Markets will continue to focus on global economic developments and countries which look to be in a position to recover first will gain support. The budget and monetary policies will also be very important and the currencies in economies where there is aggressive quantitative easing will struggle to hold their value in the medium term. These contradictions illustrate that it will be difficult to secure a decisive market trend.
Key events for the forthcoming week
Date |
Time GMT) |
Data release/event |
Twesday February 24th |
09.00 |
Germany IFO index |
Tursday February 24th |
15.00 |
US Fed Chairman Bernanke testifies |
Dollar:
The manufacturing and employment-related data suggests that the severe US downturn will persist in the short-term. The leading indicators have offered some suggestion of improvement over the second half of the year and there will be hopes that the huge fiscal stimulus will provide support. In this environment, the dollar will gain some support form expectations that the US recovery will be the first major economy to recover. The huge deficit financing will still be a major barrier to sustain dollar gains and advances are likely to be limited.
The dollar strengthened over the week as whole as confidence in other currencies weakened and pushed to three-month-highs against continental European currencies.
The G7 meetings failed to announce any new significant policy measures over the weekend with more general comments on the need to tackle the severe downturn. Despite a promise to resist any moves towards protectionism, the lack of policy initiatives tended to undermine risk appetite early in the week
The US economic data continued to illustrate that the economy faces a further sharp contraction for the first quarter of 2009. Housing starts fell by a further 16.8% in January with the annual rate at a record low of 0.47mn from 0.55mn the previous month while building permits declined to 0.52mn from 0.55mn.
The manufacturing survey data remained bleak with the New York PMI index weakening to a record low of -34.6 for February from -22.2. The Philadelphia Fed index also weakened sharply to -41.3 from -24.3 and this was the weakest reading since 1990. All the current components were depressed, although the improvement in the six-month outlook index will provide some slight optimism over second-half prospects. Leading indicators also strengthened for the second successive month.
The labour-market data also remained weak with initial claims at 627,000, unchanged from the revised level the previous week and at the highest level since 1980. Continuing claims also pushed to the highest level since at least 1970.
According to minutes from January’s FOMC meeting, confidence in the 2009 outlook deteriorated further with fears over the commercial-property sector and there was no indication that the housing sector was stabilising. The FOMC also discussed the possibility of moving toward an inflation target
President Obama signed the US$798bn fiscal stimulus bill into law and there were hopes that fresh plans to ease mortgage difficulties would help improve conditions. The 2010 Fed growth projections were revised higher.
The US capital flows data was better than expected with net long-term inflows of US$34.8bn for December from a net outflow of US$25.bn in November. The data helped ease fears that the US would be unable to secure sufficient long-term flows. |