ECB Leaves Key Interest Rate Unchanged At Record Low For Second Month

In its Governing Council meeting held in Luxembourg, the ECB kept its key interest rate, which is the rate on main refinancing operations at 1%, where it has been from May. The bank also held its interest rate on marginal lending facility unchanged at 1.75% and the rate on deposit facility at 0.25%.
ECB President Jean-Claude Trichet, who said in June that the economy is still in “uncharted waters”, is expected to reveal further details of the EUR 60 billion bond purchase plan announced in May in his regular post-decision press conference at 8.30am ET. The ECB is expected to start buying EUR 60 billion of covered bonds this month to boost lending.
To ease strains in the banking sector, the ECB on June 24 injected EUR 442 billion into the financial system, the biggest amount it has ever given in a single auction. The decision was the latest in ECB’s efforts to maintain proper functioning of the financial market amid the global economic crisis. The previous record-high allotment was in December 2007, when the bank pumped in EUR 348.6 billion.

Eurozone Retail Sales Fall More Than Expected In May

Retail sales fell 0.4% month-on-moth in May following a revised increase of 0.1% in April, data released by the Eurostat showed Friday. Meanwhile, economists had expected a drop of just 0.1%.
Compared to the previous year, sales fell 3.3% in May following a revised 2.5% decline in April and exceeding the expected fall of 2.7%.
Retail sales data, which came a day after the European Central Bank held its key interest rate at a record low of 1% for the second straight month, indicate that demand remain sluggish in the 16-nation economy despite various stimulus measures. In addition, the latest report also showed that the slight increase seen in April was just a slip from the downtrend.
Sales of food, drinks and tobacco rose 0.2% month-on-month and that in the non-food sector decreased 0.6%. Excluding automotive fuel, total retail trade decreased 0.4%.

Japan Trade Surplus Declines In May

The trade surplus plunged to JPY 299.83 billion in May from JPY 341.1 billion recorded during the same period of the previous year, the Finance Ministry said in a report on Wednesday. However, the trade surplus stood above the expected level of JPY 210 billion. Exports tumbled 40.9% on a yearly basis to JPY 4.02 trillion in May. Annual decline was smaller than the 39.1% fall witnessed in April but larger than a 39.3% fall expected by economists. At the same time, imports declined 42.4% to JPY 3.72 trillion. Imports also slipped more than an expected drop of 41.1%. Exports to the U.S. were down 45.4% and imports by 40.3% in May from the previous year. Motor vehicle sales to the U.S. dropped 54.8%. Meanwhile, total shipment to China was down 29.7% and that to Asia slid 35.5%. Elsewhere, the Bank of Japan reported a record decline in Japanese corporate service prices in May. The corporate services price index fell 3% annually in May, which was the largest decrease since records began in 1985 and the eighth consecutive fall. The index measures prices paid by companies for services. From April, corporate services price decreased 0.3% in May, slightly larger than the 0.2% decline seen in April.

Swiss economy contracts most since 1992

Data released by the State Secretariat for Economic Affairs or SECO showed that gross domestic product or GDP fell 0.8% sequentially in the first quarter following a downwardly revised 0.6% contraction in the fourth quarter. That was the worst performance since the final quarter of 1992. Meanwhile, economists had forecast the economy to shrink 1.5%. GDP declined for the third straight quarter, while two consecutive quarters of negative GDP defines a recession. On an annual basis, the real GDP dropped 2.4% in the first three months of 2009. Economists had forecast a 1.7% contraction after a 0.6% fall in the final quarter of 2008.Compared to the fourth quarter, the pace of decline in exports slowed in the first quarter. Total exports fell 5.4% after an 8.7% contraction in the previous quarter. Exports of goods were down 6.6%, more pronounced than a 2.3% fall in exports of service. At the same time, total imports recorded zero growth in the first quarter.

Stocks Seeing Continued Weakness In Mid-Afternoon Trading

Equities experienced a considerable run up over the course of the past two months, prompting some traders to cash in their gains earlier this week. The move out of stocks has come as earnings season winds down and ahead of an expected lull in the summer months.Before the opening bell, traders digested data from the Labor Department that showed consumer prices were unchanged in April after edging down by an unrevised 0.1 percent in March. The lack of growth in consumer prices came in line with the economists’ expectations.The report also showed that the core consumer price index, which excludes volatile food and energy prices, rose 0.3 percent in April after rising 0.2 percent in each of the three previous months. Economists had expected core prices to edge up 0.1 percent.Separately, the Reuters/University of Michigan consumer sentiment index rose to 67.9 in May compared to a reading of 65.1 for April. The index came in above analyst estimates of a reading of 67.0. Additional economic data came from the Federal Reserve, which released a report showing industrial production fell 0.5 percent in April, following a revised 1.7 percent decrease in March. Economists had been expecting production to fall 0.6 percent.

