Growth By Contraction!
By Mike Conlon | September 2, 2010
In what seemingly is a contradiction, Europe is proving that you can grow by shrinking. If you don’t believe that’s possible, look no further than the EU GDP figures reported this morning. GDP figures came in showing growth of 1.9% vs. an expectation of 1.7%. But wait a second, isn’t the EU enacting austerity measures?
Yes, they are enacting austerity measures but they are not experiencing the crisis of confidence that we have here in the US. This allows for more active participation in the economy, as fears have been removed about the future of policy. In other words, they are taking their medicine. In addition, the ECB left rates unchanged at 1% which was no surprise to anyone and will most likely remain in “crisis mode” until next year.
Conversely, here in the US companies are still afraid to hire employees as they are fearful over the economy and government policy. With no end to the spending in sight, the “extend and pretend” policies and looming deficits and taxes and regulation and healthcare (oh my) make even the boldest of businessmen appear more scared than the cowardly lion!
As a result, Initial Jobless Claims came in slightly better than expected, showing new claims of 472K vs. an expectation of 475K. Home sales figures are due out later this morning and my guess is that this figure is not going to be encouraging either.
In the UK, housing prices came in lower than expected which may help inflation come back down and allow the BOE to maintain accommodative policy measures throughout the austerity measures.
So this morning’s currency market action is a bit of a mixed bag, as the market can’t decide if the fundamentals support risk-taking.
In the forex market:
Aussie (AUD): The Aussie is lower this morning as the trade balance figures came in worse than expected. The Australian trade surplus shrank to A$ 1.89B vs. an expectation of A$3.1B. This comes a day after better than expected GDP figures were reported yesterday.
Kiwi (NZD): The Kiwi is actually higher this morning on—ready for it—higher powdered milk prices!! If I had any sort of journalistic integrity I wouldn’t even mention this but the higher Kiwi seems like an anomaly to me so I’m going to go with it. If I had to guess what is going on, I would blame stealth Chinese currency diversification. (Click chart to enlarge)
Loonie (CAD): The Loonie is lower as crude oil prices have pulled back to 73.25 and the market prepares for tomorrow’s US Non-Farm Payrolls report. Canada is particularly sensitive to US economic data as the US is its largest trading partner.
Euro (EUR): The Euro is mixed this morning as the GDP figures and steady monetary policy are encouraging despite the known debt problems and commitment to austerity. Just goes to show sound economic policy goes a long way to helping in recovery. (Click chart to enlarge)
Pound (GBP): The Pound is mostly lower as home prices fell signaling that inflation may again fall below the BOE upper band of 3%. This may allow the BOE to maintain accommodative policy as austerity measures help tackle the deficit.
Dollar (USD): I’m starting to sound like a broken record here so I’m not even going to say it. I’m just waiting for tomorrow’s NFP figures which they market will use as a true gauge of whether or not jobs are being added to the economy. Government models and proclamations of jobs “created or saved” ring hollow. The proof is in the pudding, as they say.
Yen (JPY): The Yen is showing strength again, as the market is going to test Japanese policy-makers over intervention. The Nikkei was higher overnight so the inverse correlation of Yen to the Nikkei is not holding up today. As the rhetoric heats up, what will Japan do? (Click chart to enlarge)
It is becoming more and more apparent that things in the US are not getting better. While they may not be getting worse (yet), I think we may be in a holding pattern until the November elections where hopefully the “bums get thrown out”.
There has been much talk recently that a lot of the damage has already been done and that political gridlock may not be seen by the market as a good thing. My guess is that any change in leadership at this point is going to be viewed as positive, and if we can actually change the collision course our economy is on people might actually be able to get back to work and help the economy grow again.
Until then, expect fear to rule the markets and tomorrow’s NFP number could be the continuation of last month’s fear driven market action.
I never thought I’d say this as an American but perhaps we should be taking economic direction from the Europeans! For their realistic assessment of how to recover while not popular is the right thing to do.
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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Hello September!
By Mike Conlon | September 1, 2010
The markets this morning are clearly relieved to be done with the month of August which was a doozy for equities and commodities. On this first day of September, risk appetite has returned to the market as US stock futures are higher on the heels of Asian and European stock market gains.
Much of the catalyst for this is due to Australian GDP figures which came in better than expected, and Chinese PMI figures which showed gains for the first time in 3 months. This shows that China still has upward growth, though it is moderating. This also bodes well for Australia, who supplies China with the raw materials it needs to sustain its growth.
In the Euro zone PMI figures showed slight gains, while in the UK, PMI figures came in worse than expected as austerity takes hold.
In the US, the ADP Employment change showed a loss of 10K jobs vs. an expectation of a gain of 15K. This caused a slight sell-off on the news announcement, but the market has quickly blown off this reading and is awaiting the US ISM manufacturing figures which are expected to show a decline from last month.
