Market will look for developments, too see to what extent the epidemic gloes global.


  • US Mar. Durable Goods Orders out at -0.8% vs. -1.5% expected and revised +2.1% prior
  • US Mar. New Home Sales out 356k vs. 337k expected and revised 358k prior
  • UK Apr. Hometrack Housing Survey out at -0.3% m/m, -10.1% y/y vs. -0.6%, -10.3% prior


  • GE Import Price Index (0600)
  • GE Gfk Consumer Confidence (0610)
  • Sweden Trade Balance (0730)
  • EU ECB's Trichet speaks (1045)
  • US Consumer Confidence (1400)
  • US Richmond Fed Mfg Index (1400)

Market Comment:

The meeting of G7 finance ministers on Friday and ensuing IMF meeting saw some guarded optimism emerging on the global economy, with a “break in the clouds” of the economic storm the headline-grabbing comment. Question is, does this come before, or after, the “green shoots” envisaged by Fed chief Bernanke recently? While the G7 communique noted some stabilization in global economies, but asserted that the outlook still remained weak. To ensure a recovery through 2010, the IMF statement called for more measures to restore the health of banks, revive lending and restart international capital flows. Comments on FX markets were minimal, reverting to the standard “Excess volatility and disorderly movements have adverse implications for economic and financial stability”.

The release of the Fed's stress test white paper on bank stress tests produced little market reaction. The Fed asserted that most banks have capital well in excess of requirements, though some major banks' capital had been substantially reduced. The Fed noted that some banks' estimates of capital were not always consistent with those of the Fed and highlighted that the Fed counts common equity as the highest-quality capital. The Fed test also found some $900 bln in off-balance sheet assets that under FAS140 adjustment could be brought onto balance sheets in January 2010.

The recent outbreak, and escalation, of swine flu garnered a lot of press during the Asian session, as it rekindled memories of the 2001 SARS outbreak across Asia which had devastating consequences for economies and growth. Emerging from Mexico, which has claimed 103 deaths in that country so far, there are signs that it has spread to the US, Canada, New Zealand and Europe. The WHO has cautioned that it has pandemic potential and US Federal officials have declared a nationwide health emergency. The impact for economies was considered in early Asia with some risk-aversion themes emerging pressuring US stock futures and giving the dollar a minor lift. Watch for emerging details/headlines.

Giving some modicum of support to stock markets was news that the Fiat/Chrysler merger took a step in the right direction. The UAW announced that settlement had been agreed with Chrysler, Fiat and the US Treasury to enable the next stage of the merger to be started, and could significantly raise the chances that Chrysler would be eligible for additional US funding as it approaches the Thursday deadline to reveal a viable business plan. GM is supposed to present its own new business plan later today, according to the NYT.

The EUR was knocked back from its Friday highs during the Asian session in reaction to a reported article in German-language newspaper Sued-deutsche Zeitung which suggested that German banks potentially face another EUR812 bln in write-downs from problem loans, predominantly to Eastern Europe. Sentiment was also not helped by a NYT article which reported that Kazakhstan's largest bank is to stop repaying foreign debt, although would continue to pay interest. Adding to the negative push were weekend comments from Bundesbank President Axel Weber that the German economy was unlikely to return to growth before the second half of 2010. He, along with fellow ECB policy makers Quaden and Wellink, seem keen to cut rates by another 25bp to 1% but saw that as a “reasonable lower limit”. Quaden and Wellink also suggested the ECB may adopt new tools (ie QE). Meanwhile, IFO's Nerb said the ECB should move to quantitative easing.