European Mid Morning Update 7th May 2008

Wednesday, May 07, 2008; Posted: 04:02 AM

Releases from Europe:
                                               Forecast   Actual 
March French Trade Balance  EUR  -3.1bn   -4.75bn

French industry is beginning to hurt with March seeing the trade deficit widen rather nastily to EUR -4.75bn and way above forecasts of EUR -3.1bn. The strength of the Euro may well be behind the 6.0% slump in exports but lower global demand will also have taken its toll. What is more telling is that Airbus exports amounted to EUR 1.48bn which makes the large decline even more telling on the rest of industry. We can no doubt expect further complaints about the strength of the Euro from the French finance minister Lagarde.

The following economic releases are due today:

March
U.K. Industrial Production        (MoM)   - 0.1%
U.K. Industrial Production         (YoY)   +0.8%
U.K. Manufacturing Production  (MoM)   +0.0%
U.K. Manufacturing Production   (YoY)   +1.2%
Euro-zone Retail Sales            (MoM)   +0.1%
Euro-zone Retail Sales             (YoY)   - 0.6%
German Factory Orders            (MoM)   +0.2%
German Factory Orders             (YoY)   +5.7%
U.S. Pending Home Sales        (MoM)   - 1.0%
U.S. Consumer Credit               USD      6.5bn

April
U.K. BRC Shop Index

U.S. Treasury Secretary Paulson has always offered positive comments ever since this sorry saga has begun. It is the natural style of a salesman. Never say anything is bad. Always reply “absolutely fantastic” when asked how things are going.

In a WSJ interview he added to the positive comments by saying that the financial markets are emerging from the credit crunch, adding “the worst is likely to be behind us with things no doubt feeling better, by a lot, than in March.”

Actually, this time his words do ring true but while the financial markets may be steadying themselves the impact on industry and the consumer is still very shaky from the fallout.

Globally consumer confidence is on the decline and there appears little that any central bank can do to provide any ointment for the open wounds that are developing. This was highlighted again by the U.K.’s Nationwide which reported their confidence index had dropped to the lowest level since inception 4 years ago to 70.0. Indeed, the one month drop was the largest on record.

British consumers are digging their trenches as they see the recent golden years turn back into gloom. Higher food and energy prices, lower house prices, higher interest rates and concern over their jobs are all taking their toll.

 It is no wonder that confidence surveys are seeing sizeable drops and this report echoes the GfK report that saw confidence drop to the lowest level since the 1990’s recession.

Oil remained close to its overnight high of $122.73 and is tipped to move above $150pb. Food is tipped to remain at elevated prices with clothing to follow. The product of these potential events will be to force global consumers to dig in deeper into their trenches to preserve their savings. Industry will consequently remain in decline for some while to come.

Today sees the start of the 2-day meetings by the ECB and BOE but neither is expected to result in any change of policy. The ECB certainly has no thoughts of cutting rates and at this stage higher rates are more likely to be counter-productive with the source of inflation not being demand based.

This should keep the Dollar fairly stable for now and for today much will depend on the outcome of the Euro-zone retail sales and German factory orders. Any softness shown will allow the Dollar to recover further.

Note important support and resistance areas:

          USDJPY        EURUSD       USDCHF       GBPUSD
Res:  105.68-88    1.5593-42    1.0606-48    1.9745-71
Res:  105.11-29    1.5540-65    1.0550-80    1.9640-70

Spt:   104.50-60    1.5450-60    1.0450-96    1.9548-91
Spt:   103.33-65    1.5380-14    1.0353-73    1.9456-95

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