Nevertheless, the market is in classic risk-taking mode, led by the commodity currencies and marked by Yen and Dollar weakness.
In the forex market:
Aussie (AUD): Overnight, Australian GDP figures showed that the economy rose at the fastest pace in nearly 3 years, reporting growth of 1.2% vs. vs. an expectation of .9%, and YoY growth of 3.3% vs. an expectation of 2.8%. Adding to Aussie strength was the Chinese PMI report which showed a return to manufacturing growth. (Click chart to enlarge)
Kiwi (NZD): The Kiwi is following the Aussie higher as risk appetite and yield-seeking money flows provide demand. There is no major news out for the Kiwi for the rest of the week so expect it trade on risk themes.
Loonie (CAD): Crude oil is higher this morning as risk appetite is driving higher commodity and stock market prices and the Loonie is along for the ride. However, traders are paring back bets of a further rate hike as GDP figures reported yesterday came in worse than expected.
Euro (EUR): The Euro is higher this morning as PMI figures came is slightly better than expected showing that there is still some life in the EU economy. However, retail sales figures in Germany came in lower than expected but this is not enough to cause a change in sentiment this morning. In addition, Portugal had another successful debt offering, as demand hasn’t waned. (Click chart to enlarge)
Pound (GBP): The Pound is mixed this morning as is usual under risk-taking scenarios. However, PMI figures came in worse than expected, missing analyst expectations and showing a decline from last month. Austerity measures in the UK may contribute to further Pound weakness going forward. (Click chart to enlarge)
Dollar (USD): The Dollar is weaker across the board as demand for the Greenback is low due to risk taking in the market and the ADP jobs report. US ISM manufacturing figures are due out at 10AM EST and a decline is expected. The ADP figure is the first of the 3 jobs reports due out this week, with initial jobless claims out tomorrow, and the all-important Non-Farm Payrolls report due out on Friday.
Yen (JPY): The Yen is mostly lower this morning as risk appetite has encouraged yield seeking through carry trades. However, the Yen is still showing strength against the Dollar, returning very close to the 15-year high put in last week. It appears as though the market is going to test the resolve of the Japanese policy makers to see if intervention is really in the cards.
As is indicative this morning, it’s not always about the US economy. While the numbers here look pretty bleak, there are pockets of strength around the globe. Right now, the only thing keeping the Dollar afloat is risk aversion, and most of the “bad news” is from US self-inflicted wounds.
Yesterday’s Fed Minutes showed that further quantitative easing may be off the table for now, which the market views as a good thing. As other economies around the globe work to slash deficits, adding to the US deficit would be seen as negative and could have had the opposite effect.
This week is important for the US economy as it’s all about jobs. I can’t harp on this enough. And this goes hand-in-hand with US government policies. A report yesterday showed that banks have eased lending standards yet demand for new loans was weak. This is all because of the uncertainty surrounding current policy and the likely affects of more regulation, taxes, and the healthcare overhaul.
Meanwhile those that can’t find work are left out to dry, with their only hope that more government cheese will keep them afloat. If this isn’t a recipe for disaster, I don’t know what is.
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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China Surpasses Japan!
By Mike Conlon | August 16, 2010
Overnight, Japan reported less-than expected GDP figures which allowed China to leap-frog into second place in global economic strength. Japanese GDP came in at .4% vs. an expectation of 2.3%, which was a major disappointment. This sent the Nikkei lower and the Yen higher, as risk aversion is mild but continuing from last week.
In the EU, CPI figures came in mostly in line with expectations, with July CPI falling .3% vs. an expectation of a .4% decline, and the headline figure matched expectations at an increase of 1.7% annualized.
Home prices in the UK fell 1.7% this month according to Rightmove, and the market is waiting for Wednesday’s minutes from the rate policy meeting which may show that the BOE is prepared to continue with accommodative policy to support the economy.
In the US, the Empire Manufacturing figures came in less-than expected, but higher than last month. This months’ reading was at 7.10 vs. an expectation of 8.0, but higher than last month’s 5.08.
Dollar weakness is the theme of the morning, as recent reports that China has been favoring the Euro may be behind the move higher from its June lows. As the world’s second largest economy, China will have a major impact on the global recovery.
In the forex market:
Aussie (AUD): The Aussie is mixed this morning, trading higher among the other commodity currencies and the Dollar, but lower vs. Yen, Euro, and Pound. Tomorrow the RBA will release the minutes from its rate policy meeting which will provide further insight into the health of the Australian economy. (Click chart to enlarge)
Kiwi (NZD): The Performance of Services Index fell to 50.5 vs. the previous month’s reading of 55.1, showing that the sector was expanding at its slowest pace in nearly 10 months. The Kiwi is lower as a result, also feeling the effects of Yen strength and mild risk aversion.