Energy, Mining Stocks Drag TSX Lower - Canadian Commentary

The S&P/TSX Composite Index lost 86.35 points or 0.87% to settle at 9,762.85. The index has lost more than 4.5% from last Friday’s close above 10,200.Energy stocks dropped 2.5% as crude oil plunged more than $2 on the NYMEX on demand worries. Canadian Oil Sands (COS.UN.TO) is down 4.1%, Savanna (SVY.TO) has lost 3.7%, Canadian Natural Resources (CNQ.TO) declined 3.8% and Encana (ECA.TO) fell 1.8%.Petro-Canada (PCA.TO) lost 2.6% after investment company Letko Brosseau & Associates said it will vote against the $16.5 million takeover bid from Suncor (SU.TO). Suncor fell 2.8% for the day.Meanwhile, Epsilon Energy (EPS.TO) surged 10.3% after reporting first quarter revenues increased to C$1.71 million from C$1.54 million in the previous year quarter. Net loss widened to $0.02 per share, compared to $0.01 per share a year ago.Mining stocks saw a 2.4% drop as copper finished modestly lower to add to its weekly slump. Denison Mines Corp. (DML.TO) fell 8.9% after Credit Suisse downgraded the shares to Underperform from Neutral, while increasing its price target to C$1.75 from C$1.45.Fronteer Development Group Inc. (FRG.TO) added 0.3% after the company reported a net loss for the first quarter of C$5.45 million or C$0.06 per share, in comparison with a net loss of C$6.22 million or C$0.07 per share in the prior year quarter.

Lithuania Producer Prices Decline In April

In April, manufacturing production decreased 17.9% on an annual basis, while mining and quarrying production dipped 19.4%. However, electricity, gas, steam and air conditioning supply production rose 14.4%.On a monthly basis, producer prices declined 0.2% in April, after falling a revised 1.1% in March.

South Korea Posts $6.65 Billion Surplus in March

The goods account surplus was 6.98 billon dollars, an increase of 3.87 billion dollars from February’s 3.11 billion dollars. The annual rate of decrease of imports accelerated, while that of exports narrowed compared to the previous month.

The services account deficit stood at 0.65 billion dollars, up from 0.53 billion dollars a month earlier. Among the component account the travel account surplus narrowed, the data showed, while the other service account deficit widened as did transport account surplus.

The income account shifted to a deficit of 0.22 billion dollars from a surplus of 0.48 billion, due to seasonal factors including external dividend payments by corporations whose fiscal year ends in December.

The current transfers account continued to show a surplus, the bank said, standing at 0.53 billion dollars versus the previous month’s 0.50 billion dollars. The current account registered a surplus of 8.58 billion dollars during the January to March period.

The capital and financial account in March registered a net outflow of 2.18 billion dollars, down from February’s 2.98 billion dollars.

The direct investment account showed a net outflow of 0.59 billion dollars, up slightly from February’s 0.55 billion dollars as inward foreign direct investment shifted to a net outflow even though outward foreign direct investment decreased significantly, the bank said.

The portfolio investment account shifted from the previous month’s net inflow of 0.16 billion dollars to a net outflow of 1.49 billion dollars. The net outflow of foreigners’ South Korean bond investment increased significantly due to a net redemption at maturity of bonds issued overseas, whereas Korean residents’ overseas portfolio investment turned to a net outflow. Foreign investors changed to a net domestic stock purchase position.

The financial derivatives account registered a net outflow of 2.32 billion dollars, the data showed, holding steady from the previous month.

The other investment account shifted from February’s net outflow of 0.61 billion dollars to a net inflow of 1.99 billion dollars due to a significant decrease of domestic banks’ overseas deposit assets. The capital and financial account recorded a net outflow of 0.01 billion dollars during the January to March period, the bank said. Reserve assets in March increased by 3.27 billion dollars.

Taiwan Industrial Production Drops Further In March

During the month, manufacturing output dropped 26.78%, while mining and quarrying output was down 9.62%. Electricity and gas supply production fell 9.5%, while water supply declined 3.33%.

Asia-Pacific Market Recap: Nikkei Hits Three-Month High

Positive sentiment is evident in early trading on Monday with Japanese stocks reaching a three-month high and safe havens, like sovereign fixed income and gold, are selling off.

The Japanese Nikkei was most recently trading up 200.10 points to 8949.93 — the highest since early January. Sydney’s S&P ASX 200 was most recently up 13.00 points to 3748.6. Chinese stocks are leading the way in percentage terms with the Hang Seng was up 586.28 points, or 3.9%, to 15131.97.

Yields on 10-year Australian notes are up 12.2 bps to 4.55% while Japanese 10-year futures fell below 137 to their lowest in five months. On the spot market, 10-year Japanese government yields are up 2.0 bps to 1.45%.

Gold has fallen to its lowest level since Jan. 29 after reports showed a fall in etf holdings. Most recently, spot gold was trading down $15.70 to $877.40 per troy ounce.

Yields on three-year Australian notes were up 3.4 bps to 3.97 and the Australian 90-day September 09 contract was up 7.0 ticks to 97.33. The Euroyen September 09 contract was flat at 99.46.

The Australian dollar was up 0.39 cents to 0.7192 against the USD while the New Zealand dollar is up 0.0082 to 0.5940.

Against the yen, the U.S. dollar was most recently up 0.48 points to 100.79. Meanwhile, the euro was up 0.86 cents to 1.3570 USD.

Euro Zone Producer Prices Fall at Speeds Unseen Since 1999

Eurostat reported that euro zone producer price fell 1.8% in the 12 months to February, outdoing both the 1.5% decline expected and January’s 0.7% contraction. Meanwhile, January’s figure was revised down from an initial estimate of -0.5%. February’s annualized fall is the most pronounced recorded since April 1999.

Energy price decline led the way in PPI falls, contracting 4.5% year-over-year, followed by intermediate goods prices, which slipped 3.0%. Conversely, both capital goods and durable consumer goods costs rose in the year at 1.8% and 2.0% respectively.

Between January and February, producer prices fell 0.5% as expected following the previous month’s 1.1% decrease, revised down from -0.8%.

