Expert Analysis of Today's Market

• The dollar was little changed against the euro on Friday but about 2% lower for the week as today’s US economic data showed the US economy is deteriorating and the Federal Reserve is in recession fighting mode, while European economic numbers were better than expected and the European Central Bank is in inflation fighting mode. Sterling declined versus most key currencies and fell to an all-time low against the euro as weak UK economic data increased the probability of further Bank of England interest-rate cuts. The Australian and Canadian dollars and Swiss franc were little changed while the yen rose against most major currencies on increased risk aversion as US stocks traded lower.


• The GBP/USD dropped as UK consumer confidence fell to the lowest level in 15 years and UK house-price rise slowed to the lowest rate in 12 years. The risk of a UK recession is also increasing and the banking system is under stress. The chart shows a large head-and-shoulder formation, with long-term bearish GBP/USD implications. There are long-term support levels at the 1.97 and 1.93 areas, but the pair is likely to fall below that, possibly to 1.80-1.85.

Financial and Economic News and Comments

US & Canada

• The US economy has entered a recession, according to Globicus/qEcon economic indexes. The leading index fell to -2.5 in February, the lowest level since the 2001 recession. The coincident index six-month smoothed growth rate is still positive but barely so at 0.4% in February. However, this rate measures growth for the last 6 months. The underlining coincident index peaked in October 2007, indicating the US economy has already been in a mild recession.

• US personal income rose a stronger-than-expected 0.5% m/m in February and personal spending grew 0.1% m/m, the Commerce Department said. The numbers matched consensus expectations. Income rose 4.6% y/y and spending rose 5.1% y/y. In real terms, spending was unchanged in February. For the last three months, spending has been essentially flat, up only 1.7% y/y.

• The PCE deflator rose 0.1% m/m and 3.4% y/y in February. The PCE price index excluding food and energy, or core PCE, also rose 0.1% m/m in February, up 2.0% y/y, just at the upper bound of the Fed’s preferred inflation range.


• The Reuters/University of Michigan index of consumer sentiment fell to 69.5 in March, a 16-year low, from 70.8 in February and down from a preliminary reading of 70.5.

Europe

• ECB Governing Council member Axel Weber said price pressures were alarmingly high in the euro-zone and there may be a greater case for raising rather than cutting rates. Growth is “fundamentally robust” and the ECB “will act” if its price-stability goal is threatened, Weber said.


• The Bloomberg purchasing managers index of retail sales in the euro area fell to a seasonally adjusted 48.2 in March from 52.4 in February. A reading below 50 indicates declining retail sales.


• In an attempt to ease the credit squeeze that has dried up the interbank lending market, the ECB will offer banks additional cash for six months for the first time. The new supplementary refinancing operations for three and six-month terms are “aimed at supporting the normalization of the functioning of the euro money market,” the ECB said.


• UK consumer sentiment declined to -19 in March, the lowest level since February 1993, from -17 in February, GfK said.


• UK home prices rose 1.1% y/y to £179,110 ($359,295) in March, compared with a 2.7% y/y increase in February, Nationwide Building Society said.

Asia-Pacific

• Japan’s consumer prices rose a stronger-than-expected 1.0% y/y in February, the Statistics Bureau said. Excluding food and energy, Japan’s consumer prices fell 0.1% y/y in February. Tokyo CPI rose to 0.6% y/y in March from 0.4% y/y in February.

• The Japanese unemployment rate unexpectedly rose to 3.9% in February from 3.8% in January, the Ministry of Public Management said.

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