Loonie (CAD): This is a light week for news out of Canada, with Friday’s CPI data to be the headliner. Expect the Loonie to trade on oil prices and US sentiment this week, as a slowing US economy will affect Canadian exports and thus economic growth.
Euro (EUR): Euro zone CPI data came in this morning mostly as expected, and shows signs that the economy while slowing is still moving forward. Recent Euro strength from the June lows is being attributed to Chinese demand and general displeasure with the US dollar. (Click chart to enlarge)
Pound (GBP): The pound is mixed this morning as home prices came in lower, and the minutes from the rate policy meeting are due out on Wednesday. In addition, CPI data and retail sales figures will be out tomorrow which will contribute to Pound sentiment surrounding BOE monetary policy.
Dollar (USD): The Dollar is weaker this morning as US economic status is coming under fire from abroad. Concerns over massive deficits have led China to invest more heavily in Europe, and the viability of the path the US is following is being questioned.
Yen (JPY): The yen is higher across the board, as GDP figures came in worse than expected. The intervention chatter is starting to heat up as Yen strength vs. the US dollar is returning toward last week’s 15-year highs; however it is questionable as to how effective this would be. A higher Yen will affect demand for Japanese exports, which could negatively impact stock prices going forward. (Click chart to enlarge)
It should come as no surprise that the global economy is beginning to falter as little by little, policy makers are removing the stimulative measures designed to stabilize their economies. Falling GDP in Japan is just one of these signs.
Announced austerity measures in the UK and Euro zone have been met with market approval, which the US policy of “extend and pretend” continues to garner criticism. And when I talk about market approval, I really mean China.
The Chinese have amassed huge currency reserves due to their peg to the US dollar, among other factors which have tilted the global economic balance in their favor. Rightly or wrongly, China has established itself as the major player going forward.
As various data points come in around the globe, remember to follow the money. That is, do what China does. If they are not enamored with US policy, then you shouldn’t be either. As the newly-minted No. 2 economy on the planet, it will only be a matter of time before they really begin to flex their muscle.
So the US had better take notice, if they haven’t already. Because the new No. 2 won’t be satisfied until they become No.1, using whatever means necessary.
Of course it doesn’t help that current US policy re-enforces the Chinese position.
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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Markets Still On Edge!
By Mike Conlon | August 12, 2010
Overnight, the Asian equity markets fell, following yesterday’s 2%+ declines in US equities. This has brought about some continued risk aversion, and US stock futures are lower to start the morning. European stocks have held up modestly, though revised growth projections from the ECB and lower than expected industrial production figures have put some pressure on the Euro.
In Australia, the economy added more jobs than expected, but the unemployment rate ticked higher as more people entered the workforce.
Meanwhile here in the US, jobless claims increased to their highest levels in nearly 5 months, coming in worse than expected and lending more credence to the Fed’s forecast of slower growth.
Speculation is heating up in Japan over currency intervention as the Yen advanced to 15-year highs vs. the Dollar, but it is paring back gains after Finance Minister Noda refused to comment on possible actions.
So we are seeing some mild risk aversion in the currencies, led by Dollar strength due to its safe haven status.
In the forex market:
Aussie (AUD): The Australian economy added 23.5K jobs last month, beating an expectation of 20K, but the unemployment rate ticked higher to 5.3% vs. and expectation of 5.1% as more people entered the workforce. This has lead to the sentiment by some that the RBA raised rates too far, too fast. This will likely bring about a pause in hikes in the near-term, as signs that the global economy is cooling off are prevalent. (Click chart to expand)
Kiwi (NZD): The Kiwi is lower on risk aversion in addition to a private report that showed that manufacturing in NZ declined for the first time in nearly a year. Calls for reduced government spending from Finance Minister English to rebalance the “lop-sided” economy are adding fuel to the fire.
Loonie (CAD): The Loonie is holding up well considering the risk aversion in the market and the fact that oil is trading lower to 76.75. The Loonie is faring better than the other commodity currencies as Dollar strength vs. the rest is seen as more positive despite the economic woes in the US.
Euro (EUR): The Euro is lower as industrial production figures fell .1% vs. and expectation of a gain of .6%, showing economic weakness. Meanwhile, rumblings from both Greece and Spain over their slowing economies have returned focus to the Euro zone, and ECB has lowered its growth forecasts.
Pound (GBP): The Pound is mostly lower except vs. the commodity currencies as perhaps the gains that the Pound made recently were over-extended. Next week, the BOE will release its policy meeting minutes which should provide more clarity into the BOE’s line of thinking. (Click chart to expand)
Dollar (USD): The Dollar is showing strength again today, as risk aversion is the continued theme this morning. Initial jobless claims came in worse than expected at 484K vs. an expectation of 465K. This clearly shows that the economic picture in the US is worsening and not getting better, and if the world’s largest economy continues to slow, it could bring down the whole kit and caboodle.
