Retail Sales Improve!
By Mike Conlon | March 12, 2010
All eyes were on the US retail sales figures, as the US consumer represents some two-thirds of US GDP. There was speculation that bad weather would affect this number, causing it to be lower than expected. Well, that hedge turned out to be unnecessary, as there was a negative expectation of -.2%. The number came in much better than expected, at + .3%, which is positive growth as opposed to a negative expectation. So expect stocks to rally higher, but be wary of the correlation of “stocks up, dollar down” as some in the market may feel that this could have a material impact on US interest rate policy.
In other news, Canadian employment figures came in better than expected and Japanese Finance Minister Kan used the dreaded “I” word—as in intervention, which readers of this blog know is not totally unexpected.
In currencies this morning:
Aussie (AUD): The Aussie is higher this morning as investors are seeking yield as economic conditions appear to be improving, particularly in the US. No real news but the Aussie has made one attempt at .92 vs. USD and could challenge 2010’s high of .932 in short order.
Kiwi (NZD): Retail sales figure came in at a better-than-expected .8%, showing signs that domestic demand in New Zealand is improving. This bodes well for their economic story but we shouldn’t expect any rate hikes until mid-year as the policy meeting told us earlier this week. However, should inflation start to pick up, we could see a surprise hike earlier than expected.
Loonie (CAD): Good news out of Canada as the jobless rate fell to a 10-month low, falling to 8.2%. The Loonie is higher across the board as hopes that economic recovery is taking hold. According to an RBC analyst, the Bank of Canada is, “running out of arguments against keeping rates low”. The Loonie currently buys 98.35 US cents, and the Loonie could be at parity with the Dollar for the first time since July 2008.
Euro (EUR): The Euro is mostly higher this morning, as European Industrial outputs expanded 1.7%, the largest gain in almost 20 years. The Euro challenged 1.38 vs. USD and EU President Junker argued that the Euro zone needs new tools to be able to combat future crises.
Pound (GBP): The Pound is higher this morning, extending yesterday’s rebound. Reports are that the sell-off in the Pound has been excessive, as house prices in the UK rose at the fastest pace in 7 years, showing that the economic recovery may be taking affect. The Pound is at 1.514 vs. USD.
Dollar (USD): The Dollar is lower vs. all but the Yen as retail sales figures came in MUCH better than expected, as I mentioned above. Consumer confidence figures are due out at 10AM EST, but don’t expect that to have a material impact on today’s action. Other reports are that President Obama wants to nominate Janet Yellen as Fed Vice Chair. Yellen is known to be dovish, meaning that she is not an inflation hawk. This could mean extended zero interest rate policy as the government attempts to inflate their way out of debt on the backs of consumers, who will be forced to pay higher prices for everything. Stay tuned.
Yen (JPY): As I’ve mentioned before, Japan is not adverse to using intervention as a tool to keep Yen from strengthening, and earlier today Finance Minister Kan confirmed this. It is likely that yen will weaken as the government hopes to stimulate exports to improve their economy. It will be interesting to see how this plays out and if the Bank of Japan has enough muscle to fend off risk-aversion plays should global economic recovery falter.
As you can see, there can be different market responses to good economic news. One could make a cogent argument for either Dollar strength or weakness based on today’s sales figures. Inflation hawks will claim this means that the Fed should be raising rates; while doves say the economy is still too fragile and investors should seek yield elsewhere.
Regardless of which way the Dollar moves and its affect on other currencies, this is good news for the US economy.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Which Way to Go?
By Mike Conlon | March 11, 2010
As I mentioned yesterday, the currencies are now seemingly beginning to shed the risk on, risk off labels and are starting to trade more on individual fundamentals. While I don’t want to completely abandon risk themes, I’m not going to be so quick to dismiss market movement as risk-taking or risk-aversion.
That makes it a little easier when we have mornings such as today which are a bit of a mixed bag. I just watched the Aussie go from slightly positive to slightly negative; and the Pound and Euro are higher.
In news that is important to the global economy, inflation in China reached a 16-month high which should cause monetary tightening. This means that there could a decrease in global demand.
