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Wednesday 28th January 09
USA
• Traders will be paying close attention to the Fed statement, since the fed
funds rate target is already near zero and there is hardly room for more cuts. In its last meeting, the Fed signalled it would use its balance sheet to fund new lending and purchase programs. The Fed also said it was “evaluating the potential benefits of purchasing longer-term Treasury securities.” “The only way for Wednesday’s FOMC rate decision to hurt the dollar would be if the central bank announces they will be purchasing
long-term U.S. Treasurys in size or if they add more ingredients to their alphabet soup of new programs,” said Kathy Lien, director of currency research at Global Forex Trading in New York.
Figures out today:
1200 US Jan 23 MBA Mortgage Application Survey Market Composite Index 1195.3
UK
Figures out today:
0930 UK Nov Average weekly earnings
• View of the Day: Sterling sell off overdone – FT.com – The pound has taken a ‘hell of a beating’ but is far from finished, argues Paul Robinson at Barclays Capital. He says its was not surprising sterling fell last week given the huge amount of negative news surrounding the UK banking system and economy. “It has been an important, if
somewhat depressing, week with a lot of news,” says Mr Robinson. However, he expects the pound to rise significantly in the longer-term. Government measures to support the UK banking system may well free up bank’s capital, alleviating the credit crunch and leading to a less severe recession in the UK. Meanwhile, Mr Robinson says,
concerns over the UK fiscal position are overdone. “For all the press reports of fiscal policy being too loose in the UK, the government has gone into the crisis with a debt to GDP ratio that is not especially worrying,” he says. “It is markedly less than the eurozone average and well below that of France and Germany.” He says not only is the pound
undervalued against the euro, but he expects the huge increase in the US fiscal deficit to become an important negative for the dollar in the months ahead. “Our new forecasts in euro/sterling are for £0.92 and £0.80 in one and twelve months time, respectively, and $1.41 and $1.80 for sterling against the dollar.”
Europe
Figures out today:
0900 GER Jan Hesse CPI
1100 GER Jan Bavaria CPI
• Investors are testing the theory that the global economy has hit or is near the bottom. Amid caution, European bourses are seen rising at the opening Wednesday, with government debt little changed. The euro, oil and spot gold are higher.
• The euro is rising again Wednesday after the German Ifo data Tuesday raised hopes for a euro-zone bottoming out, dealers said. On Tuesday, the euro gained on a rise in equities, despite a brief flight to safety on record low U.S. consumer confidence data. The euro and pound were also supported by stronger-than-expected European data. Currency analysts say the lifetime of this latest revival of risk appetite depends on the outcome of the Federal Open Market Committee meeting Wednesday.
• Germany Said to Consider 70 Percent Stake in Hypo Real Estate: Jan. 28 (Bloomberg) — Germany is considering
buying a 70 percent stake in Hypo Real Estate Holding AG, the lender that has already been bailed out twice by the government, three people familiar with the situation said. That would mark the nation’s first bank nationalization in almost 80 years, according to Wolfgang Gerke, director of the Frankfurt School of Finance and Management. The
1931 collapse of Danat Bank was “our own homegrown Lehman Brothers,” Gerke said. “Sadly, we seem to have forgotten the lessons.”
Commodities
• Oil prices are higher Wednesday ahead of the U.S. Department of Energy’s weekly stockpiles report. New York’s
main futures contract, light sweet crude for delivery in March, rose 67 cents to $42.25 a barrel.
• Spot gold is up $4.10 at $901.80.
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