Yen (JPY): The Yen is seeing strength again today as carry trades are unwound, though it is weaker against the Dollar. Speculation is rising about possible intervention in the currency, as it bounced off of 15-year highs vs. the Dollar. (Click chart to expand)
Talk of a double-dip recession is beginning to heat up again, led by the US government’s failure to inspire confidence in both consumers and business alike. The Fed statement from Tuesday echoed these thoughts, and many believe that more accommodative monetary policy is not the answer.
Some have said that Bernanke is “pushing on a string”, meaning he’s getting nowhere. Jobless claims and home foreclosures continue to rise, and will most likely continue until the REAL problem is addressed.
And what is the real problem, you may be asking yourself?
The problem is that the business climate in the US is so negative right now, that companies will actually do better by contracting and not expanding. Not only does this mean that they are not hiring workers, but potential downsizing to cut costs to meet profits is the new corporate mantra.
So our government threatens more regulation and tax hikes while vilifying those that create jobs! Do you think the CEO of XYZ corp. is concerned that people are unemployed? Not really, he’s chillin’ at his beach house somewhere ready to ride out the storm!
Meanwhile the disconnect between Main St. and Wall St. grows wider as populist policies by politicians further erode both business and consumer confidence. Without confidence, both business and consumers are reluctant to spend which creates further downward pressure on the economy!
Recent polls by the Wall St. Journal show that Main St. is just as fed up with Washington DC as it is with Wall St. It’s no wonder the “throw the bums out” sentiment is starting to gain traction. I just hope it’s not too late!
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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Suspend Your Disbelief!
By Mike Conlon | July 26, 2010
One of the things I mentioned on Friday with regard to the European bank stress tests is that they had to be believable. The results came in on Friday and by and large were viewed as positive by the market. There was some interesting volatility in the forex market, as the news trickled in and was digested.
But the question remains, can we really believe those results? Only 7 of the 91 banks tested need to raise more capital, and none of the banks were deemed likely to fail. This has left many questioning the methods used to test, and the assumptions made to show banking strength.
So what this all really comes down to is whether or not confidence has been restored to the marketplace. Officials have been trumpeting the results and are attempting to move forward from the tests, claiming the exercise a success. Only time will tell if this is the case.
On our side of the pond in the US, we have a similar crisis of confidence taking place. Investors are clearly not enamored with the prospects of the US economy, yet officials here will tell you otherwise. The 10-year Treasury note is currently under 3%, so the talking heads will tell you that it is a “success” that we are able to issue debt with such low rates of interest.
Treasury Secretary Geithner has told us that it is confidence in the US economy that allows this to happen; however, I think otherwise. The fact of the matter is that the US is “the only game in town” at this point, with so many other economies depending on US economic strength or having issues of their own. This is another case of the US winning the “least ugly” prize in the global economic beauty pageant.
How much longer this charade will continue is anyone’s guess; but the little time we have been afforded by European weakness is bound to expire with every passing day that we don’t fix the economic ills that plague the US. But one thing is sure; the Dollar is weaker this morning as everyone has caught on to the ruse.
In the forex market:
Aussie (AUD): The Aussie is lower this morning as PPI figures came in much lower than expected. The PPI gained .3% vs. an expectation of .8%. The true tell-tale will be Wednesday’s CPI figure, which if higher than expected would show the need for further rate hikes going forward. Should the number come in closer to the PPI data, then the chance of further rate hikes would be greatly reduced, which could put pressure on the Aussie.
Kiwi (NZD): The Kiwi is mixed this morning trading higher against the other risk currencies on interest rate differential speculation and US dollar weakness, but lower vs. Yen and Euro. Wednesday evening will bring the RBNZ rate policy meeting and at this point the expectation is for a 25bp hike.
Loonie (CAD): The Loonie is also mixed as oil is lower to 78.25, but still near recent highs. Dollar weakness is not the dragging the Loonie lower as might be expected and Canadian bankruptcies fell 9.2% showing that the economy may be on better footing.
Euro (EUR): The Euro is also mixed as the market is trying to decide what to make of the stress tests. Obvious US dollar weakness has contributed to its strength and should the market decide to move past the stress tests, then CPI and employment figures later this week will come back into focus.
Pound (GBP): The Pound is higher across the board in a continuation of last week’s gains despite the fact that housing price figures fell for the first time in nearly 15 months. This is the sort of news the BOE is hoping for, as rising inflation could equal rate hikes in an uncertain economic climate curtailed by fiscal austerity.
Dollar (USD): The Dollar is lower across the board. Some of it risk appetite, some of it due to lousy economic policy. There isn’t much that could happen here in the US to make me positive on the Dollar, so watch risk around the globe as that may be the only driver of dollar strength as a safe-haven asset.