As I am typing this, the US Initial Jobless Claims numbers came out and while the news was expected to have a benign market impact; it has flipped the market into risk aversion mode. Maybe those fundamentals aren’t that important after all.
Let’s take a look at the individual currencies:
Aussie (AUD): The Aussie started the morning in positive territory but then slipped to negative as risk aversion is starting to steer the market action. There was “disappointing” news earlier as Australia reported the slowest amount of job gains in 6 months and unemployment stayed steady at 5.3%. This may give the RBA a little bit of wiggle room at the next interest rate meeting and they may not have to raise rates. I think it’s slightly amusing that this news can be viewed as negative, as just about every other economy would do anything to have such a “problem”.
Kiwi (NZD): The Kiwi on the other hand started the morning negative and has stayed there now that risk aversion has been added to the mix. The central bank left rates unchanged at 2.5% as was expected, but quashed hopes of a rate hike before mid-year. Apparently falling housing prices and weak consumer spending are contributing to a slower than expected economic recovery.
Loonie (CAD): The Loonie is down this morning on what I’m going to deem the “reverse Midas touch”. Apparently the Bank of Canada appointed a Ben Bernanke disciple as deputy governor to potentially change the way the central bank looks at interest rate policy. As of right now, the bank has a mandate which attempts to keep inflation at 2%, but they may want to change to a new system that targets prices rather than inflation. All the market is seeing at this point is that Canada may get wrapped up in the nonsense that is US interest rate policy and that doesn’t bode well for higher rates. Add that to lower oil prices, down slightly from yesterday’s move to above $82, and risk aversion.
Euro (EUR): The Euro is mixed this morning as Greek labor strikes (riots) are causing a backlash against austerity measures. In the meantime, the ECB maintains a cautious outlook and reiterated that interest rates are at appropriate levels.
Pound (GBP): The Pound is higher this morning halting a three-day slide and is trading back to 1.50 vs. USD. This much needed rest from selling came about as the Bank of England’s quarterly inflation attitudes survey showed that consumer price expectations rose to 2.5%, its highest reading since 2008.
Dollar (USD): The Dollar is higher this morning after the 8:30AM Initial Jobless Claims report which came in higher than the expectation. While the number 462K vs. the 460K expectation is not that significant, the market was clearly expecting a better figure and this provides pause to the notion that the US economy is in full recovery mode. Stocks in Europe sold off on this number as traders ran to the safety of dollar and yen.
Yen (JPY): Japanese GDP was revised lower to show growth rose at 3.8%, slower than the 4.6% reported in preliminary figures last month. The Yen is higher on, yep; you guessed it, risk aversion.
As you can see from today’s entry, things in the forex can change pretty quickly. That’s why is ultra-important to be aware of news events. I should have known better than to tempt the risk gods.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Fundamentals Do Matter!
By Mike Conlon | March 10, 2010
Now that the fears of global collapse have abated—for now—the markets have returned to heavier scrutiny on the fundamental numbers being reported in various countries. It is times like these that remind traders that indeed the fundamentals do matter. The longer the global economy can sustain itself without Armageddon taking place, the more and more traders will focus on specific stories and not overall risk themes.
So, while one might look at this morning’s action and be inclined to say that today is risk-taking because commodity currencies are higher, a more appropriate reaction would be that are actually both good and bad stories out there which are driving individual currency pairs.
More specifically, in currencies:
Aussie (AUD): One of the good economic stories out there is coming out of Australia which has had good gains as of late. Tomorrow they will be reporting their employment figures, which are expected to gain for the sixth straight month. In fact, the economy is buzzing along so well there that there is no an expectation that they may raise the benchmark interest rate again next month. The Aussie is in a clear uptrend and I expect it to test 2010 highs very soon.
Kiwi (NZD): The Kiwi is also another good economic story, though not as strong as the Aussie. While the interest rate decision due out tomorrow is expected to be unchanged, overall Asian recovery will benefit the Kiwi. The most important take-away from the rate decision will be the language used to give a clue as to a timeframe for further hikes. And should they surprise the market with a rate hike (highly unlikely), then lookout above!
