Market Surfing!
By Mike Conlon | July 27, 2010
Now may be the time to “ride the wave” in the markets as the major news of the summer, the Euro bank stress tests, were received positively by the market. Yesterday I commented on the credibility of those tests, and reminded readers to follow the market rather than impose their own view.
So far this morning the market is in risk-taking mode, as CPI data will begin to be released tomorrow in the Euro zone and Australia. Higher readings may show that policy adjustments may need to take place, especially in Australia.
Adding to Euro strength is the news from the Basel committee on Banking Supervision who announced they would be seeking new measures to shore up the global banking system.
In the UK, a CBI report showed that household spending increased at its fastest pace in nearly 3 years, lending support to the view that economic recovery is taking place.
This morning, US consumer confidence figures and home prices are due out, and yesterday’s housing sales figures were bad historically, yet the market reacted favorably because they were higher than expected. The market also seemed to overlook the revised figures from last month, which showed a much lower figure.
In the forex market:
Aussie (AUD): The Aussie is higher as risk appetite has increased due to a positive economic outlook in the markets. CPI data is due out tomorrow and should those figures come in higher than expected, the market may expect a further rate hike at the next RBA rate policy meeting.
Kiwi (NZD): The Kiwi is also higher on risk themes going into the RBNZ rate policy meeting tomorrow night. The expectation is for a rate hike of 25bp to 3%, but pay attention to the policy statement as the Kiwi is closing in on 2010 highs.
Loonie (CAD): The Loonie is also higher as oil has surged to 79.50 in addition to general risk appetite. There is no real news on the docket until Friday, when Canada reports GDP figures.
Euro (EUR): The Euro is also mostly higher, trading largely as expected according to our risk ladder. Consumer confidence figures and import prices were higher in Germany, showing continued strength in the Euro zone’s largest economy. This shows a renewed outlook for growth but don’t expect tomorrow’s CPI data to affect monetary policy just yet, as the ECB cannot start raising rates until after the sovereign debt issues of the countries in trouble are rectified.
Pound (GBP): The Pound is higher across the board as CBI reported sales data showed that household spending increased at the fastest pace in nearly 3 years. This CBI gauge showed a reading of 33 vs. an expectation of 3. So it beat handily and the market has responded accordingly as economic growth prospects have advanced.
Dollar (USD): The Dollar is lower as a “normal” risk-appetite scenario is taking place this morning. The home price index came in showing a slight increase which is a good sign in that prices aren’t still falling. However, with the end of the homebuyer tax credit, this may not be the case going forward and as always, the economic prospects here in the US will come down to jobs growth.
Yen (JPY): The Yen is lower across the board as risk appetite has increased the demand for carry trades. Recent Yen strength vs. the Dollar has heightened the awareness of possible intervention, but the BOJ appears (for now) to let the market dictate prices. Japanese employment and CPI data are due out on Thursday night.
So if the market tells you it wants to go up, you should listen. Many times traders (myself included) try to interpret market news and data and then make predictions of what they think should happen. A better way to approach the markets is to follow trends that you see on the charts, and then act accordingly. Try to find low-risk entry points based on technical support and resistance, and then hop on and enjoy the ride.
The news we have been receiving as of late has largely been positive and has emboldened risk appetite. While there are bound to be hiccups along the way; use them to your advantage by buying pullbacks or selling rallies.
The global economy is still fragile, but every passing day that does not bring bad news should be viewed as a positive for risk appetite. Money has to flow somewhere, and if you can catch it just right, you may be in for a great ride!
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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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.
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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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.
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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“Slowing” Growth!
By Mike Conlon | July 15, 2010
Overnight, the Chinese reported less than expected GDP figures; however before you worry about the Chinese economy, note that growth slowed to 10.3%. That’s right, growth above 10%. By contrast, most other global economies are struggling to reach 3% growth.
In addition, in Japan the BOJ left rates unchanged at .1%, citing forecasts that growth will slow as fiscal stimulus is removed worldwide, thereby affecting global demand.
Across the pond, both the Euro and Pound are trading higher vs. the Dollar as dollar weakness due to continued positive corporate earnings led by JP Morgan are reducing demand for the greenback. In addition, better than expected demand for a Spanish debt issue and lack of bad news has buoyed the Euro to 1.285.
The Aussie and the Kiwi are also lower this morning, as fears of a Chinese slowdown reduce expectations for exports. However, 10% growth still looks pretty good to me.
Lastly, the Fed statement yesterday here in the US showed a commitment to maintain rates for as long as is deemed necessary. This is reducing demand for the Dollar ahead of US PPI and CPI figures which are due out today and tomorrow respectively.
In the forex market:
Aussie (AUD): The Aussie is lower on fears that a Chinese slowdown may soften demand for Australian commodities, despite the fact that demand for safe haven currencies has subsided.
Kiwi (NZD): The Kiwi is also lower for the same reason as the Aussie; however the NZ manufacturing index expanded at a faster than expected pace. Tomorrow NZ will report CPI data which will show whether inflation is tame or not and may influence the market’s expectation of a rate hike.
Loonie (CAD): The Loonie is lower on concerns about demand for commodities, despite the fact that oil is trading marginally higher. The BOC rate decision is due out next Wednesday, which may bring a rate hike should policy makers fear that inflation may come in higher.
Euro (EUR): The Euro is higher across the board, as the lack of bad news has emboldened traders as a series of successful debt auctions have provided confidence to the marketplace. In addition, the ECB maintained that interest rates are appropriate and they expect to see moderate growth.