Yen (JPY): The Yen started out the morning higher but is giving back some gains as risk appetite may be gaining traction. Part of this is Dollar weakness, the part being tacit acceptance of the Euro bank stress tests. Later this week Japan will report CPI data which is expected to show continued deflation. The question will be whether or not deflation is slowing or what, if anything, the BOJ and government intend to do about it.
Part of financial market participation requires a suspension of disbelief and an acceptance that things may not always be as they seem. I tell my mentor clients all of the time: the purpose of investing in markets is to make money, not to always be right.
So while I may disagree with the way things are going or with the “truth” as it is reported, I am always willing to put my personal feelings aside and to join in with market to reach my end goal: making money. It doesn’t make sense to fight the market as “the market can stay irrational longer than you can stay solvent”.
This was one of the first mantras drilled into my head as I began my trading career, and now more than ever do I realize its truth. I hope you do as well.
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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Judgement Day!
By Mike Conlon | July 23, 2010
Today is the release of the much-anticipated results of the European bank stress tests, which are due out at 12 EST. There has been much speculation surrounding the tests, which are intended to provide clarity and transparency into the health of the European banking system.
Much of the recent rhetoric leading up to the tests has been positive; however it will be interesting to see if the market agrees. There is still some risk surrounding the results, as potential red flags still exist. Potential red flags could be the believability of the tests if only a few banks fail, or the new knowledge that more banks may be in trouble if more than expected fail. Either way, the market appreciates transparency, so in the long run this should be a positive.
The Euro has made a nice run higher from its June lows, so a reversal or pullback would not be out of the question entirely.
In the UK, GDP figures came in much better than expected lending credence to the notion that the economy is improving and providing further ammo for a potential reversal of monetary policy. The Pound is higher across the board.
In Canada, CPI figures came in less than expected, which may foreshadow a pause in further rate hikes.
Yesterday, the market went gang-busters with stocks, commodities, and “risk currencies” posting excellent one-day gains.
In the forex market:
Aussie (AUD): The Aussie is higher on mild risk-taking as European debt concerns fade going into the bank stress tests.
Kiwi (NZD): The Kiwi is also higher on risk-appetite, but catching an additional bid from Loonie weakness.
Loonie (CAD): The Loonie is mostly lower as CPI data came in less than expected. Core CPI came in at 1.7% vs. an expectation of 1.9%, and the monthly figure came in at -.1% vs. the expectation of a gain of .1%. This lends evidence that inflation may not be a problem in Canada, which would give reason for a pause in rate hikes going forward.
Euro (EUR): The Euro is slightly lower going into the stress tests despite the fact that German business confidence figures came in higher than expected. The stress tests are due out after the European stock markets close, the intention being that European traders won’t sell-off the stocks of banks that may not pass the test.
Pound (GBP): The Pound is higher across the board this as UK GDP figures came in at 1.6% vs. an expectation of 1.1%, handily beating to the upside. This shows that the UK economy may be gaining traction and may be reason for the BOE to reverse monetary policy.
Dollar (USD): The Dollar is showing a bit of strength to start the day as money flows from the Euro to the Dollar. While this is not a full-on risk aversion play, there is some safe haven demand for the world’s reserve currency.
Yen (JPY): The Yen is lower across the board as demand for carry trades is still intact and also because the Nikkei followed the US stock markets higher, as it is apt to do. Also to consider is the notion that Japanese officials do not want a strong yen so the intervention speculation is heating up. Should the market react negatively to the Euro bank stress tests, then we could see a rush to un-wind carry trades which could provide further Yen strength.
So this is the moment we’ve all been waiting for. It may take a little time for the market to digest the results so there could be heightened volatility both before and after the release.
The key to the stress test is going to be whether or not the market believes the results if they are overly positive, or the market reacts unfavorably to overly-negative results.
At the end of the day, we know that there are potential land-mines out there. Now we will know the extent. While this provides clarity going forward, this may be a case of “be careful what you wish for”.
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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Unusually Uncertain!
By Mike Conlon | July 22, 2010
Those were the comments that were made by Fed Chairman Bernanke at yesterday’s testimony to Congress in describing his current view of the economy. This sent the market into a bit of tizzy, causing a sell-off in stocks and creating Dollar strength.
However this morning the markets are riding higher on the back of good US corporate earnings and better than expected European economic data. While stocks have been volatile lately, investors are starting to come around to realize that stocks may be the only chance they have to see gains in their portfolios as bonds are paying next to nothing.
That is investors who are unaware of the forex market. Those of you who have been following this blog know that the currency market offers added protection against downside risk and allows you to diversify into the economic story of other countries.
In Europe, stronger than expected PMI and industrial new orders data have helped the Euro rebound from yesterday’s lows. This all adds up to risk-taking in the market ahead of tomorrow’s release of the results of the European bank stress tests.