Loonie (CAD): The Loonie is just kind of hanging out today, with no real news on tap in Canada. Oil is higher so the Loonie is up; and also riding the coattails of the Aussie and Kiwi. The only anomaly is USD/CAD, as there is dollar strength this morning.
Euro (EUR): The Euro is mixed this morning. On the one hand, now that the risk of a Greek default is mitigated, the focus is back on the fundamentals in the Euro zone. On the other, news out of Germany is that German exports are down, but German CPI is up. Traders are using this opportunity to cover some EUR/USD shorts, but otherwise the Euro is down vs. the commodities and up vs. the rest. I expect EUR/USD to be range-bound for a bit.
Pound (GBP): Another tough day for the Pound, which would be down across the board if not for the Yen. The Industrial production figures and manufacturing came in negative, marking the first decline since last August. This is likely to keep rates low in the UK for an extended period. Meanwhile, the BOE’s Adam Posen stated that he hopes their bond purchase plan “has done it” with regard to stimulating the economy but he didn’t rule out further quantitative easing.
Dollar (USD): There’s a bit of optimism about the dollar this morning as economic recovery appears to be going faster in the US than in Europe and Japan. As risk of a global collapse is lessening, traders are looking more toward the fundamentals. So the expectation is that we may see a rate hike in the US sooner than in Europe or Japan. However, don’t be surprised to see Dollar weakness should commodity inflation pick up.
Yen (JPY): The Yen is down across the board this morning in advance of the Japanese GDP report due out tomorrow as fears of deflation are warranted. Combine this with good news from the commodity currencies, higher commodity prices, and “risk-taking” and you have a recipe for Yen weakness. Carry traders are gaining more confidence and the Yen is the funding currency of choice.
As you can see, when global economic conditions become more stable, market fundamentals return to center-stage. Under “normal” conditions, currencies from the best economies will flourish, while those not doing as well will be sold.
And that’s the basic idea behind forex trading; that you want to own the strong currencies and sell the weak ones, hopefully picking up interest along the way!
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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No Interest Rate Hikes!
By Mike Conlon | March 4, 2010
As expected, neither the BOE nor the ECB raised interest rates today with the ECB citing fiscal problems in Greece and the BOE putting a hold on further quantitative easing to see if previous measures have been enough.
In other news, US initial jobless claims came in as expected, though all eyes are on tomorrow’s Non-Farm Payrolls report. I’m seeing some mild risk aversion this morning, and again am seeing Canadian dollar strength. Commodities are flat after seeing some gains from the previous days.
In currencies:
Aussie (AUD): The Aussie was down earlier but looks like a rebound may happen today, as news of a narrowing trade deficit and an expected US employment report may outweigh concerns out of the UK and Euro zone.
Kiwi (NZD): The Kiwi is lower this morning as it looks like carry traders are dumping the Kiwi in favor of the Loonie in addition to mild risk-aversion.
Loonie (CAD): The Loonie continues to advance as traders speculate that the economic situation in Canada is in good enough to begin raising rates. The Loonie is fast approaching the 1.02 level to USD and we could see parity by mid-year if interest rates begin to rise in Canada.
Euro (EUR): The sale of Greek bonds is going well this morning as higher yields are attracting investors and the issue is over-subscribed. In the meantime, there is equal outrage in both Greece and Germany although the Germans haven’t taken to streets like the Greeks have—yet. What is happening in Greece is a perfect example of what happens when a government grants its citizens entitlements and then has to take them away because they can’t afford it. I hope the US administration is taking note. Interest rates were held steady and the ECB has decided to not remove economic stimulus at this time.
Pound (GBP): Interest rates have been held steady at .5%, which comes as no surprise to the market. The BOE did make it clear that they will not increase bond-buying to help stimulate the economy. It is clear that the UK sees the need for deficit reduction so the BOE is content to play the “wait and see” game to see if earlier measure have taken hold. There is still increased fear that the UK could be headed for a slide back into recession, and the spring elections are also lingering as fears of a “hung parliament” could cause political non-action.
Dollar (USD): Initial jobless claims came this morning as expected and pending home sales are due out later this morning. We could see some volatility as traders position themselves for tomorrow’s NFP report. The Dollar is mixed this morning.