The strongest decline was noted in intermediate goods, the price for which fell 0.9% between January and February. Energy prices slipped 0.7% over the same period, while non-durable consumer goods contracted 0.3%.

Apr 2009 The Week Ahead Europe: BOE Interest Rate Decision

Neil Mellor, a currency strategist at the Bank of New York Mellon, said this will be an interesting meeting because the central bank is running out of options.

“At this point you have to question just how much they can realistically do,” he said. “I think they will tinker with the announcement but I think that is it. There is also a real risk that the bank will sit back and say they want to see if any of the steps taken will have an impact on the economy,” he said.

In the euro zone, market participants will be looking at data relevant to first-quarter economic growth.

IDEAglobal economist Lorenzo Cella will look to euro zone February retail sales figures for confirmation that weak consumption growth will “detract” from GDP in the first quarter of this year.

Economists expect retail sales in the EU to have fallen 0.4% in the month, following January’s 0.1% rise. Year-over-year, expectations are for sales levels to have declined 2.5%, following January’s -2.2% print.

“Given the weak figure we got from manufacturing goods consumption in France and the disappointing figure from Germany, I think that [sales] could be below consensus, around -0.6% [month-over-month],” Cella said.

“This might not have a lot of market implication, but it will definitely have some implication in terms of growth for Q1 2009,” he added.

Economists at Helaba will focus their attention on German industrial production, as well as factory orders for February. The factory orders report from the Federal Ministry of Economics and Technology is scheduled for Wednesday, while the industrial production report, also from the Economics Ministry, will be released on Thursday.

“We expect further declines, but not as much as we have seen in January,” Helaba’s Ralf Umlauf said, referring to production and new orders.

Currently, expectations are for factory orders to have fallen 2.1% in February, following the previous month’s stronger-than-expected decline of 8.0%. On an annualized basis, the consensus forecast is for orders to contract 36.5%, following January’s 37.9% decline.

Industrial production is also forecast to decline further due to falling demand. The median consensus forecast is for a 3.0% contraction in February, following January’s record 7.5% fall. Year-over-year, industrial production is expected to slip 21.7%, outdoing the previous month’s 19.3% decrease.

All times in EDT.

Monday:

4:20 EU ECB’s Bini Smaghi Speaking in Brussels

4:30 EU Sentix Investor Confidence April Exp: -40.7 Prior:-42.7

5:00 EU Euro-Zone PPI (M/M) February Exp: -0.5% Prior:-0.8%

5:00 EU Euro-Zone PPI (Y/Y) February Exp: -1.5% Prior:-0.5%

5:00 EU Euro-Zone Retail Sales (M/M) February Exp: -0.4% Prior: +0.1%

5:00 EU Euro-Zone Retail Sales (Y/Y) February Exp: -2.5% Prior:-2.2%

April IT Bank of Italy Releases Lending and Bad Debt Data for Feb.

April GB New Car Registrations (Y/Y) March Prior:-21.9%

Tuesday:

4:00 IT Hourly Wages (M/M) February Exp: +0.2% Prior: +0.3%

4:00 IT Hourly Wages (Y/Y) February Exp: +3.3% Prior: +3.8%

4:30 GB Industrial Production (M/M) February Exp: -1.2% Prior:-2.6%

4:30 GB Industrial Production (Y/Y) February Exp: -12.5% Prior:-11.4%

4:30 GB Manufacturing Production (M/M) February Exp: -1.5 % Prior:-2.9%

4:30 GB Manufacturing Production (Y/Y) February Exp: -14.2% Prior:-12.8%

5:00 EU Euro-Zone GDP (Q/Q) (SA) Q4 Final Exp: -1.5% Prior:-1.5%

5:00 EU Euro-Zone GDP (Y/Y) (SA) Q4 Final Exp: -1.3% Prior:-1.3%

5:00 EU Euro-Zone Household Cons (Q/Q) Q4 Final Exp: -0.4% Prior:-0.9%

5:00 EU Euro-Zone Gross Fix Cap (Q/Q) Q4 Final Exp: -3.7% Prior:-2.7%

5:00 EU Euro-Zone Gov’t Expend (Q/Q) Q4 Final Exp: +0.1% Prior:-0.6%

19:01 GB Nationwide Consumer Confidence March Exp: +45 Prior: +43

19:01 GB NIESR GDP Estimate March Prior:-1.8%

Wednesday:

2:00 DE Trade Balance February Exp: +7.5B Prior: +8.5B

2:00 DE Current Account (EURO) February Exp: +5.8B Prior: +4.2B

2:00 DE Imports SA (M/M) February Exp: -2.3% Prior:-0.8%

2:00 DE Exports SA (M/M) February Exp: -3.3% Prior:-4.4%

2:45 FR Trade Balance (Euros) February Exp: -4.2B Prior:-4.5B

5:30 GB BRC March Shop Price Index

6:00 DE Factory Orders (M/M) (SA) February Exp: -2.1% Prior:-8.0%

6:00 DE Factory Orders (Y/Y) (NSA) February Exp: -36.5% Prior:-37.9%

Thursday:

