMI and N.Y. business conditions which both saw healthy upticks. Certainly it is nowhere close to indicating any strong recovery but they provide time for the market to consolidate and for the fiscal stimulation to begin taking effect next month.

So while the doomsayers were out in force crying for a weaker Dollar as it spiked towards the 1.5901 peak there were no signs of follow-through and conversely a sharp pullback. While it shows the market’s preference to sell Dollars it also suggests that momentum conditions aren’t quite right yet.

Indeed, there still remain several possibilities at this stage of the game and one of those could be a return to the 1.5340 low…

However, as we start the day in Asia focus will be on the Japanese Tankan report and the growing pessimism that has been developing as the penny has clicked that Japan is stuck between a rock and a hard place. The domestic economy has never recovered from the 1980’s bubble and the export economy is facing a bleak outlook as the globalization bubble also threatens to dump the country back in not only recession but the possibility of stagflation.

More later once the daily analysis has been done…

There following releases are due from Asia due today:

Australia
March AiG Performance of Manufacturing Index
The RBA are due to announce their rate decision

Japan
Q1 Tankan Large Manufacturer’s Index 13.0
Q1 Tankan Large Manufacturer’s Outlook 9.0
Q1 Tankan Non-Manufacturing 12.0
Q1 Tankan Non-Manufacturing Outlook 10.0



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