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British Pound Little Changed in Asia, Industrial Production on Tap Ahead

British Pound Little Changed in Asia, Industrial Production on Tap Ahead

2010-03-10 06:14:00
Ilya Spivak, Sr. Currency Strategist
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Key Overnight Developments

• Westpac Says Australian Consumer Confidence May Decline Ahead
• Australian Home Loans Drop Most in Nearly a Decade on Rates, Grants


Critical Levels

03102010-1

The Euro and the British Pound were little changed against the US Dollar with prices treading water in familiar territory throughout Asian trade. We remain short EURUSD at 1.4881 and GBPUSD at 1.5765.


Asia Session Highlights

03102010-2

Australian Home Loans unexpectedly fell 7.9 percent in January, marking the largest decline in nearly a decade, after the central bank raised interest rates while the government reduced cash handouts to first-time homebuyers. Excluding refinancing of existing mortgages, loans fell by an even more pronounced 8.2 percent. The Value of Loans fell 5 percent, the most since April 2008. Reserve Bank of Australia Governor Glenn Stevens has previously acknowledged that “lenders have generally raised rates a little more than the [central bank’s benchmark borrowing costs] over recent months.” Grants for Australians purchasing their first home were reduced to their original amount of A$7,000 in January after being tripled to A$21,000 as part of the 2008 stimulus package.

Separately, an index of Australian Consumer Confidence compiled by the Westpac Banking Corp rose 0.2 percent in March. The details of the report pained a mixed picture, with expectations of household finances in a year from now rising 5.5 percent while those of the overall economy declined for the second consecutive month, down 1.9 percent. Westpac chief economist Bill Evans referred to the outcome as “a solid result” but cautioned that RBA rate hikes may start to weigh on sentiment in the months ahead, saying “rates have not reached the point where increases have a major impact on confidence.”


Euro Session: What to Expect

03102010-3

Germany’s Trade Balance surplus is expected to expand to 14.5 billion euro in January as export volumes rise to the highest in 14 months, adding 0.5 percent from the previous month on the lingering effects of over $2 trillion in global stimulus efforts and buoyant Asian demand, particularly from China. Overseas sales may begin to flounder in the months ahead however; indeed, China’s Customs General Administration reported today that imports from Germany fell to the lowest in nine months in February. Separately, the final revision of February’s Consumer Price Index figures is set to confirm the annual pace of inflation slumped to 0.4 percent in February.

UK Industrial Production is set to fall 0.8 percent in the year to January, the smallest decline in nearly two years. However, yesterday’s unexpected 4.4 percent drop in exports – the largest in over three years – bodes ill for manufacturing going forward, hinting that lackluster demand will keep output subdued even as the government makes a push to make overseas sales the center-piece of its strategy to build a firm recovery in Europe’s third-largest economy. That said, number of leading output indicators remain well-supported, with a gauge of production expectations from the Engineering Employers Federation turning positive for the first time since 2008 last month while Manufacturing PMI held at the highest in at least three years over the same period. Rumors suggest that heavy snowfall created logjams at ports in January, which may resolve the disconnect between trade and these leading figures, so traders will likely need to wait for further evidence before making any firm conclusions about the trajectory of the UK industrial sector.


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