2:00 DE Consumer Price Index (M/M) March Final Exp: -0.1% Prior: +0.6%

2:00 DE Consumer Price Index (Y/Y) March Final Exp: +0.5% Prior: +1.0%

2:00 DE CPI - EU Harmonised (M/M) March Final Exp: -0.2% Prior:-0.2%

2:00 DE CPI - EU Harmonised (Y/Y) March Final Exp: +0.4% Prior: +0.4%

2:00 JP Machine Tool Orders (Y/Y) MAR Preliminary Prior:-84.4%

4:00 IT Industrial Production (M/M) (SA) February Exp: -1.5% Prior:-0.2%

4:00 IT Industrial Production (Y/Y) (WDA) February Exp: -17.5% Prior:-16.7%

4:00 IT Industrial Production (Y/Y) (NSA) February Exp: -21.0% Prior:-21.9%

4:00 EU ECB Publishes April Monthly Report

4:30 GB PPI Input NSA (M/M) March Exp: +0.9% Prior: +0.6%

4:30 GB PPI Input NSA (Y/Y) March Exp: -0.7% Prior: +0.5%

4:30 GB PPI Output (M/M) (NSA) March Exp: +0.1% Prior: +0.1%

4:30 GB PPI Output (Y/Y) (NSA) March Exp: +2.1% Prior: +3.1%

4:30 GB PPI Output Core NSA (M/M) March Exp: +0.1% Prior: +0.0%

4:30 GB PPI Output Core NSA (Y/Y) March Exp: +3.1% Prior: +3.7%

4:30 GB Visible Trade Balance February Exp: -£7600 Prior:-£7745

4:30 GB Trade Balance Non euro zone February Exp: -£5500 Prior:-£5704

4:30 GB Total Trade Balance February Exp: -£3450 Prior:-£3585

6:00 DE Industrial Production (M/M) (SA) February Exp: -3.0% Prior:-7.5%

6:00 DE Industrial Production (Y/Y) (NSA WDA) February Exp: -21.7% Prior:-19.3%

7:00 GB Bank of England Announces Interest Rate Decision Exp: 0.5% Prior: 0.5%

12:00 EU ECB’s Mersch Speaks t Event in Luxembourg

Friday:

2:45 FR Consumer Price Index (M/M) March Prior: +0.4%

2:45 FR Consumer Price Index (Y/Y) March Exp: +0.4% Prior: +0.9%

2:45 FR CPI - EU Harmonised (M/M) March Exp: +0.3% Prior: +0.4%

2:45 FR CPI - EU Harmonised (Y/Y) March Exp: +0.5% Prior: +1.0%

2:45 FR CPI Ex Tobacco Index March Exp: 117.93 Prior: +117.59

2:45 FR Central Govt. Balance (Euros) February Prior:-8.1B

2:50 FR Industrial Production (M/M) February Exp: -1.0% Prior:-3.1%

2:50 FR Industrial Production (Y/Y) February Exp: -14.8% Prior:-13.8%

2:50 FR Manufacturing Production (M/M) February Exp: -1.2% Prior:-4.1%

2:50 FR Manufacturing Production (Y/Y) February Exp: -17.6% Prior:-16.5%

April 10-17 DE Wholesale Price Index (M/M) March Prior:-0.1%

April 10-17 DE Wholesale price Index (Y/Y) March Prior:-5.7%

Euro Zone Economic Confidence Falls to Record Lows in March

According to the Commission report, economic sentiment in the euro zone fell to a record low 64.6 in March, despite expectations of a mild improvement to 65.4 from February’s 65.3 level. Furthermore, February’s figure was revised down from an initial estimate of 65.4.

The weakness in morale was widespread, the Commission said. Consumer confidence fell to -34 from the previous month’s -33 level as expected, while sentiment in the industrial sector worsened to -38 in March, down two points from February’s figure. Economists had expected no change to the reading.

Services sentiment also lost ground, falling to -25 for the month, down from both the -24 reading expected and recorded previously. Meanwhile, February’s figure was revised down from -23.

The Commission also reported that its business climate index deteriorated beyond expectations to -3.58, its lowest level since January 1985. Forecasts had suggested a more modest fall to -3.48 from February’s -3.4, revised up from an initial estimate of -3.51.

The euro is currently trading down 0.83% at 1.318 USD.

European Market Recap: European Bonds Mixed, Equities Lower

- Eurostoxx down -0.57%
- FTSE 100 down -0.07%
- Euro down 1.36 cents to 1.339 USD
- Pound Sterling down 1.55 cents to 1.4298 USD
- Yields on German Ten Year Bunds down 3.7 bps to 3.09%
- Yields on UK Ten Year Gilts down 1.7 bps to 3.29%

The German ten-year Bund was up 37.0 ticks to 123.45 with yields down 3.7 bps to 3.09%, while the 10-year gilt was down 10.0 ticks to 121.64 with yields down 1.7 bps to 3.29%.

The five-year Bobl was up 35.0 ticks to 116.05, the two-year Schatz up 15.5 ticks to 108.07 and the September 2009 Euribor contract trading up 4.5 ticks to 98.63.

The spread between the 10-year Bund and 10-year U.S. Treasury notes widened 2.409 bps to -36.70.

UK 30-year bond yields were down 0.4 bps to 4.26%, five-year bond yields were down 0.7 bps to 2.48%, while yields on the two-year bond were up 0.6 bps to 1.29%.

The September 2009 Short Sterling contract was down 2.0 ticks to 98.44.

Yields on U.S. 10-year Treasury notes were down 1.3 bps to 2.726%.

European stock markets were declining with the Eurostoxx down 10.57 points to 1833.14, the UK FTSE 100 down 2.74 points to 3922.46 and the German DAX down 23.99 points to 4235.38.

The Japanese Nikkei was trading down 9.36 points to 8626.97.