Yen (JPY): The yen is down across the board this morning as there is talk about a potential sales-tax increase coming from Finance Minister Kan. This would be the first increase in over 10 years and could be a sign that the fiscal situation in Japan is worse than expected. However, this may be a ploy to put pressure on the BOJ to increase bond-buying. Any way you slice it, the Japanese would like to have a weak currency to help exports, and the Yen has been on a tear as of late.
So European themes are dominating the market right now; and Japan is trying to keep the Yen from strengthening. Tomorrow’s NFP report is usually the biggest event for the currency market, as this will give clues as to where the US economy is or may be going, and what the economic response is going to be as a result. This could affect the risk outlook for the rest of the month for as the Dollar is the world’s reserve currency.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Greek Revival?
By Mike Conlon | March 3, 2010
No I’m not talking architecture this morning; I’m talking about the austerity measures Greece is proposing to undertake in order to satisfy the French and the Germans. Now if they can just keep their citizens from rioting in the streets they might just be able to pull this off. Meanwhile, the Euro is higher to 1.365 vs. USD.
Also higher this morning is the British pound, which is bucking a 6-day slide. Sort of like God, on the seventh day it rested! The Canadian dollar is higher in a continuation of yesterday’s news.
So this morning is sort of a mixed bag. More news driven than risk-oriented, it will be interesting to see if the currencies fall back in line.
In currencies:
Aussie (AUD): Australian GDP came in this morning a little bit higher year over year, though not gangbusters as we may have been lead to believe. While the economy has been moving along nicely and is well-positioned for growth, the lack of explosive growth means that we could see a pause to near-term rate hikes. The forex market can be so greedy at times! The Aussie is mixed this morning.
Kiwi (NZD): The kiwi is down today across the board and is trading near a 10-year low to the Aussie. It looks as though the market is attempting to re-define the Kiwi’s place in the “risk totem pole”. Nevertheless, the Kiwi economy is still on track and they do provide 2.5% interest, making it a good destination for carry trades. I think the market realizes that the economies of Australia and New Zealand are quite different, and the Loonie looks poised to replace the Kiwi, as traders speculate that rate hikes may be coming sooner in Canada then in New Zealand. This makes the Kiwi/Loonie pair the largest loser of the morning, down some 1.15%.
Loonie (CAD): The Loonie is benefitting this morning from yesterdays interest rate decision as the market is now starting to believe that Canada may be the next to raise interest rates. The Loonie is up across the board this morning.
Euro (EUR): The Euro is higher against all but the Loonie and Pound, as proposed Greek austerity measure are giving hope that the debt problem won’t spiral out of control. This is coming ahead of the Euro zone GDP report and interest rate decision due out tomorrow. Rates are not expected to change and any surprise to the upside on GDP would be viewed as positive by the market.
Pound (GBP): The Pound is higher this morning after consumer confidence figures came in better than expected. I’m not so sure why they are so confident but to each their own. Tomorrow is the BOE’s decision on interest rates and quantitative easing. Deficit reduction is a major priority in the UK so it will be interesting to see if they need to continue to stimulate the economy at the expense of increasing debt. Stay tuned!
Dollar (USD): The Dollar is down against all but the Kiwi as job cuts have fallen to their lowest levels since 2006. All this means is that employers plan on firing less people. They are still not in “hiring mode” so the “jobless recovery” continues as political uncertainty and Friday’s Non-Farm Payrolls report loom heavily over the market.
Yen (JPY): The Yen is mixed this morning, giving back some gains against the European currencies yet higher vs. the Aussie and Kiwi. As no real risk themes are presenting themselves today, the yen is benefiting from a little bit of carry trade unwind and it looks like some of that carry trade money is going toward the Loonie. No real news out of the region today besides a reading of higher worker earnings, which could help push domestic demand.
The markets aren’t always dominated by risk themes so it is really important to pay attention to the overall economic news for the most widely traded currencies. Slight changes can have large effects in individual currencies which can “break out” of the usual order. In these situations, there is great opportunity as sometimes the market is slow to catch on. My trumpeting of the Loonie over the last few weeks is one such example.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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Be Careful What You Wish For!