In the UK, retail sales figures came in better than expected and US jobless claims are due out at 8:30 AM EST.
In the forex market:
Aussie (AUD): The Aussie is higher on risk-taking despite the fact that business confidence figures declined for the third straight month.
Kiwi (NZD): The Kiwi is higher much like the Aussie but has the added benefits of comments from the finance Minister who stated that he is seeing signs of economic rebalancing. The tradables sector expanded 3.4%, negating declining consumer confidence figures which were down 5.2%.
Loonie (CAD): The Loonie is somewhat mixed today as oil is higher following risk taking themes. However the market is a tad hesitant as concerns over US growth could affect Canada more than the other commodity currencies. This is evidenced by Euro strength vs. the Loonie. BOC Governor Carney is due to speak today and there is some speculation that he may back away from the dovish comments which accompanied the most recent rate hike.
Euro (EUR): The Euro is higher this morning as better than expected industrial orders and PMI data show signs of economic growth. This comes a day in advance of the bank stress tests, which is currently expected to project further Euro strength and not weakness. Something interesting to note is that China has been European debt despite the risks which shows that perhaps they favor the European plan of austerity over the US plan of extend and pretend.
Pound (GBP): The Pound is trading as would be expected on a risk taking day. In addition, household spending figures showed an increase of .7% vs. the expectation of .5%, and retail sales ex auto came in at 1% vs. an expectation of .6%. This may cause the BOE to re-think policy if inflation does not fall back below 3%.
Dollar (USD): The Dollar is the whipping boy today as Bernanke basically told the world that the US economy stinks in no uncertain terms. This morning, jobless claims came in higher than expected at 464K vs. and expectation of 445K. Existing home sales and the house price index are due out later this morning but I don’t expect those figures to be encouraging either.
Yen (JPY): The Yen is mostly lower though trading higher against the Dollar, despite the fact that the rhetoric is starting to pick up from various ministers who are concerned about Yen strength. The Japanese are known to intervene in their currency but at this point the market does not care as the US dollar is clearly the least desirable currency.
Well short of calling Bernanke “Captain Obvious”; no kidding that US economic prospects are “uncertain”. However I don’t know why he thinks it is “unusual”. Let’s face it, Bernanke is more of a history buff than forward-thinker, and perhaps his reliance on his study of the Great Depression has led him astray.
World economies couldn’t be more different today than they were some 70 years ago. To think that because the economy is not behaving like you thought it would based on interpretation of an event that occurred so long ago is borderline stupidity.
Here’s some certainty for ya Ben: encourage this administration to stop the profligate spending! Economies around the globe have decided to cut the fat and take their medicine; it’s a shame that US politicians don’t have the same political backbone.
This is akin to saying that it is unhealthy for a person to lose 50 pounds. While this would be true for a 100 pound woman, it most certainly would NOT be for a woman who weighed twice that amount.
And that is the problem that we have in the US today folks—that when politicians look in the mirror, they can’t recognize that we are obese! It’s like reverse economic anorexia!
It’s time to cut the fat here in the US, starting with our politicians and this administration. Trying to maintain an unhealthy weight is, well unhealthy.
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Who’s Stressed?
By Mike Conlon | July 21, 2010
Well apparently it’s not the ECB. However the market is a bit more concerned about the results of the bank stress tests which are due out on Friday. The Euro is lower this morning as ECB President Trichet is having a “behind closed doors” meeting with the banks in question today, presumably to get everyone on the same page when the results are released.
This is causing a mild bout of risk-aversion, as there is some concern that perhaps they are working on how to “spin” the results, which may not be as rosy as they have been saying. Or it could just be much ado about nothing.
Earlier today, the Bank of England released the minutes of its policy rate policy meeting which showed a heightened concern about UK inflation. This provided the Pound with a bit of a bounce, but it gave back gains as the ECB meeting came more into focus.
Fed Chairman Bernanke is going to speak later today and is expected to maintain a dovish interest rate stance, which could put further pressure on USD/JPY as the Dollar weakens vs. the Yen.
In the forex market:
Aussie (AUD): The Aussie is mostly lower this morning as mild risk-aversion is causing some selling in all pairs but the Euro and Pound. CPI data due out will provide more clarity into whether or not the RBA will consider a rate hike next month, assuming the European banks “pass” the stress tests.
Kiwi (NZD): The Kiwi is actually sporting some strength this morning despite the mild risk aversion as year over year credit card spending increased for the third month in a row. While I’m not necessarily sure this is a good thing—the Kiwi is higher against USD.
Loonie (CAD): The Loonie is higher this morning after yesterday’s rate hike despite the dovish comments from the BOC which initially sent the Loonie lower yesterday. In addition, oil is higher to around 78.50, providing a bid to the Loonie.