The Canadian dollar was down 0.38 cents to 0.8088 against the USD (1.2364 USD/CAD). Against the euro, the loonie was up 0.33 cents to 0.6040 (1.6556 CAD/EUR).

The U.S. dollar was down 0.69 to 98.03 and the euro was down 2.24 to 131.27, both against the yen.

The euro was down 1.36 cents to 1.339 while the pound sterling was down 1.55 cents to 1.4298, both against the USD.

The euro was up 0.08 cents to 0.9366 pounds.

The Swiss franc was down 1.18 cents to 1.1389 against the USD and down 0.07 cents to 1.5253 against the euro.

IMF’s Strauss-Kahn Calls for Further Action to Combat Global Economic Crisis

The current global economic crisis could lead to millions falling back into poverty, raising the risk of unrest and even war, Strauss-Kahn said while speaking at the International Labour Organization in Geneva on Monday.

Strauss-Khan also urged more states to reduce both tax rates and spending, adding that monetary policy has “reached its limit”.

The IMF chief added that an economic recovery is possible for next year, but that it will depend “on what policy is implemented”.

Furthermore, Strauss-Kahn said that while current stimulus measures are “not bad”, some countries have room for more. Current fiscal stimulus so far lies between 1.6% and 1.7% of global GDP, down from the 2% level required by the Fund.

Midday Market Recap: Markets Poised for Flurry of Activity at Expiration

Stocks Mixed Ahead of Options and Futures Expiration

Stocks are searching for direction on Friday ahead of a derivatives expiration that is expected to generate huge trading volumes.

The S&P 500 was most recently down 0.3 points to 784, while the Dow Jones Industrial Average is higher by 16 points to 7,417.

Financials are among the laggards, with Bank of America shares lower by 9% and those of J.P. Morgan Chase down by 3%.

The relative stability in equity markets is a surprise considering Friday is a ‘quadruple witching’ day: one of the four days a year when stock index futures, stock index options, stock options and single stock futures expire simultaneously. Market watchers expect a surge of activity at the end of the session, when the contracts expire.

Dennis Gartman warned investors to beware of sudden movements. “We shall see some rather great, perhaps even titanic battles, fought as the options traders on the floors try to get stocks and indices to close at or near ‘Big Figure’ for the expiry. We shall try our best to stay out of the way, for as elephants play, the mice come under assault,” he wrote in Friday’s Gartman Letter.

Commodity options and futures also expire on Friday and that has the potential to rattle the commodity-driven Canadian stock market. So far, commodity prices have been relatively stable with oil lower by 8 cents to $51.98 per barrel and gold down $4 to $955 per troy ounce.

The S&P/TSX was most recently higher by 3 points to 8,704. The index has so far made gains in eight consecutive sessions.

“If U.S. equities are unable to get back above water today, the TSX will be vulnerable to catch-up selling as it still closed Thursday with a gain, but this is not going to be a day for aggressive bets either way,” said Andrew Pyle, wealth advisor at ScotiaMcLeod. “It’s better to wait for the dust to clear.”

In Europe, the Euro Stoxx 50 closed up 2 points to 1,766, the UK FTSE 100 up 26 points to 3,843 and the German DAX up 25 points to 4,069.

Meanwhile, on the week, the Stoxx 50 gained 2%, the FTSE 100 gained 2.4% and the DAX climbed 2.9%.

Euro Falls Sharply as Positive Sentiment Weakens

A pause in the rally in global equities is helping to drag down the single currency against the U.S. dollar after three days of massive gains. Despite Friday’s one-cent drop, however, the euro remains near 3-month highs.

The Asian session was relatively quiet for EUR/USD, which traded within a tight range. Japanese markets were closed for the vernal equinox. During the European session, the cross managed a modest rally, hitting highs at 1.3726 USD. However, the euro dropped sharply just ahead of the North American session and was most recently lower by 0.0108 to 1.3558.

Weaker European data is hurting the momentum of the euro, according to some currency strategists. Euro zone industrial production fell at its sharpest pace on record to kick off the year, Eurostat reported on Friday. On an annual basis, production fell 17.3%, which was much lower than the consensus call for a drop of 15.5%.

In more European news, EU leaders agreed to double the amount of aid allowed to non-euro zone members. According to media reports, the members are also closer to an agreement on a €5 billion stimulus plan.

With no data expected to be released in the U.S., currency strategist are expecting equities and market sentiment to dominate currency markets

Brian Dolan, chief currency strategist from Gain Capital, said it is only a matter of time before market sentiment once again supports the U.S. dollar. He added that concerns over the European economy will limit major gains

Currency strategists from Brown Brothers Harriman said today’s bounce in the U.S. dollar is nothing more than a technical correction. They are looking for more greenback weakness during the North American session.

“Look for North American players to take advantage of the dollar’s bounce to sell it,” they said. “The market wants to push the dollar lower.”

Elsewhere in foreign exchange, the Canadian dollar is up 0.0002 to 0.8072 against the U.S. dollar (1.2388 USD/CAD) and up 1.04 to 77.32 against the yen.

The U.S. dollar is up 1.27 to 95.80 against the yen and the Dollar Index is up 0.531 to 83.660.

The pound sterling is down 0.0043 to 1.4461 against the U.S. dollar and down 0.0066 to 1.7917 against the Canadian dollar.

Commodity and Treasury Markets Quiet

After two days of volatile trading, commodity and Treasury markets are quiet.

WTI crude oil is up $0.08 to $52.12 and gold at the Chicago Board of Trade is down $5.90 to $953.70 per ounce. The front month contracts expire at the close on Friday.

