LONDON (MNI) – Bank of England Chief Economist Spencer Dale hopes
inflation will fall to 3% by late Spring and on down to hit the 2%
inflation target.

In comments last week to the Gloucestershire Echo, which were not
picked up by newswires at the time, Dale predicted inflation would
continue to decline and the pressure on households’ real income would
ease.

“I hope that by late spring, early summer this year we will be as
low as three per cent and hopefully it will continue to come down for
the rest of the year to our inflation target of two per cent,” Dale
said.

Headline CPI dropped 0.5% on the month in January to 3.6% on the
year from 4.2% in December, hitting its lowest level since November
2010. The central, modal forecast in the BOE’s Febuary Inflation Report
was for CPI to fall to an average 2.97% in the second quarter of this
year, so Dale’s comments are simply in line with this forecast.

Dale said the key factors pressing down on growth were the squeeze
on household incomes and banks’ failure to lend to business.

“Hopefully as inflation falls that pressure (on real incomes) will
ease,” he said.

–London newsroom 0044 20 7862 7491; email: drobinson@marketnews.com

[TOPICS: M$B$$$,M$$BE$]

FRANKFURT (MNI) – The European Central Bank said Wednesday that it
has allotted $1.5955 billion in its 7-day USD liquidity providing
operation.

The central bank said it received seven bids.

Today’s operation was carried out at a fixed rate of 0.6%. The
Euro/USD rate was set at 1.3138.

– Frankfurt bureau: +49-69-720 142; email: frankfurt@marketnews.com –

[TOPICS: M$$CR$,M$X$$$,M$XDS$,MN$MM$,M$$EC$]

• Has received positive messages about Greece’s prior actions
• Worries about Greece are justified.
• Not helping Greece could trigger failings in Southern Europe, bigger than the Lehman’s collapse
• If PSI writedown not successful, will come back to parliament

Apologies if a few typos slip through, got a bit blurred vision at the moment as been blubbing with a streaming cold (like Gazza after Vinnie grabbed him by the….   !!!). It’s great having loads of kids that bring home germs from school isn’t it!

Here goes anyway….

EUR/USD:  Offers  1.3150/55 with stops above  ahead of 1.3180/00 offers from real money.  Tech support 1.3115/20 and sell stops  down through  1.3070. Option expiries 1.3150, 1.3170 and 1.3200.

GBP/USD: Bids 1.5700/10, sell stops just below, Tech support 1.5650/60 (55 day MA is at 1.5660). Offers 1.5795/00  (1.5800 expiry) and some resistance 1.5855/60

EUR/GBP: Bids 0.8340/45, larger at 0.8315/25. (FYG 50/55 DMA ‘s are around 0.8346). Offers 0.8360/65 and 0.8380/85

EUR/JPY: Bids 105.70/75. Offers 106.25/40, possible stops above 106.70

USD/JPY: Bids 80.50/60, sell stops below ahead of better bids  80.25/30. Offers 80.90/00

GOLD: Support 1663.35 and 1650 , resistance 1717 and 1724.50 (200 day MA=1677.40)

AUD/USD: Bids 1.0505/15 from ACB,. option and exporters names.  Offers  1.0585/00 and larger up towards 1.0620/30

USD/CAD: Offers 1.0040/50, Bids 0.9980/90 , tech support 0.9935/40

USD/CHF support 0.9165/70, better at 0.9140/50.. Offers 0.9195/00

I’m off to meditate for half an hour.

Joe’s here (hoooooray), so I’ll leave you in his capable hands.

He’s still not too well, so treat him gently.

Out to 335 bps presently from the 329 I jotted down first thing

Spanish/German 10 year govt bond yield spread out to 344 bps from 336

• Italy’s aging society requires faster growth
• Less that 1 in 4 youths in Southern Italy have jobs
• Italy needs labor overhaul to keep pace with times
• Over 2 million youths, mostly women, don’t work or study

Bloomberg reporting.

Some scary statistics there.

By Johanna Treeck

FRANKFURT (MNI) – The European Central Bank will likely keep a
steady hand on Thursday but should not be expected to signal the end of
the easing cycle quite yet, since the economy remains fragile and the
region continues to face risks from a possible disorderly Greek default.

Apart from the looming private sector debt restructuring deal (PSI)
and Greece’s second bailout from official sector creditors, the focus of
President Mario Draghi’s Q&A session will likely be on the central
bank’s massive liquidity injection and the public spat between the
Bundesbank and the ECB over new collateral rules.