By Mike Conlon | February 24, 2010
Today, Fed Chairman Ben Bernanke will begin 2 days of testimony on Capitol Hill regarding monetary policy. On the heels of one of the worst Consumer Confidence numbers in recent memory it will be somewhat difficult to weed through all of the political wrangling and double-talk that is bound to arise from self-serving Congress-people. That aside, pay attention to 2 things: 1) his recommendation for how to stimulate jobs growth—incidentally this is akin to Congress asking Bernanke to their job for them; and 2) any change to the language that he will keep rates at a record low for an “extended period”. At some point, he will have to move on rates and last week’s move on the discount rate may be a harbinger of things to come.
In other news, German GDP came in flat as in they had no growth—which is actually positive in that their GDP is not negative from the previous quarter and meeting analyst expectations. Asian markets were down big overnight, taking their cues from yesterday’s US stock market sell-off. Commodities are lower yet I’m seeing general US dollar weakness. So today is a mixed bag yet again.
In currencies:
Aussie (AUD): The Aussie is mixed this morning as wage growth slowed at the slowest pace in close to 10 years, up .6% vs. analyst expectations of .8%. The RBA is monitoring this figure closely to see if inflation pressures are mounting. With Chinese demand expected to pick up and Australia to benefit greatly, the RBA is not afraid to raise rates if necessary.
Kiwi (NZD): The Kiwi is down this morning in a case of “less-good” news than some of the other regions around the globe. Tomorrow we will get a reading on New Zealand business confidence so that could hint at the consumer spending numbers and GDP which will also give a clue as to inflation. While the Kiwi is “along for the ride” with the Aussie and is a destination for carry trades, its economy is not nearly as strong as its neighbor to the west.
Loonie (CAD): The Loonie is higher this morning due to “Olympic Fever” and investors starting to catch on to the economic story in Canada. Canada flies under the radar a little bit and sometimes gets too caught up in the US economy and oil correlation. Incidentally, oil is off of its lows of the morning and is just barely negative.
Euro (EUR): The Euro is bouncing back nicely from oversold conditions and is taking a break from all of the selling we’ve seen as of late. German GDP figures came in as expected, thereby not providing cannon fodder for short-sellers. Tomorrow is the real test for Germany though, as unemployment figures are due out. Unless risk-aversion comes into play later today, I expect to see the Euro remain positive.
Pound (GBP): Political uncertainties in addition to economic struggles are plaguing the Pound as of late. A UBS report claims that the market is worried that the conservatives in government will push for deficit reduction pre-maturely before the British economy is in full-blown recovery mode, thereby adding additional pressure to Sterling. In the meantime, additional bond buying has not been ruled out by the BOE—yet!
Dollar (USD): The Dollar is mixed this morning, showing neither major gains nor losses vs. other currencies. New home sales are due out this morning but at this point unless the number is ridiculously bad I can’t see it having any impact on the market. Bernanke will be testifying for the next 2 days so expect the Dollar to trade cautiously unless Big Ben says something to upset the market.
Yen (JPY): The Yen is seeing a bit on strength as of late, showing four days on gains in a row vs. USD. Recently, the government spat with the Bank of Japan may be on to something as the former claims that the latter isn’t doing enough to prevent Yen strength. As an exporting nation, we know that the Japanese want just the opposite—Yen weakness.
In overnight trading, the Asian markets were down, following the sell-off here in the US. European markets are currently higher on the German GDP news, and stock futures are higher here in the US.
It looks like oil has climbed back to near flat from being down earlier trading at just a smidge under $78, and gold is lower trading at roughly 1095, higher than its lows of the morning but now under $1100.
Look for light trading in the forex market as all ears are glued to the Bernanke testimony. As painful as it may be to listen to politicians make fools of themselves, this could be an important if indeed there is going to be a policy shift. My gut tells me it won’t be.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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To Inflate or Not to Inflate?
By Mike Conlon | February 18, 2010
There are a few different economic figures coming out in different regions around the globe that all have one thing in common: prices. Prices are important to economic forecasters and finance ministers as it gives them a gauge of where their particular country is in relation to inflation. Most Central Banks around the world are mandated to control their economy’s inflation, so when these numbers come out, the market usually perks up.