U.S. two-year yields are flat at 0.86%, with five-year yields flat at 1.65%, 10-year yields up 2.0 bps to 2.62% and 30-year yields up 1.0 bps to 3.64%. The Eurodollar September 09 contract is down 2.0 ticks to 98.77. The yield curve is steeper, with the 10/2-year spread up 2.1 bps to 176.27 bps.

Yields on two-year Canadian government bonds are up 1.2 bps to 1.00%, with five-year yields up 1.3 bps to 1.73%, 10-year yields up 2.0 bps to 2.72% and 30-year yields up 1.6 bps to 3.58%. The September 09 BAX contract is flat at 99.48.

In Germany, returns on two-year government bonds are down 6.6 bps to 1.33%, with five-year yields down 5.2 bps to 2.22%, 10-year yields down 6.0 bps to 2.99% and 30-year yields down 4.7 bps to 3.88%.

Yields on UK two-year bonds are down 5.1 bps to 1.34%, with five-year yields down 2.1 bps to 2.24%, 10-year yields down 1.4 bps to 3.02% and 30-year yields down 2.7 bps to 4.07%.

German Investor Sentiment Rises for Fifth Consecutive Month

In a press release issued on Tuesday, the ZEW reported that investor sentiment rise to a reading of -3.5 in March, despite expectations of a fall back to -8.0 from -5.8 in February.

While the improvement from February to March has slowed compared to previous month, the impression remains that investors are becoming more hopeful regarding the German economic outlook in six-months time, the ZEW said.

“According to the financial market experts, the economic slowdown is gradually phasing out,” ZEW President Dr. Wolfgang Franz said. “The bottom of the recession is likely to be reached this summer.”

Sentiment towards the current situation also surprised to the upside, falling only to -89.4 from February’s -86.2. Economists had forecast a more pronounced decline to -90.0.

Despite the continued deterioration in the current situation component, Franz also noted that “there are first signs of hope, which should “not be played down”.

Meanwhile, euro zone investor confidence also unexpectedly improved in March, rising to a reading of -6.5 from -8.7 previously. Economists had forecast a fall back to -12.0 for the month.

U.S. Preview: Retail Sales to Suffer as Jobless, Fearful Americans Tighten Belts (Repeat)

“Headwinds are amazingly strong against the consumer with an increasing unemployment rate that drove consumer confidence down to a new all-time low in February,” said Ellen Beeson Zentner, economist with Bank of Tokyo-Mitsubishi UFJ.

Economists expect February retail sales to drop 0.5%, against the 1.0% gain reported in January. Sales ex-autos are expected to fall 0.1% against a 0.9% increase the month prior. The Bank of Tokyo-Mitsubishi is expecting sales excluding autos and gas to gain 0.4% for the month.

January’s jump in headline sales was a surprise, especially considering the preceding six months all saw negative reads - a trend not seen since the inception of the report.

Stephen Gallo, strategist with Schneider Foreign Exchange, said the boost reflected sharp post-holiday discounting, as well as the effects of low petrol prices throughout the fourth quarter, which attracted consumer spending.

“We don’t expect any of these positive effects to have persisted in February,” he said. Gallo is forecasting a 1.1% month-over-month drop.

Several consumer-related reports released in the United States indicate February saw Americans avoiding the lure of shopping malls.

The International Council of Shopping Centers, for instance, reported U.S. chain store sales dropped 0.1% in the month.

Meanwhile, the Conference Board’s consumer confidence index fell to a record low that month, the average price for a gallon of gas climbed around 4 cents, and the U.S. economy lost 651,000 jobs.

Thursday’s report will reveal “the true misery of the U.S. household sector, battered by falling wages growth, falling employment and employment prospects, falling house prices and the falling value of investments, and a need to repair balance sheets,” said Rob Carnell, economist with ING.

More optimistically, Joe LaVorgna, economist with Deutsche Bank Securities, said he thinks the worst is over for retail sales in the United States, although a recovery is still a few months off. He said the particularly staggering drops in retail sales over the course of this recession can be linked to consumer inaccessibility to credit.

“This highlights the critical need for the rapid implementation and aggressive use of policies, such as the TALF [Term Asset Backed Securities Loan Facility], aimed at revitalizing the consumer credit markets,” he said.

The U.S. government’s TALF will spend up to $1 trillion to support consumer and business loans.

Australian Job Advertisements Plummet in February, Says ANZ

This amounts to a weekly average of 161,583 ads per week, according to ANZ Economics and Markets Research on Monday (Sunday night EDT.) In January, there were 180,349 ads.

Newspaper ads saw a decrease of 25.2%, to 8,524 from 11,391 in January.

Internet job ads fell 9.4% to 153,059 from 168,959 in January, ANZ reported.

Weak U.S. Employment Supports Gold Prices

Gold prices remained at elevated levels throughout the North American trading session. Although U.S. equities closed relatively flat on the day CBOT spot price remain in the middle of its range trading just below $940 an ounce.

According to some commodity strategists another weak reading in U.S. nonfarm payrolls helped to keep prices near its weekly highs. The U.S. economy shed 651,000 jobs in February, the fourth month in a row that job losses have been more than half-a-million. The unemployment rate rose five-tenths to 8.1%, the highest rate since December 1983, against expectations for a 7.9% rate.

Mike Glaser, futures broker at LaSalle Futures said he is expecting the weakening economy to continue to support prices. He said if prices can hold the $940 it would be a very bullish sign that prices are moving higher. A break through $960 could lead to another test of $1,000 he added.