Euro (EUR): The Euro is lower across the board in advance of the stress tests as today’s ECB meeting is causing some traders concern. Today’s meeting is most likely to just provide a unified response to the stress tests as they don’t want anyone going “rogue”. So while some might feel this is because the results may be less than desired, I feel it is more of a coordinated action plan which unfortunately is necessary as the slightest misconstrued comment could send the markets reeling.
Pound (GBP): The Pound is giving back some earlier gains and has gone mostly negative as the market is focused on the ECB meeting taking place. This is causing some risk-aversion to start the day despite the fact the BOE policy meeting minutes showed that there is a heightened concern for inflation. At this point, they are not sure how higher taxes and austerity measures are going to affect prices going forward, but a policy adjustment may be in order if CPI data remains above the target range.
Dollar (USD): The Dollar is mixed today in advance of Bernanke’s speech later today which is all but guaranteed to remain dovish regarding interest rate policy. The Dollar is catching a bit of a safe-haven bid; though it is lower vs. the Loonie and Kiwi as the birds are showing strength this morning.
Yen (JPY): The Yen is showing strength across the board going into the Euro bank stress tests as demand for carry trades has weakened.
We were bound to see some Euro weakness going into the stress tests as the market is unsure of what to expect. While all of the chatter leading up to the meeting has been positive, there is still reason for concern.
Today’s private meeting has led some in the market to believe that they are attempting to “spin” the news, however I think it’s probably more of forming a plan to provide one clear, concise message.
The Euro has seen good gains over the last 6 weeks as we no longer hear chatter about Euro-Dollar parity. It is no secret that A LOT of banks have problems, both in the Euro zone and elsewhere, so this really should be a non-event.
Nevertheless, in todays media-centric gotta have every detail every second society, these tests will picked over with a fine-tooth comb and a microscope.
So it will be interesting to see if both the Euro and Pound can turn it around today after the ECB meeting concludes (with no negative news releases). Stocks markets are higher across the board, and Bernanke will likely contribute to further Dollar weakness today.
Keep an eye on Japan for potential intervention as continued Dollar weakness vs. the Yen is highly undesirable.
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Japanese Intervention?
By Mike Conlon | July 20, 2010
This morning, the Japanese yen is lower despite the fact that US corporate earnings are lower this morning, sending stock futures lower. Under a “normal” risk-aversion scenario, we would be seeing Yen strength, however there is some speculation in the marketplace that Japan is getting ready to intervene in its currency as recent Yen strength has been an impediment to exports and thus economic growth.
US corporate earnings are starting to show declining revenues, which is not a positive sign for economic growth. While stock investors may be mesmerized by profit beating estimates, one must consider that profit is being driven by cost-cutting and not expansion. This does not bode well for jobs growth.
The Aussie and Kiwi are higher as Chinese stocks were higher overnight. There is also speculation that China will relax tightening measures.
The Euro is mostly lower to start the US session, as is the Pound. German Producer Prices came in higher than expected, yet the ECB will maintain its asset purchase program as a “security measure”. The results of the bank stress tests are due on Friday.
Lastly, the Canadian rate decision is due out later this morning. The market is expecting a 25 bp hike to .75%, though recent global economic weakness could cause a retreat from a hawkish stance.
In the forex market:
Aussie (AUD): Minutes from the RBA board meeting showed that the Central Bank will wait for the results of the European Bank stress test as well as inflation data to determine whether or not to raise rates at the next meeting. The Aussie is higher this morning despite the risk aversion in the market this morning.
Kiwi (NZD): The Kiwi is higher as Chinese stocks were also higher overnight as there is increased chatter that the Chinese will back off the tightening measures which were intended to slow the rate of growth. If this should occur, then demand for NZ good will increase. However, the commodity currencies are giving back some gains as risk-aversion is apparent to start the US session.
Loonie (CAD): The Loonie is mixed this morning as the BOC rate decision came in with a 25 bp rate hike to .75%, as expected. However it looks like the initial reaction was somewhat negative to the news, as a potential dovish stance going forward may be weighing on investors.
Euro (EUR): The Euro is lower across the board as German PPI figures came in hotter than expected at a .6% monthly increase vs. an expectation of .2%. The results of the bank stress tests are due out on Friday so the market may be jittery despite the positive comments the ECB has been providing. I’m always a skeptic by nature, so put me in the camp that thinks this might not be as rosy as we are being led to believe.
Pound (GBP): Mortgage approvals fell last month as tighter lending standards have discouraged demand as consumer confidence plummeted last month. In addition, CBI business optimism figures came in less than expected as the UK gets ready for announced cut-backs to deal with the ballooning deficit.
Dollar (USD): The Dollar is also mixed today as it is seeing strength vs. all but the Kiwi and Aussie. US housing starts came in less than expected showing a decline of 5% vs. an expected decline of 2.7%. The Dollar is higher against the Yen as speculation of a BOJ intervention is starting to pick up.