Draghi will no doubt be pressed for any preliminary results on
Greece’s PSI offer, which closes on Thursday evening. According to a
report in German magazine Der Spiegel, the ECB is worried that uptake
could be limited in the debt exchange offer, the official results of
which are expected to be announced Friday. The Greek government has said
it is aiming for participation of 90%.

If the government does not obtain a participation rate it is
satisfied with, it can activate collective action clauses (CACs) — but
only if a certain threshold level of participation is reached.
Activation of the CACs would force reticent investors to accept the deal
but could also trigger payments on credit default swaps, creating wider
collateral damage in the Greek crisis.

The outcome of the PSI deal is particularly important, because
official lenders made any further payments of bailout money conditional
on a successful private sector deal in Greece. In the absence of fresh
funds, Athens would default on E14.4 billion worth of bond redemptions
falling due on March 20. So markets will listen carefully for any hints
Draghi may provide about how PSI is shaping up.

The Greek government warned Tuesday that outright failure of the
PSI deal — that is, if it did not even meet the threshold level of
participation allowing the CACs to be activated — would lead to a much
different and harder restructuring of Greek debt on terms less favorable
to the creditors. The Institute of International Finance, in a
confidential document leaked to some news organizations, warned that in
the case of a disorderly Greek default and Eurozone exit, there could be
considerable contagion to other vulnerable Eurozone countries, with
costs exceeding E1 trillion.

Clearly then, a PSI failure could reignite market tensions and hit
business and consumer sentiment in the region. That might force the ECB
into further action. On the other hand, if the deal is successful, and
assuming no other major shocks, the ECB is unlikely to cut its key
refinancing rate below the current level of 1%.

Since the Council’s last rate setting meeting, headline inflation
in the single currency area rose unexpectedly to 2.7% in February.
Recent price developments suggest that inflation will remain stubbornly
high as the Iran crisis pushes up oil prices.

New staff forecasts, also due to be released Thursday, will likely
revise the 2012 HICP midpoint of 2.0% upward, above the ECB’s price
stability target. Revisions to 2013 price projection will be a key
indicator of whether ECB staff expect a short-lived price spike or see
risks of longer-term inflation pressure emerging.

Following the weak final quarter of 2011, new staff forecasts for
2012 GDP growth will likely be cut from the current +0.3% midpoint. Data
since the last forecasts in December have been mixed. While the ECB
observed increasing signs of stabilization earlier in the year, most
recent data have disappointed. The latest Markit Eurozone Composite PMI
slipped back into contraction territory in February, after popping
briefly above it in January.

The Governing Council will thus likely reiterate that the “economic
outlook remains subject to high uncertainty and downside risks.” Still,
the economic environment is far better than some of last year’s horror
scenarios had projected. At the same time, financial markets have
continued to normalize, with sovereign spreads in Italy and Spain
tightening dramatically.

Draghi may point out that the real economy should also benefit from
positive impact of the ECB’s massive E1 trillion injection of 3-year
loans, which still have not fed through. In this context, Draghi will
likely welcome the large E530 billion uptake in the second tender and
the surge in bidders to 800 from 523 in December’s operation.

Recent comments by ECB policy-makers suggest that they are
detecting tentative signs that funds are now reaching the real economy
after initially helping primarily to stabilize financial markets. Draghi
may offer more evidence based on a special bank lending survey the ECB
is currently conducting to evaluate the effects of the three-year LTROs.
Still, the ECB president will likely keep a relatively cautious tone
suggesting it is too early to draw any firm conclusions.

While there has been much noise about a disagreement between Draghi
and Bundesbank President Jens Weidmann over risks the ECB has taken on
by lending out huge sums against questionable collateral, the divisions
do not run as deep as some media reports suggest and are unlikely to
have near-term policy implications.

The leaked Weidmann letter to Draghi, calling for a quick return to
the pre-crisis collateral rules, merely confirmed what had been known
already: December’s decision on new collateral rules was not unanimous.
Draghi said as much at the time and the ECB’s decision to keep
discretion for some new collateral rules, and the risks associated with
them, at the national central bank level could have left no doubts.

