4 Apr 09 06:57

Risk appetite seems to be returning again as Nikkei surges to 8916, up 3.74% and is back pressing 9000 psychological level. Aussie shrug off another piece of poor employment data and strengthens today. Yen crosses are generally higher too. Sterling is mildly higher against dollar and yen and remains firm against Euro and events from UK will take center stage today.

Main focus in the European session is on BoE. Governor Mervyn King will have to assure investors that he will honor his pledge in the last meeting to spend 75B pounds in gilts in 3 months as recently the market has been suspicious that he might not do what has been announced. Concerning interest rate, the central bank will likely leave it unchanged at 0.5%. In addition, trade deficit is expected to have narrowed to 7.5B pound from 7.7B pound in February as decline in import was faster than that in export. However, PPI probably continued to contract in March on yearly basis despite slide in sterling as the base effect in 2008 was high. Input PPI should have plunged -0.7% yoy during the month after rising +0.5% in February while output PPI eased to +2.2% yoy in March from +3.1% last month. Core PPI is also anticipated to have moderated to +3.1% yoy in March from +3.7%. On monthly basis, input, output and core PPI probably gained +0.8% (February: +0.6%), +0.1% (February: +0.1%) and +0.1% (February: 0%), respectively.

Euro also recovers mildly but continue to underpeform Sterling. Germany March HICP is confirmed to be -0.2% mom and 0.4% yoy. Germany's industrial production is expected to have contracted -3% after a severe -7.5% decline in January. On annual basis, the gauge deteriorated further by -21.6% from -19.3% a month ago. Swiss unemployment rate was unchanged at 3.4% in March. lower than expectation of 3.5%.

Released in Asian, Australia's unemployment rate rose to 5.7% in March (Consensus: 5.4%, February : 5.2%), the highest level in 18 years, as jobs in the nation has sank 34.7K units during the month, compared with a downwardly revised 1.1K increase in February. Japan machine orders unexpectedly gained +1.4% mom in February, better than consensus of -7% and -3.2% a month ago. On annual the reading also improved by dropping -30.1%, compared with consensus of -36.7% and -39.5% in January.

Dollar's recovery lost steam, on return of risk appetite. In the FOMC meeting released (for the meeting on Mar 17-18) yesterday, policymakers stated that the nation's economy may have further downside risk as ‘Credit conditions remained very tight, and financial markets remained fragile and unsettled, with pressures on financial institutions generally intensifying'. Concerning the QE measure of open-market purchases of bonds by $1.15 trillion, all members voted for it unanimously as it's crucial for supplying sufficient funding to the market.

Technically, with 84.67 minor support intact, dollar index's rise from 83.73 is still in favor to continue and break of 86.13 resistance will confirm that whole rise from 82.63 has resumed. This will also affirm the case that correction from 89.62 has completed at 82.63, ahead of key support level of 82. In such case, stronger rise should be seen to retest 89.62 high. On the downside, below 84.67 will turn intraday outlook neutral again and probably bring another fall. But after all, we'd maintain that as long as key support of 82 level (cluster support of 61.8% retracement of 77.69 to 89.62 at 82.24 and 38.2% retracement of 70.70 to 89.62 at 82.39, as well as long term rising trend line at 82.03) holds, the long term up trend from 70.70 is still intact.

Looking ahead, US trade deficit should have widened to $36.5B in February from $36B a month ago. Import price index is anticipated to have gained +1% mom in March (February: -0.2%) while export price dropped -0.1% mom (February: -0.2%). Initial jobless claims for the ended Apr 4 probably declined slightly to 660 from 669 a week ago. Although initial jobless claims looked stabilized during the 4 weeks since mid-February, a surprising uptick was seen last week. Therefore, close monitor on the trend is required in coming weeks so as to determine whether the worst of unemployment has been over yet.

Job loss in Canada should have surged by another 57.5K in March after increasing by 82.6K a month ago and this should have brought the unemployment rate up to 8%. WE believe unemployment rate in Canada still have the chance of reaching 9% but employment declines should start to ease. Trade deficit probably widened to CAD 1.4B in February from CAD 0.99B while new housing price index is anticipated to have slid -0.5% in February following a -0.6% drop in the previous month.