Dollar Consolidates

It is difficult to get much of a signal from the market's noise today.  The dollar is largely consolidating recent moves, but euro, sterling and Swiss franc continue to appear fairly resilient to what seems to be a some deterioration in the underlying situation in Europe.  Key support for the euro remains prior resistance in the $1.3280-$1.3300 area and provided this area holds, the short-term bias is for a firmer euro. 

Like the euro, sterling also finished the North American session on its lows, but unlikely the euro that has recovered, sterling saw follow through selling.  That selling ironically peaked (sterling bottomed) prior to the publication of the downward revision to Q4 GDP (to -0.3% from -0.2%).    French Q4 GDP figures were unchanged at 0.2%, though the year-over-year rate was shaved to 1.3% from 1.4%. 

Ahead of what I expect to be a modest upward revision to Q4 US GDP tomorrow, the US reports durable goods orders data for February.  A healthy bounce back should be expected after a 4% fall in January. 

One commonality through the major industrialized countries is the collapse of the money multiplier--by which I mean the relationship between central bank money creation and money supply.  The euro zone reported a tick up in M3 money supply to 2.8% year-over-year in February from 2.5% in January.  This follows the second LTRO.  It is not that the money multiplier is at zero just much lower than it has been. 

The pace of money supply growth remains well below even H2 09 levels, let alone levels that are associated with reasonable economic growth.  Private sector loans were actually lower than expected at 0.7% rather than 1.2%. 

Separately, the ECB reported that Greek bank deposits fell 2.7% in February.  Deposits in Greece at at levels last seen in late 2006.  Greece, as one might expect, is experiencing the sharpest drop in deposits.  Portuguese and Spanish deposits were largely flat. 

Spanish and Italian banks stepped up their buying of sovereign bonds in February (15.7 bln euros and 23 bln euros respectively), but Portuguese banks 4.2 bln in purchases was a record for them.   Despite Fitch warning yesterday that Portuguese banks remain on shaky ground, sovereign bonds have continued to recover, with benchmark 10-year yields off around 25 bp.  Financials are among the weakest sectors of the stock market today off about 1.3% at pixel time, while the market is off a little less than 0.15%. 

News that China's Jan-Feb cement production slow to 4.8% year-over-year from 7.0% year-over-year in December and reports warning of weaker profits in China saw China shares tumbled with the Shanghai Index off 2.65%.