Given tight lending conditions and persistent fear of a credit
crunch in the Eurozone, the central bank should not be expected to
reverse its decision before the set review date in six months time. The
central bank would risk losing credibility if it were to reverse its
decision too quickly.

At the same time, any disagreement is confined to collateral rules
and not the three-year liquidity injections as such. Weidmann supported
the decision to offer two three-year tenders and the ECB appears to
fully share his view that the flood gates should now be closed. The ECB
is done for now.

The Bundesbank’s criticism, rather than reversing ECB policy or
significantly dividing the Council, may indeed be a useful tool to exert
pressure on governments to recapitalize or shut down banks in order to
allow the central bank to return to a more normal funding mode over time
- again a joint objective of the Governing Council.

–Frankfurt newsroom +49 69 72 01 42; Email: jtreeck@marketnews.com

[TOPICS: MT$$$$,M$$EC$,M$X$$$,M$$CR$,MGX$$$]

Weaker than Reuter’s median forecast of -3.9%.

DAX  up +0.1% as trading gets underway.

EUR/USD up 10 pips since my last report and back to where it was when I sat down two years ago. Well it seems like two years!!

Some European corporate buying being noted.  Oh well.

As aforementioned talk of real money sell interest lying in wait up at 1.3180/00.

I think I’ll go for a nap……

The BIG news of the morning so far

JAPAN DATA: A total of 21 economists out of 37 surveyed by the
Cabinet Office’s Economic Planning Association forecast Japan’s trade
balance will not return to a surplus until April-June 2013 at the
earliest. Japan has posted a trade deficit for the past four months
through January, when the shortfall hit a record high Y1.475 trillion.
The remainder 16 economists project a surplus sooner — six said in Q4
of 2012, five in Q3 of 2012, four in Q1 of 2013 and one even said in Q2
of 2012.

– See Separate Tables for Details

TOKYO (MNI) – Economists have mostly revised their medium-term
growth and inflation forecasts for Japan on brighter global prospects,
foreseeing an unwinding of Bank of Japan monetary easing in a year
ahead, but revised down their CPI forecast for fiscal 2013, the latest
monthly survey by the Cabinet Office’s Economic Planning Association
released on Wednesday showed.

The association polled 42 economists and research institutions from
Feb. 23 to Mar. 1, with 38 answering on the growth and inflation outlook
and 35 on the BOJ’s monetary policy stance.

The previous survey was conducted from Jan. 26 to Feb. 2.

In the near term, economists expect GDP for the January-March
quarter of 2012 to post an annualized gain of a real 2.35%, an upward
revision from their previous average forecast for a 2.04% rise.

The average GDP forecast for the April-June quarter was revised up
to +2.21% from +2.03% in the previous survey.

For the whole of fiscal 2011 ending this month, economists on
average now project a 0.41% contraction in real GDP, instead of a 0.45%
drop forecast in the previous survey.

Economists on average project a 1.90% rise in real GDP in fiscal
2012, revised up slightly from +1.86% foreseen in the previous survey,
while they expect a 1.54% rise in fiscal 2013, up from their previous
forecast for +1.39%.

Forecasts for prices this month were slightly stronger for fiscal
2012 but weaker for fiscal 2013 , with mild deflation now expected to
continue through at least mid-2013.

The survey showed that the average forecast for core CPI (excluding
perishables) in fiscal 2011 was put at -0.10%, up slightly from -0.12%
in the previous survey, while core CPI for fiscal 2012 is seen at
-0.20%, also up from the previous estimate of -0.25%.

But economists on average expect consumer prices to show a 0.08%
rise in fiscal 2013, revised down from +0.10% last month. It would still
be the first annual increase in five years since +1.2% in fiscal 2008.

The survey also showed that 15 economists predict a further credit
easing by the Bank of Japan in coming months, mostly in April, down from
21 last month.

Meanwhile, 20 economists expect the BOJ to start unwinding its
monetary easing in about a year ahead, up from 18 in the previous
survey.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

[TOPICS: M$J$$$,M$A$$$,MAJDS$,MMJBJ$]

DAX futures down -0.4%.

EUR/USD has slipped 10 pips or so since I sat down, presently at 1.3137.

Barrier interest well-documented down at 1.3100. Sean overnight mentioned real money sell interest up in the 1.3180/00 area.

Tape bombs much needed to kick-start this sucker.

Seasonally adjusted 3.1%.

Both as expected.