Analysts from Citigroup are also bearish on gold prices, especially as equities continue to fall. They pointed that both stocks and houses are both in a major bear market. They wrote in a research note that the S&P 500 could fall to 360 and gold prices could rise to $2,000.

“We are seeing both major asset markets falling together for the first time since the early 1980’s,” they said. “Credit remains unavailable and chaos resumes. The only currency that is being used as a real safe haven is gold which we believe can continue to shine both in a deflationary and inflationary environment.”

UK DATA: FEBRUARY PMI CONSTRUCTION AT 27.8 LEVEL

he Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.

A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.

European Market Recap: European Bonds Fall, Equities Lower

The five-year Bobl was down 7.0 ticks to 117.28, the two-year Schatz up 1.0 ticks to 108.41 and the September 2009 Euribor contract trading up 1.0 tick 98.49.

The spread between the 10-year Bund and 10-year U.S. Treasury notes widened 5.955 bps to -11.10.

UK 30-year bond yields were up 1.9 bps to 4.31%, five-year bond yields were down 3.0 bps to 2.52%, while yields on the two-year bond were down 3.5 bps to 1.33%.

The September 2009 Short Sterling contract was flat at 98.27.

Yields on U.S. 10-year Treasury notes were up 7.3 bps to 2.936%.

European stock markets were declining with the Eurostoxx down 6.87 points to 1663.97, the UK FTSE 100 down 36.86 points to 3588.97 and the German DAX down 27.01 points to 3683.06.

The Japanese Nikkei was trading down 50.43 points to 7229.72.

The Canadian dollar was up 0.31 cents to 0.7763 against the USD (1.2883 USD/CAD). Against the euro, the loonie was up 0.01 cents to 0.6148 (1.6265 CAD/EUR).

The U.S. dollar was up 0.15 to 97.60 and the euro was up 0.66 to 123.23, both against the yen.

The euro was up 0.48 cents to 1.2626 while the pound sterling was up 0.36 cents to 1.4091, both against the USD.

The euro was up 0.11 cents to 0.8961 pounds.

The Swiss franc was up 0.29 cents to 1.1725 against the USD and down 0.17 cents to 1.4804 against the euro.

All data were taken at 5:12 a.m. EST.

Generated by CEP Newswires

The Citi Case Study Has Led To The Death Of Buy-And-Hold Investing

Citigroup shares have now plummeted all the way to $1.50. Oh, how the mighty have fallen. As recently as April 2008, there was a high of $29.89 and as much as $56.28 in 2007 when Citi was the largest financial services company in the world. But C is now down -$55/share on 5.5 billion shares, losing roughly -97.7% of market value, causing the single biggest loss of wealth in world history. And if it wasn’t for the US government (ie, taxpayer) stepping in, there might even be a movie called the Lost Citi - or as some of us would like to have the script written, the Last Citi.

www.valueline.com/dow30/f9055.pdf

The Week Ahead North America: BOC Interest Rate Decision, U.S. Employment

According to the Overnight Index Swaps, markets are 100% priced in for the Bank of Canada to cut interest rates by 50 basis points, which would bring rates to 0.50%.

Mike Leavitt, futures broker at MF Global, said a 50 basis point cut is probably the only option the central bank has left. He also said rate cuts, and even quantitative easing measures, will have limited impact because the global economy continues to pose a risk for the domestic economy.

“Quantitative easing will help to cushion the blow but we are being dragged down by a bigger beast,” he said.

Friday’s U.S. employment report will highlight further weakness in the American economy. According to some market strategists, investors will be hesitant to take long positions in equities ahead of Friday’s data.

The S&P 500 is trading near session lows and, according to Mike McCarty, senior options and equities specialist at Meridian Equity Partners, next week’s data is going to be critical to determining the next market trend.

“Most of the data is expected to be bad,” he said. “If the employment number is worse-than-expected we will make new lows in markets. But if the data is slightly better-than-expected we could see a nice rally higher.”

Durable Goods Orders Fall By Much More Than Expected In January

The report showed that durable goods orders fell 5.2 percent in January following a revised 4.6 percent decrease in December. Economists had expected orders to fall 2.5 percent compared to the 3.0 percent decrease that had been reported for the previous month.

The steep drop in orders was due in large part to a 13.5 percent decrease in orders for transportation equipment, which followed a more modest 1.5 percent decrease in December.

A 6.4 percent decrease in orders for motor vehicles and parts contributed to the drop in orders for transportation equipment along with a 28.3 percent decrease in orders for defense aircraft and parts. The decreases more than offset a rebound in orders for commercial aircraft.

Excluding the steep drop in orders for transportation equipment, durable goods orders fell by a more modest 2.5 percent in January after a revised 5.5 percent decrease in December.

The drop in orders excluding transportation was more in line with the expectations of economists, who had expected a 2.2 percent decrease compared to the 3.6 percent that had been reported for the previous month.

UK Consumer Confidence Rises Unexpectedly In February - GfK NOP

A monthly survey from the market research group GfK NOP showed that consumer confidence rose 2 points to minus 35 in February from minus 37 in the prior month. Economists had expected the index to drop to minus 39 in February. However, it stood well below minus 17 reported in the same period of previous year.

Rachael Joy from GfK NOP said, “Consumer confidence remains very fragile, although rose slightly from its January figure.”

The consumer confidence survey was conducted by GfK NOP on behalf of the European Commission. The survey was carried out between February 6 and 15 amongst a sample of 2001 individuals.

