Fed’s Kohn on wires
Fed must be pragmatic and flexible
Markets will factor in weighing the need for action
Uncertainty about the outlook ar unusually high
Interbank funding markets have remained unsettled
Turbulance could tighten conditions for households
Wider Libor spreads factored in easing at Fed
ANALYSIS: The 3 month LIBOR rate continues to move higher. This is squeezing higher the borrowing costs for households as most adjustable rate debt is tied to the rate.
See chart to see the movement of LIBOR and the rising spread between 3 mnoth LIBOR and the Fed Effective Target Rate. The spread has risen from 37.8 basis points to 58.125 basis points today. This in effect has neutralized the last Fed easing.
Durable Goods Orders due at 8:30ET
Durable Goods are expected to rise by 0.4% and excluding transprotation ).4% as well. Last month the headline number was -1.7 and 0.3% ex transportaion.
Capital expenditures, growth of which is already down 5.2% between September 2006 and September 2007, have deteriorated to recessionary levels
USDCHF has a good short covering bid as well
New York comes in and buys USDCHF from1.1159 to 1.1195
USDJPY moved higher overnight.
The USDJPY went down early last night to the support level of 108.28 to test the 100 hour MA and bounced higher from there. The move continued all the way up to the 109.99 level (trading now at 109.90). Support comes in at 109.72 (trendline support – see chart below)
The pair seems to be experiencing some short covering as too many people have been short USD. GBPJPY has also benefitted, getting down to 223.66 and pushing up to around 226.85. The pair could move up to 228.26 (high from November 19) and 228.92 (the 38.2% retracement of the move down from 241.34 (on Novemebr 1) to the low on November 23rd.
The market will once again be influenced intraday by the movement of the stock market.
Economic news today includes Durable goods at 8:30 ET and Exisitng Home sales at 10:00 ET.
ECB Kranjec on wires
All options open for ECB Rate Decision next week. Says ECB is permanently vigilant and ready to act.
Feds Plosser on the wires
Economy to grow more slowly despite rate cuts
Rate cuts run the risk of higher infllation and inflation expectations
Inflation expectations are stable but more fragile than 4-6 months ago
Rise in oil and commodity prices still suggest significant inflation pressures exist
Financial problems can lead to more significant spillover
High oil prices may dampen growth over the next several quarters
Expects decline in housing to bottom by the end of the 2nd quarter of 2008
Unemployment may rise to about 5% next year
Plosser is not a voting member now but becomes a voting member next year. He is one of the more hawkish Fed members
ECB Liebscher on wires
Says regarding rate cuts, not all options are open. Market turmoil will bring some slowing growth but outlook remains positive.
Liebcher is not in favor of a cut. He sees risks to inflation increasing while growth outlook positive.
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