• The dollar fell versus most major currencies on Thursday as US stocks rallied for a third day. The S&P 500- stock index was up 11% the past three days, reducing the greenback's safe haven appeal. US retail sales declined less than forecast, indicating the biggest part of the economy may be stabilizing. Our Globicus LEI indicates stocks have made a bottom and a US economic recovery will possibly occur in the third quarter (as illustrated in Monday's and Tuesday's reports). The USD/JPY rose modestly in volatile trading as US stocks rallied from 12-year lows. Sterling rose modestly. The Canadian and Australian dollars advanced as risk appetite increased and commodity prices rose. The aussie tentatively broke its resistance from the 6-month downtrend. The Swiss franc plunged against all major currencies after the Swiss National Bank began buying foreign currencies.

  • The EUR/USD rose on the recent improvement in risk appetite. The pair has made a double bottom, in the 1.24-1.25 area, indicating further gains. Furthermore, the pair has broken the resistance from the recent downtrend supported by the stock-market rally. The next important resistance is in the 1.30-area. If this is broken, the EUR/USD may test resistance in the 1.35-area.


Financial and Economic News and Comments

US & Canada

  • US retail sales declined a less-than-expected 0.1% m/m in February after rising an upwardly revised 1.8% m/m in January, data from the Commerce Department showed. Retail sales excluding autos unexpectedly increased 0.7% m/m, following January's upwardly revised 1.6% m/m gain. Retail sales fell 12.3% y/y and fell 8.7% y/y excluding autos. Overall, the February figures indicate some stabilization in the retail sector and consumer resilience to the recession.


  • US initial jobless claims rose more than expected to 654,000 in the week ending March 7, from the previous week's upwardly revised 645,000, according to the Labor Department. Continuing claims rose 193,000 to a record 5.317 million in the week ending February 28, from the prior week's upwardly revised 5.124 million.

  • US business inventories declined 1.1% m/m in January, as our forecast, to a seasonally adjusted $1.440 trillion, following December's downwardly revised 1.6% m/m fall, data from the Commerce Department showed. Business sales declined 1.0% m/m to $1.004 trillion, following December's downwardly revised 3.4% m/m decrease. The inventory-to-sales ratio held steady at 1.43, indicating businesses did not let inventories get out of hand amid the recession. Inventories decreased 1.5% y/y since January 2008, while sales dropped 14.0% y/y.


  • Eurozone producer prices fell a more-than-expected 0.8% m/m in January after a downwardly revised 1.5% m/m decline in December, according to Eurostat. Producer-price inflation unexpected fell 0.5% y/y, its first year-on-year decline since 2004, following December's downwardly revised 1.2% y/y increase. Decelerating eurozone PPI gives the European Central Bank a reason for further interest-rate cuts to combat the eurozone recession.

  • Germany's industrial production in January fell a more-than-expected 7.5% m/m, the most on record, after December's upwardly revised 3.9% m/m decline, data from the Federal Ministry for Economics and Technology showed. Industrial production dropped a severe 19.3% y/y, deepening December's 11.3% y/y decline. The IP decline points to a severe Q1 2009 GDP contraction.


  • The Swiss central bank cut its interest rate 25 basis points to 0.25%, as forecast, saying it would buy corporate bonds and foreign currencies, in its first intervention in foreign exchange markets since 1992, to stem the Swiss franc's appreciation amid a deepening recession and looming deflation. The SNB said the Swiss economy is facing its biggest slump since at least 1975, expecting consumer prices to stagnate over the next three years.


  • Japan's GDP shrank 3.2% q/q in Q4 2008, according to final Q4 GDP data from the Cabinet Office, compared with the initial estimate of a 3.3% q/q decline. The GDP contracted an annualized 12.1% in Q4, the fastest pace since 1974, less than the 12.7% previously reported.

  • Australia's unemployment rate rose more than expected to a 4-year high of 5.2% in February from 4.8% in January, and employment rose 1,800 on extra part-time positions after increasing a downwardly revised 300, data from the Australian Bureau of Statistics showed. Full-time employment dropped 53,800 in February, the largest decline since November 1991, while part-time employment increased 55,600. The participation rate increased to 65.5% in February from 65.3% in January. Overall, the figures add to the evidence that the Australian economy is in a recession.

  • The Bank of Korea left its key interest rate unchanged at a record-low 2.00%, pausing South Korea's most aggressive policy easing in a decade. The BOK said the economy is likely to remain in a recession amid “persistent weakness” in local and overseas demand. “We have lowered the benchmark interest rate at a rapid pace in a short period,” BOK Governor Lee Seong Tae said. “We'll be monitoring the effects of the previous steps.”