Ralph Shell @ 1:50 PM, Thursday April 15 2010
The Philly Fed Manufacturing Index and the Empire State Manufacturing Index both project better times ahead. However, a different picture was presented by the m/m US industrial projection index, down 0.1%, less than the +0.6% anticipated and the new unemployment claims, which were surprisingly higher, 484K versus and an expected 439K. Perhaps we can dismiss the conflicting numbers as some are leading and the employment numbers are lagging, but the recovery pace is slow despite administration efforts to portray it otherwise.
In other economic new overnight, the Chinese reports came in, surprise, as expected. The GDP was 11.9% versus an expected 11.8%, the CPI was a little less than the expected +2.6%. Fixed asset investment was up 26.4% versus an expected 26.1%,and the industrial production was up 18.1% close to the expected 18.2%. The y/y PPI was 5.9% less than the expected 6.5%. Retail sales were reported up an amazing 18.0%. Chinese numbers are always seem close to the expected numbers, and it makes the accuracy of the numbers suspect. Are they real or contrived?
While consumer prices in China were up less than expected, real estate prices rose by over 11.7% during the last month as reported from Hong Kong by Market Watch. To combat the real estate bubble, the down payment and the loan rates were increased Thursday, and the down payment on a second home was increased from 40 to 50%. It is expected that the yuan will appreciate versus the USD, but it is difficult to discern how the latest numbers will affect the timing of that decision.
This morning the US Treasury released data of Long-Term Purchases of US Assets. Total net purchase came in higher than expected, 47.1B, versus an anticipated 34.2B and last month's 15.0B. An improvement yes, but less than Jan and Feb numbers of 126.8B and 63.3B respectively. For the fourth month Chinese investments in US debt decreased, down to 877B. Apparently maturing short term bills were not reinvested.
The plight of the Greeks and their massive debt has again caused the euro to falter. With the rate on Greek 10 year notes rising to 7.35%, and the 2 year paper going to 6.8%, the assistance provided by the north euro bankers is of little help. A German election takes place Sunday. German workers, irate that Greek civil servants get to retire at 58, (Germans retire at 67) will punish Merkel or anyone else, providing assistance to the Greeks. The German Constitution also forbids bail out to foreign countries. It seems like 7% money cost will hasten the day when the Greeks default. Then what?
We have felt that the euro, loaded with shorts, could rally back to the 1.38 level, but now doubt the pair can muster the strength. The Greek debt issue is like a low grade virus that has many lives. Market that cannot go up, generally go down. If long get out, and look to sell on a return close to the 1.36 level. The gap should eventually be filled, and a revisit to the 1.34 handle is possible.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.