The research agency found that improvement in February was driven by rise in confidence regarding future personal financial situation and general economic outlook. This suggests a rising number of consumers believed that things would be better this time next year.

Among five sub indicators, three of them increased in February from the prior month, one declined and the other remained constant.

The index measuring personal finances in the past one year remained stable at minus 18, while forecast for personal finances over the coming year rose six points to minus 8 in February. While, assessment of general economic situation in the last twelve months slid 2 points to minus 82, expectations for the general economic situation climbed 8 points to minus 40.

German Ifo Business Confidence Sinks To Historical Low

German business confidence deteriorated to a record low in February after showing slight improvement in January, a survey showed Tuesday.

A monthly survey from the Munich-based Ifo Institute for Economic Research revealed that business confidence in the largest Eurozone economy fell to 82.6 in February from 83 in the prior month. This was the lowest reading since the survey began in 1991. Economists were expecting the indicator to remain unchanged at 83.

The Ifo Business Climate Index is based on 7,000 monthly survey responses of firms engaged in manufacturing, construction, wholesaling and retailing.

Euro Falls as Traders Lean to Safety

The euro declined today against the Japanese yen as the traders sold the risky assets and moved to the «safe cash» after the Asian stock markets tumbled today; investors also expect that the inflation report in Eurozone will add more space for ECB to cut the interest rate.

Against the U.S. dollar the European currency showed a significant decline during the early trading session and reached the record low since December, but then corrected almost to the daily opening level. But the weekly opening gap still makes the euro to be lower versus the dollar compared the Friday’s close level.

The only major currency that was literally squashed by the euro today is the British pound, which suffers from the worsening banking crisis in U.K. along with the galloping decline in all the sectors of the economy. It looks like the currency traders have already set their priority ranks among the major currencies — from the safest to the most dangerous: the yen, the dollar, the euro and only then the pound.

Analysts believe that tomorrow’s report on Eurozone December PPI will show a strong slowdown of the inflation in the region, which will indicate a jeopardy of the deflation. That would allow the European Central Bank to think about the lower interest rate, which in their turn will push the euro down to near 1.24 against the U.S. dollar.

EUR/USD rose from 1.2749 to 1.2755 as of 8:48 GMT today — still below the Friday’s close rate of 1.2812. EUR/JPY fell from 114.31 to 113.58, while EUR/GBP soared up from 0.8832 to 0.8949 today.

New Zealand Dollar Corrects vs. All Majors

The New Zealand dollar went up against all other major currencies today as the country’s jobless report wasn’t as bad as some traders expected and the kiwi needed to correct after some of its greatest losses.

The report regarding the unemployment rate in the fourth quarter in New Zealand was released late yesterday at 21:45 GMT. It showed that the unemployment rate climbed to 4.6 percent from 4.2 percent, while some market analysts predicted a growth to 4.7 percent.

The currency traders now expect the Reserve Bank of New Zealand to cut only 50 basis points on its next monetary policy meeting in March. The optimism gained with this report helped the New Zealand dollar to recover its losses, especially against the Japanese yen. But in the long-term and even medium-term period it wouldn’t wise to bid on the NZD.

NZD/USD went up from 0.5080 to 0.5121 as of 10:13 GMT today. NZD/JPY rose from 45.37 to 45.96, while AUD/NZD advanced from 1.2601 to 1.2630 after reaching as low as 1.2555 today.

Yen Rises on Risk Appetite Decline

The Japanese yen rose by the most in February against the U.S. dollar and posted the considerable gains versus the euro and the pound as the investors and traders became less confident in the U.S. stimulus plans and were reluctant to buying anything else than the yen or the greenback.

The recent uprise of the yen-based currency pairs was connected to the global growth of the stock markets and the elevated optimism of the market participants that believed that the U.S. «bad bank» plan will be soon adopted. Now it seems that the plan is no longer on the U.S. government’s agenda and the liquidity-providing measures will be less interesting.

According to some of the currency analysts, another reason of the Japanese yen’s growth today can be seen in the exporters buying the currency. Perhaps, they have some long-term expectations for its growth and to preserve at least a part of their competitiveness they decide to buy the yen at its current levels.

USD/JPY fell from 92.11 to 91.43 as of 9:47 GMT today. EUR/JPY declined from 119.47 to 118.15 with a daily low at 117.08. GBP/JPY went down from 136.42 to 135.49 after falling as low as 133.60 today.

Pound Bounces Up on Stock Market Growth

The British pound showed the first daily gain today after three consecutive losses against the U.S. dollar as the country’s stock market showed an unexpected growth.

The pound sterling also rose against the Japanese yen — for the first day this week after the FTSE 100 (the Britian’s stock market benchmark index) went up by more than 1.5 percent during the early trading session. The pound advanced against the euro snapping its yesterday loss after the reports showed that the new cars registrations fell significantly in European Union in January.

The Eurozone’s weakness appeared to be the pound’s strength — both German and French GDP reports for the fourth quarter of 2008 showed declines that exceed the average forecasts by the market analysts.

Despite the problematic situation in the world’s economy, investors seem to be leaning toward the risky assets today and while the Eurozone’s reports scare off the majority of the traders, the United Kingdom offer them a high-yielding but not-so-risky opportunity.
GBP/USD rose from 1.4284 to 1.4462 as of 8:42 GMT today. GBP/JPY advanced from 129.78 to 132.18, while EUR/GBP fell from 0.9019 to 0.8936 today.