This morning, we had an interest rate decision in Japan, Consumer Price Index reported in Canada, and Producer Prices Index reported here in the US. In Japan, the BOJ held interest rates steady at .1%, which was no surprise to anyone, but Canadian CPI and US PPI came in a little hotter than expected. This could signal some potential interest rate hikes here in N. America, thought the economic recovery is still fragile so it is a fine line policy makers are walking. So far this morning is showing mild risk-aversion tendencies, though that could change once the US stock markets open.
In world currencies:
Aussie (AUD): The Aussie is lower this morning on risk aversion as data from the US shows signs that the economy is heating up and that accommodative measures may be removed. There is no further news specific to Australia on tap for this week.
Kiwi (NZD): New Zealand consumer confidence came in lower this morning than last month’s reading, though the Kiwi economy is still viewed as strong. With commodities lower this morning and risk aversion, the Kiwi is down across the board.
Loonie (CAD): The Loonie is showing strength this morning as Canada reported CPI that was 1.9% higher than a year ago. This was a little higher than the expectation, but more importantly is showing economic strength which may cause the Bank of Canada to move on rates sooner than expected.
Euro (EUR): The Euro is pulling back this morning as the debate over Greece lingers over the Euro zone and is becoming a game of “pin the blame on somebody”.
Pound (GBP): The Pound is markedly lower this morning as a report came out that last month the UK ran a deficit of 4.3 billion pounds, when economists were forecasting a 2.6 billion pound surplus. This comes on the heels of yesterday’s negative employment report which contributes to the belief that economic recovery in the UK may be further away than previously thought. The Pound is down across the board.
Dollar (USD): The Dollar is higher this morning as US PPI came in higher than expected, prompting the inflation hawks to start chirping. But Initial Jobless Claims also came in higher than expected; thereby negating the thought the Fed will need to move on interest rates. The dollar is beginning to give back some of its earlier gains on the employment number, though I’m not sure how the market can see this as positive. Stock market futures are lower, as are oil and gold, though well off of their morning lows.
Yen (JPY): As expected, Japan did not change its view of interest rates remaining at .1% which is no surprise to anyone. Japan is battling some serious deflation, so any sort of inflation there would be welcome.
In overnight markets, the Nikkei was higher though the Hang Seng was lower. Europe is mixed as well with the FTSE higher on the UK deficit report, but Germany and France marginally lower. US stock futures are lower as are gold and oil though they’ve given back gains and today looks like its reverse from risk aversion to risk taking.
With the numbers reported today, it sometimes baffles me that higher unemployment and potential inflation is “good” for the market and encourages risk taking. It looks like the market is betting that the US is going to be content to let inflation occur in order to continue the monetary stimulus it believes is leading to economic recovery. However, the employment figures tell us otherwise. How this is going to play out down the road is anyone’s guess but in my mind it ain’t gonna be pretty.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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US Earnings Increase World Confidence!
By Mike Conlon | February 17, 2010
US stock futures are higher this morning in the wake of a flurry of good corporate earnings reports. Of course many will tell you that “it’s easy to make money when you fire all of your employees”, but regardless of how the money was made, it bodes well for world economic growth.
This has buoyed forward further stock gains in a continuation of yesterdays market action. As a result, we are seeing further risk-taking in the markets, with world stock markets and commodities higher, and the US dollar and Japanese yen lower. Whether or not the market can hold on to these gains remains to be seen.
In world currencies:
Aussie (AUD): Predictably, the Aussie is trading higher this morning, particularly against the yen as higher risk takers seek yield. Notes from the RBA meeting referenced higher rates were only a matter of time and that they were close to pulling the trigger at the last policy meeting. Thus traders have increased their bets that this rate hike could take place in March.
Kiwi (NZD): The Kiwi is also higher on risk-taking and higher commodity prices, though the economy in New Zealand is not as strong as its neighbor Australia. Rates are seen as being stable until the second half of the year, so expect the Kiwi to continue to fluctuate on the market risk themes. New Zealand will be reporting its consumer confidence numbers tomorrow so this could give some insight into retail sales and possible inflation or lack thereof.
