Forex Investment and Currency Trading

Turkey The PMI manufacturing advanced for the first time in five months, to 47.0 in April, after 45.8 in March. All components except for prices were in contraction zone. There were improvements in output (46.7 from 44.0) and orders — new orders rising to to 60.0 and 77.7 respectively. As intensifying inflation pressures are posing significant upside risks to pricing behavior, while the
headline CPI looks set to miss the current 4% medium target until late 2009-2010, a near term CBT rate hike cannot be ruled out.

Brazil Wednesday afternoon, S&P raised Brazil’s long-term foreign currency debt rating to investment grade (BBB- from BB+). Moody’s and Fitch still rate Brazil a notch below investment grade. The short-term foreign currency debt (A-3 from B), local currency long-term debt (BBB+ from BBB), and local currency short-term debt (A-2 from A-3) ratings were also upgraded. Ratings are not always reflective of a sovereign’s strength, namely capacity and willingness to service foreign obligations. Nonetheless, the upgrade opens Brazil to a new class of investors. The impact of the rating will bolster international capital inflows and render the recent slight widening of the current account deficit negligible. The timing of the upgrade was a surprise as the most optimistic estimates
projected an upgrade towards late 2008. The upgrade was welcomed by markets leading to rallies in Brazilian debt, equity, and currency markets. USD/BRL traded down towards 1.66 following the news. Further near term downside in USD/BRL is likely on upcoming capital inflows and improved BRL sentiment. Trendline support of 1.64 will likely be tested with a potential move toward 1.60.
Chile The Central Bank of Chile (BCC) minutes from the April 10 monetary policy meeting indicated the board had voted unanimously to keep rates unchanged at 6.25% - a change from the March meeting at which one of the five voting members had voted for a 25bp hike. BCC noted that some uncertainty remains regarding the speed at which inflation will converge towards the 3% target, but has yet to observe any second round effects from food price inflation. Although inflation remains above target, BCC is likely hesitant to hike rates further after 125bp in hikes over the last month and also likely remains concerned about potential downside risks to growth. The next important release will be April CPI to be released on May 5.

Mexico In its quarterly inflation report, Banxico upwardly revised its inflation forecasts for 2008 and 2009. The bank raised its forecast range by 50bp for each remaining quarter in 2008 and by 25bp for 1Q09. Banxico had announced plans to upwardly revise its inflation forecasts at its April 18 monetary policy meeting after persistent food and energy price increases made it likely that inflation would exceed the bank’s previous forecasts. The central bank continues to expect inflation to peak around mid-summer and trend down towards target by 1Q09. Despite the higher inflation outlook, concerns
about an economic slowdown later in the year are likely to keep Banxico on hold for now. In fact, the bank also revised down its 2008 GDP forecasts to 2.4%-2.9% from its previous forecasts of 2.75%-3.25%. Wide Mexico-US rate spreads and as of now, still resilient Mexican economy continue to favor
further USD/MXN downside towards the December 2005 low around 10.39.

Commodities
Energy Crude oil came under pressure after the DOE reported a stronger than expected build in crude stocks. The June WTI contract fell another 1.4% on Wednesday, and settled at $113.46. Products followed the move on expiration; heating oil fell 2.1% (to $3.177) while gasoline declined 0.3% (at $2.9312). Crude oil inventories built 3.85 mb (BBG: +0.95) as imports increased another 1.2 mb on the week (to 10.2 mb/d). The increase in inventories allowed the overall yoy crude inventory deficit to narrow to 15.7 mb, while the recent deficit to the 5-yr range returned to a surplus. Refinery utilization fell 0.2% to 85.4%, and is 2.8% below last year. Gasoline inventories fell a greater than expected 1.5 mb (BBG: -1.0 mb) despite demand growth being depressed at -0.3% y-o-y, and imports increasing 2.65 mb on the week. Inventories had been at record levels above the 5-yr range for the past 12 weeks; however, are now within the range. Distillate stocks built 1.1 mb, while expectations were for a draw of 400 kb. Stocks of ULSD built 1.7 mb. Overall distillate inventories are at an 11.3 mb deficit to last year and stand near the middle of their 5-yr range. Natural gas ended the day up just 0.01% (at $10.843) despite significant pressure from the petroleum inventory report intraday. US electric output rebounded 1,993 GWh last week, to 70, 763 GWh. Current output compared to last year, increased
to a surplus of 1,509 GWh. Nuclear output rose 2,886 MW on the week, to 77,859 MW; however, is 1,934 MW below a year ago.