Expert Analysis of Today's Market

• The dollar traded mostly lower on Tuesday. The euro rose to a new all-time high and temporarily crossed the psychologically important 1.60-handle following hawkish statements from European Central Bank Governing Council members Yves Mersch and Christian Noyer. They said the ECB will have to hike interest rates unless inflation moderates. The yen and Swiss franc gained on increased risk aversion as US equity prices fell. The Australian dollar rose to important triple-top resistance ahead of tomorrow’s inflation report. Sterling traded higher after Bank of England Monetary Policy Committee member Tim Besley said the BOE’s mortgage intervention plan should reduce UK liquidity crunch and this should allow the BOE to focus on containing inflation.


• The USD/CAD rose modestly after the Bank of Canada cut its benchmark interest rate by 50 basis points to 3%, as expected. The BOC said “further monetary stimulus will likely be required to achieve the inflation target over the medium term.” The BOC is worrying that Canadian economic growth will be below potential growth, due to a reduction in net export as the US economy slows further. There is strong support in the 100-area and the longer term trend is up. There is resistance in the 103-area.

Financial and Economic News and Comments

US & Canada

• US existing home sales fell 2% m/m to a seasonally adjusted annual rate of 4.93 million in March after rising 2.9% m/m to 5.03 million in February. March existing home sales dropped 19.3% y/y. The slow sales pace pushed inventories of unsold homes to a 9.9 months’ supply at the current sales pace in March, from 9.6 in February. The median price of an existing home rose to $200,700 in March from a revised $195,600 in February; however, declining 7.7% y/y. Overall March numbers indicate the housing market slump continues but home sales are likely to stabilize, albeit at low levels, by mid-year.

• The Bank of Canada, as forecast, cut its key overnight interest rate by 50 basis points to 3%, the lowest level since December 2005, to revive the Canadian economy that is growing at its slowest pace in 16 years. The BOC signaled more easing may be required.

Europe

• European Central Bank Governing Council member Yves Mersch told Financial Times Deutschland that the question mark over an interest-rate increase is “fully justified.” ECB Governing Council member Christian Noyer, speaking with France’s RTL radio, stressed the ECB’s priority to contain inflation to be under 2% in 2009. “If necessary, we will move interest rates for that,” he said. Bank of Greece Governor Nicholas Garganas said at a news conference in Athens: “Markets have expected interest-rate cuts for months, but under these conditions, for reasons that have been well explained by Mr. Trichet, interest rates couldn’t fall.”


• The Bank of England’s £50 billion liquidity scheme, announced yesterday, will help the Monetary Policy Committee keep its focus on keeping inflationary pressures in the UK economy in check, MPC member Tim Besley said.

Asia-Pacific

• Japan’s supermarket sales rose 1.4% y/y in March after rising 1.9% y/y in February.


• China ordered foreign and local banks to rein in overseas borrowings to curb speculative capital inflows, a document obtained by Bloomberg News showed. Access to overseas loans with a maturity of less than a year will be limited to $12.7 billion by June for 23 foreign banks and to $8 billion for 19 local banks, the State Administration of Foreign Exchange said.

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