Loonie (CAD): The Loonie keeps chugging along near its highest level this month, helped higher by oil prices over $77 and an overall good economic picture. However, Canada eased pressure on potential rate hikes by tightening mortgage requirements, trying to prevent a housing bubble through regulation rather than interest rate hikes. If Canada can stave off further housing gains, they may be able to contain inflation without having to move on rates.
Euro (EUR): The Euro is mostly down this morning, trading higher vs. only the Japanese yen. I could continue to beat this Greece theme to death but the market will be moving in and out of confidence in the common currency as more and more “news” comes out. There is still great structural risk to the Euro, and fears of contagion to the other PIIGS countries always keep investors on their toes.
Pound (GBP): The Pound is mixed this morning, as the BOE voted unanimously to suspend its Bond-Purchase (QE) program on optimism that inflation will return to their 2% target rate. Recall that just yesterday, inflation came in hotter than expected at 3.5%. The British are famous for their “wait and see” approach and conservative measures. In the meantime, unemployment jumped to its highest level in 13 years, against an expected decline.
Dollar (USD): The dollar is showing strength this morning despite the stock futures and commodities markets trading higher. I expect some sort of “reversion to mean” to mean to take place today, with either stocks or the dollar pulling back, or a combination of both. US housing starts came in higher than expected this morning, showing that the economic recovery may be getting stronger and increased demand for housing may be picking up.
Yen (JPY): The Yen is at a 2-week low, trading at over 91 per US dollar, further cementing itself as the fuel for carry trades. The yen is down across the board ahead of tomorrow’s interest rate decision, where policy makers are expected to keep rates at .1%.
In overnight markets, Asia was up big with the Nikkei leading the way up 2.72%. European stock markets are also currently higher, all nearly posting better than 1% gains at the moment. In commodities, oil is just under $77 and gold is around $1118.
Overall, today is a bit of a mixed bag, with US dollar strength competing with the stock market for investor dollars. While risk-taking seems to be en vogue today, this could change at any point in time. While there is no real news that should derail this theme today, anything is possible.
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Risk Appetite Returns!
By Mike Conlon | February 16, 2010
The markets are back to “normal” after some being closed for various holidays. Risk appetite is the play today, as the Euro is rebounding against the dollar on thoughts that the Euro may have slid “too far, too fast”. Also, news out of Australia from the Reserve Bank minutes hinted that further rate hikes were in order should the Australian economy extend its recovery.
Also to note is that commodity prices are higher as which is consistent with an increase in risk appetite.
On to the currencies:
Aussie (AUD): The Aussie is higher on new from the RBA minutes. Analyst expectations are for the Aussie to gain to .91 vs. USD by the end of March. Should the economy continue to expand, then further rate hikes could be in order. The current benchmark rate is at 3.75%, making the Aussie a popular destination for carry trades.
Kiwi (NZD): The Kiwi is moving in tandem with its South Pacific partner the Aussie. While growth has not been as robust in New Zealand, the Kiwi will also benefit from increased commodity prices and a higher benchmark interest rate as well. That rate is currently 2.5%.
Loonie (CAD): The Loonie is trading higher this morning on the risk trade as well as the fact that oil is back over $75. Canada is in the spotlight right now as host of the 2010 winter Olympics as sometimes they get lost in the shuffle in the risk trade hierarchy. The Loonie is up to 1.043 vs. USD this morning, its highest level this month.
Euro (EUR): The Euro is higher against all but the commodity currencies, paring back some of its losses from the previous week. There is tough talk coming from the EU finance ministers regarding Greece, as news has surfaced that Greece may have used derivatives to “fudge the numbers” in order to gain entry to the EU. The fact that Goldman Sachs was involved should come as a shock to no one. Also contributing to the Euro gains this morning is the reading from the German Sentiment Index this morning which was lower than previously reported, but ahead of analyst expectations which net-net is positive for the Euro.