Yen (JPY): The Yen is showing some weakness this morning as speculation is that Japanese authorities will attempt to weaken the Yen after it climbed to 7-month highs. A stronger Yen hurts Japanese exports as goods become more expensive. The Japanese have been known to intervene in the past, though they may want to proceed with caution as the market has been driving Yen close to all-time highs.
This morning is a bit of a mixed bad as we see the different pairs trading by region and not necessarily on risk themes.
There is clear weakness today in the Europe, as both the Euro and Pound are lower. The Aussie and Kiwi are higher on higher Chinese stocks and the possibility of weakening policy.
The Dollar is trading somewhat higher, as it is trading inversely to stock markets futures which are lower due to declining corporate revenues.
So at the end of the day, we are definitely in for a global economic slow-down. Results of the European banks stress tests will guide policy around the globe as systemic risk will out-weigh economic conditions in the near-term.
However going forward, some countries may be in better shape to weather any potential economic storms.
So I will continue to remain cautious until Friday and keep my trading short-term.
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Portugal Downgrade!
By Mike Conlon | July 13, 2010
In the European session, Moody’s ratings agency downgraded Portugal two notches to A1 but maintained a “stable” outlook while citing weak growth prospects. ECB President Trichet maintained that monetary policy is appropriate in an attempt to assuage the market. Meanwhile, investor confidence figures in Germany weakened, as did wholesale prices.
In the UK, higher than expected CPI figures showed that inflation may not be subsiding as the BOE had expected which halted the Pound’s 3-day decline as expectations for normalized monetary policy have picked up for the second half of 2010. In addition, home prices expanded to the highest reading since 2007, adding further support for the normalized monetary policy view.
Earnings season in US kicked off yesterday after the bell and generally speaking have been viewed as positive. Stock index futures are higher in the pre-market, so we are seeing some Dollar weakness generally in line with risk-taking.
In the forex market:
Aussie (AUD): Overnight, Australian business was unchanged as businesses reported improving sentiment. However, there is some pressure on the Aussie as concerns over a slowing Chinese economy have increased.
Kiwi (NZD): The Kiwi is rebounding from earlier lows due to Chinese slowdown concerns as the market is anticipating higher CPI data later this week.
Loonie (CAD): The Loonie is higher this morning as both US corporate earnings and commodities are higher. The Loonie will be in focus this week as Canada stands to benefit from good earnings in the US more so than the Aussie and Kiwi as the US is the largest importer of Canadian goods and services.
Euro (EUR): The Euro is lower this morning on the Portuguese debt downgrade, though Greece had a successful bond auction which has pared losses. Both German and Euro zone economic sentiment figures came in less than expected, showing a deteriorating outlook for the economy. Wholesale prices in Germany were also lower, with the index showing a decline of .2% for the month vs. an expectation of a .2% rise, also taking the year-over-year figure down to 5.1% from an expectation of 5.5%.
Pound (GBP): The UK reported CPI data showing a 3.2% gain, less than the BOE was hoping and still above its target limit of 3%. The BOE has a dual mandate to keep inflation in check and encourage employment, so it may have its hands full trying to balance economic growth and taming inflation. Nevertheless, the market sees this as reason to support the view that the BOE may return to normalized monetary policy in the second half of 2010. In addition, house prices rose 11% to the highest levels in almost 3 years.
Dollar (USD): The Dollar I slower this morning as corporate earnings season has started and the initial reports are positive for the economy. Stock futures and commodities are higher in the pre-market, and the inverse correlation of the Dollar to the equity markets appears to be intact this morning and risk appetite is increasing.
Yen (JPY): The Yen started the morning higher but is giving back gains as the US market becomes the focal point of the trading day. Risk due to the debt downgrade in Portugal had provided the Yen with a bid, but that appears to be reversing. This took the Nikkei lower, despite the fact that Japanese consumer confidence advance for the sixth straight month.
The two major themes in the world market right now are US corporate earnings and the continued EU debt crisis. While US earnings have started out on a positive note, the downgrade of Portuguese debt has counter-acted the positive sentiment.
It is important to note that certain news carries more weight in different market sessions. For example, the earnings news was initially viewed as positive in the overnight session….until the debt downgrade reversed sentiment in the European session. Now that the US session is about to begin, the market has returned its focus to the positive news in the US.
This is a familiar pattern that we see time and time again. Since the majority of the risk in the marketplace stems from the Euro session, there will be times when seemingly good news can be derailed by bad news only to be outweighed by the good news again as the US session begins.
This can provide traders with numerous opportunities to get into positions based on the opening of the US session! For those who prefer to hold trades overnight, you really need to be careful with stop placement as the potential for swings from risk taking to risk aversion are increased as each trading session opens.
So today will be interesting to see which news today is more favored by the market. My guess is the good news wins!
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