Fiunancial bookies see FTSE and DAX opening around -0.2% lower,  CAC 40 down around -0.4%.

Got any ideas you’d like to share with your fellow readers, then here’s where to stick ‘em.

TOKYO (MNI) – The average price of regular gasoline in Japan this
week stood at Y149.2 ($1.85) per liter, or $7.03 per gallon, up sharply
from Y145.5 in the previous week and marking a third straight rise, data
released by the Oil Information Center showed on Wednesday.

The average retail price this week rose 2.5% from the Y145.5 per
liter price seen a year earlier, with the pace of year-on-year gains
decelerating from a 4.7% rise in the previous week.

The average price of high-octane gasoline stood at Y160.0 per liter
this week, up from Y156.3 in the previous week. It hit a record high of
Y196.0 on Aug. 4, 2008.

The average price of diesel fuel was at Y129.8 per liter, up from
Y126.4 in the previous week. That compares with the record high of
Y167.4 recorded on Aug. 4, 2008.

The average over-the-counter price of kerosene for heating stood at
Y1,705 per 18 liters this week, up from Y1,654 last week. It posted a
record high of Y2,378 on Aug. 11, 2008.

The average home-delivery kerosene price was at Y1,823 per 18
liters, up from Y1,774 the previous week. It hit a record high of Y2,484
on Aug. 11, 2008.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4835 **

[TOPICS: M$J$$$,M$A$$$,MAJDS$]

– Japan Jan Prelim Coincident CI -0.5 Pt M/M; MNI Fcast -0.3 Pt
– Japan Govt Keeps View: Econ at Turning Point for Upward Move
– Japan Jan Prelim Leading CI +1.1 Pt M/M; MNI Fcast +2.0 Pt

TOKYO (MNI) – Japan’s coincident composite index (CI), which
reflects current business conditions, marked the first fall in two
months in January following a sharp rise in the previous month, but the
leading index pointed to a gradual pickup, preliminary Cabinet Office
data showed on Wednesday.

The coincident CI fell 0.5 points to 93.1 after surging 3.3 points
in December.

The consensus forecast among economists polled by Market News
International was for a 0.3 point fall.

In January, five out of the 11 sub-indexes comprising the
coincident index, including shipments of industrial goods and those of
capital goods, fell.

The Cabinet Office maintained its overall assessment, saying the
composite index “indicates that the economy is at a turning point for an
upward move.”

The composite index was set at 100 in the 2005 base year.

Other details from the latest data follow:

The leading composite index, which measures the state of the
economy three months ahead: Jan 94.9 (+1.1 point m/m) vs. Dec. 93.8
(+0.5 point), posting a third straight rise.

The lagging CI, which reflects economic conditions three months
ago: Jan 81.1 (-2.8 point m/m) vs. Dec 83.9 (+0.5 point m/m), marking
the first fall in three months.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4835 **

[TOPICS: M$J$$$,M$A$$$,MAJDS$]

• EUR/USD: Sovereign bids ahead of 1.3100; Real money offers starting at 1.3180
• AUD/USD: Sovereign bids ahead of 1.0500; heavy offers reported at 1.0600 and 1.0630
• USD/JPY: Trailing stops below 80.50

• Latest Australian GDP data shows slower than expected growth
• China commerce minister says Yuan at appropriate levels
• Takes aim at US trade policies against China
• Japan FX reserves fall from record highs
• UK shop price inflation edges lower
• UK permanent job growth improves
• Regional stockmarkets fall by 0.75% on average
• Gold $1675/oz; Oil $105/bbl

Once again it was the AUD at the centre of attention, as poor GDP data sent the AUD lower across the board. AUD/USD fell towards 1.0500 but Sovereign buying ahead of a barrier helped limit losses. The GDP data will renew calls for a rate cut next month and the escalating Chinese rhetoric regarding the Yuan and also possible trade restrictions, didn’t help Aussie sentiment. EUR/AUD also made some modest gains on short-covering. Ranges: 1.0505/72

USD/JPY has had a choppy session inside a 40 pip range with cross flows again the main factor. Ranges: 80.56/94

EUR/USD was bolstered by Sovereign buyers at 1.3100 and the presence of these were enough to encourage some mild EUR/JPY and EUR/AUD buying as well. Rallies were slow and lacked any strong momentum. Ranges: 1.3110/50

Cable 1.5708/39; EUR/CHF 1.2045/55