Pound (GBP): The Pound is lower this morning across the board as consumer prices rose 3.5% from a year earlier. A deviation of more than 1% from the target rate of inflation (2%) requires a letter from BOE Governor King as to how he intends to get back to the goal rate. Inflation volatility is to be expected, and this reading was not a surprise to analysts. This could put more Quantitative Easing back on the table for the UK, which would be Pound negative.
Dollar (USD): The Dollar is down this morning as risk-taking is the flavor of the day and stock futures and commodities are higher. The dollar is down 1% vs. the Kiwi and Aussie.
Yen (JPY): As is expected on a risk-taking day, the Yen is down against all but the Pound as the threat of deflation keeps rate hikes off of the table and provides the fuel for carry trades in Aussie and Kiwi despite the good GDP numbers from yesterday.
In overnight markets, the Nikkei closed higher but the Hang Seng closed lower. European markets are higher as are US stock market futures. Oil is back over $75.25 (+1.5%) and gold is up to around 1115 (+1.38%).
As you can see, there is always something happening in the currency market that can influence sentiment and thus market direction. Following the news is extremely important in understanding how market participants view world events.
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Possible Greek Bailout?
By Mike Conlon | February 9, 2010
So much for trading sideways yesterday. What started out as a quiet start to trading ended up with a continuation of last week’s sell-offs in the stock market, as the Dow closed below 10K for the first time this year. However, both gold and oil were up slightly yesterday, showing signs that some of the correlations that we often speak of may be breaking down.
This morning, markets are trading higher as hope is coming out of the Euro zone that the other European nations may be coming to help Greece in tackling their budget deficit. As you would expect, this is causing some risk-taking this morning.
Let’s look at what this means for the currencies:
Aussie (AUD): In addition to general risk themes this morning, the Aussie is trading higher as comments from the RBA’s Governor Stevens said that keeping rates low “may help cause bubbles and credit booms.” Also to note that Central bankers from around the globe are meeting in Australia to discuss the fallout from the credit crisis and to proceed going forward. It will be interesting to see if anything of substance comes out of this meeting, or is more of just a show.
Kiwi (NZD): The Kiwi is the largest gainer this morning, up 1.4% vs. JPY and 1.15% vs. USD. Higher commodity prices and risk-taking are fueling buying in the Kiwi. The Kiwi was also one of the biggest losers last week so it is also benefiting from some technical buying, as it holds near-tern support at .68 vs. USD.
Loonie (CAD): As mentioned yesterday, the Loonie is going to trade primarily on risk themes and commodity prices and today is the day that higher prices are lifting the Loonie, which is up against all but the Kiwi and Aussie, assuming its position of “3rd rung” on the risk-taking ladder.
Euro (EUR): The Euro is higher this morning on speculation that Greece is going to be bailed out by the rest of the Euro zone countries. Apparently ECB President Jean-Claude Trichet has left the policy meeting taking place in Australia to return home to conduct EU business. This has lead to traders bidding up the Euro in anticipation of a solution being realized. Also the Euro is benefiting from its status as the “anti-dollar”, which is down today.
Pound (GBP): The bound is down this morning on a weak retail sales report that climbed at its slowest pace in almost 15 years. Traders are positioning themselves ahead of the UK inflation report due out tomorrow which could be weaker than expected if the retail sales figures are indicative of slow UK growth, keeping inflation tame and not giving the BOE any reason to raise rates in the near future.
Dollar (USD): The Dollar is giving back some gains after a going on a four-day tear as the risk aversion was the dominant theme last week. The Dollar is down vs. all but the Yen, and could strengthen to 90 vs. JPY is risk themes hold up today.
Yen (JPY): The Yen is the biggest loser this morning as risk appetite is driving carry trades this morning. Should any news come out of the Euro zone regarding a solution for Greece, then we could see some further depreciation as it would be “game on” for further risk-taking.
This morning is going to be a big open as US stock market futures are significantly higher. The Dow could open up some 100 points and oil and gold are also trading higher, with oil at 72.5 and gold at 1075.
In overnight markets, Asia was up primarily with the exception of the Nikkei which was down slightly, and Europe is currently up across the board on Greece bailout hopes.
Should the market hold onto and not give back gains, then I expect to see further dollar and yen weakness.
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