Market Brief

The Usd regained its positive footing in the Asian session, as markets shrugged off a whopping US Budget, which included the biggest deficit in over six decades. The deficit for 2009 now stands at 12.3% of the US GDP. Yet, there was no significant drop in confidence around the Usd. Asian trading has been driven by risk aversion, given the lower US equity close (details of Obama budget dictated price action. ), pressure on EM Asian currencies and local bond markets. The EurUsd traded from 1.2780 to 1.2640, while the UsdJpy fell from 98.50 to 97.20 despite the negative data from Japan. Asian regional indexes were all weaker, with the lone exception of the Nikkei, and European stock markets are under pressure. Gold has stabilized around the $940oz mark after its correction from $1000oz. US 10-year treasuries breached 3% intraday on worries over supplies however we dont expect the rally to stand.

Japanese industrial production printed a -10% m/m drop (annualized -30.8%). Retail sales were weak, printing down 2.4% yoy, as the negative sentiment is taking its toll on consumption. The Japanese consumer is being hit by a soft labor market and general deterioration of the domestic economy. Real spending was down sharply in the household survey, contracting -5.9% y/y (-5.2% exp).

In the Euro Zone, the market will be watching the unemployment data, which is expected to continue to rise at a rapid pace. Recent reports show a labor market which has witnessed unemployment rising by 850k in the last 4 months and doesn't look to be slowing. Just to recap, yesterday's fall in the headline economic sentiment indicator to 65.4 was like a punch to the stomach as there was hope that the region had reached a bottom.


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