Pound (GBP): The Pound is also mostly higher this morning and reached a high of 1.537 vs. USD as Chancellor Osborne said he does not expect banks to need additional support and cited austerity measures as a main reason. However, the BOE has still maintained a dovish outlook for future policy.
Dollar (USD): The Dollar is lower today as PPI figures came in at -.5% vs. an expectation of -.1%. This shows that prices are declining faster and may, in conjunction with tomorrow’s CPI data, show that deflation is firmly in hand. Initial jobless claims came in less than expected, with 429K new claims vs. an expectation of 450K. Corporate earnings have been good so far, but may not be enough to hold up stocks as the futures are giving back earlier gains.
Yen (JPY): The Yen is surprisingly strong this morning as it looks like US data may be moving the market toward risk-aversion. The BOJ policy meeting still showed a cautious outlook and recent Yen strength could pose a threat to Japanese exports, the leading driver of economic growth.
While Chinese growth may be “slowing”, it is hard to argue that 10% is nothing short of remarkable. However, when one considers that it is Chinese growth that is driving the world economy right now, there is concern that a lack of global demand could cause further reductions.
In the US, it looks like deflation is winning the battle as the government’s attempts to maintain higher prices may have been misguided. While deflation is a problem, let’s consider for a moment that Japan has been experiencing it for the last 20 years.
While I am hoping that policy-makers can avoid a Japan-style economic malaise, I have my doubts currently. The government is just about out of magic bullets to help maintain prices as interest rates cannot get much lower.
The problem with the economy right now is not that there is a lack of demand, but rather an over-supply of homes, goods, and services. As the economy reached the asset bubble that became known as the Great Recession, government policy to attempt to keep prices high only served to help bank balance sheets. While this may have prevented a total collapse of the financial system (still up for debate), now is the time to pursue pro-business policies that will help bring new money to the US economy to increase demand as supply clears.
On the plus side, at least it was “only” 429K losing jobs last time, it could have been much worse. So let’s just hope that China will continue to grow, as it looks like the US may be done for a while. Dollar weakness is evidence of this.
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 On Tap!
By Mike Conlon | July 12, 2010
This week starts earnings season for US companies and, rightly or wrongly, will help show whether or not economic progress is occurring. We’ve witnessed the disconnect between corporate profits and the “real economy”—namely jobs—and good corporate earnings will give the unemployed hope that hiring may be soon to follow.
In the UK, GDP figures came in as expected showing slightly positive growth for the quarter, and there was an article over the weekend claiming that the UK’s proposed bank requirements would lead to a double-dip recession.
In the Euro zone, potential fears of bank solvency issues were balanced out by German economic strength measured by employment and industrial production figures. A lower Euro had helped German exports and if the banks can “pass” the stress tests without setting off a chain reaction, then the Euro could stabilize near these levels.
In Japan, the ruling party lost control of the upper house in elections, providing political uncertainty and causing the Yen to sell-off overnight. However, overall risk aversion has brought strength back to the Yen.
In the forex market:
Aussie (AUD): The Aussie is lower on risk aversion, despite the fact that home loans rose for the first time in 8 months. However, futures are showing that traders are decreasing their bets for an Aussie rise vs. the Dollar. US corporate earnings will be the major driving force this week, with better numbers encouraging risk appetite.
Kiwi (NZD): The Kiwi is also lower on risk fears despite the fact that the NZ budget deficit came in narrower than expected. Home prices came in slightly lower, but still posting gains of 5.2%. Inflation figures are due out later this week.
Loonie (CAD): Not a lot of news for the Loonie this week but expect it to be extra sensitive to US corporate earnings this week. The US is largest importer of Canadian goods and services.
Euro (EUR): The Euro is also lower as the policy makers are already calling for better capitalization of the banks before the results of the stress tests are released. It is no secret that banks would be better off with more capital; the problem is whether or not increased capital requirements will hamper growth. Germany is showing that its economy is still strong, and that may be enough to out-weigh the negativity surrounding the Euro.
Pound (GBP): The pound is lower as DGP figures showed .3% growth in the first quarter; however the current account deficit is at its widest margin since 2007. Economists are expecting better growth in the 2nd quarter, before the impact of fiscal tightening takes place. The Pound traded below 1.50 earlier but has since rebounded higher.
Dollar (USD): The Dollar is seeing some strength this morning as risk aversion is present at the start of the US session. US CPI and PPI figures are due out later this week, but all eyes will be on the US corporate earnings reports. Good earnings will provide hope that hiring may be around the corner, but at the end of the day we may still be in the “tale of 2 economies”, with companies thriving while the unemployed are crying. Bad corporate earnings could send the markets reeling, so expect volatility in the short-term.
Yen (JPY): Overnight, the ruling party lost control of the upper house of government, providing political uncertainty and the fear that Japan may have trouble attempting to tackle its deficit. The Yen was lower, but is now seeing strength on risk aversion. The Bank of Japan Monetary policy meeting is taking place this week but don’t expect them to move on rates. Japan will trade this week on risk themes.
So the market and the US government are counting on good corporate earnings to provide confidence that the economic picture may be improving. With higher profits, the likely conclusion is that companies will begin hiring again which will hopefully help lower unemployment.
However, this may not necessarily be the case. Companies are fearful of the current economic climate as potential new rules, regulations, and taxes spur hesitation. Companies will be very cautious when looking to expand and could be quite content with their present situation.
Whether or not this is the case remains to be seen as the market expects good earnings. Should the numbers be average or even bad, then that could open up a whole new can of worms.
So expect volatility this week, and be ready to profit from short-term fluctuations should the situation present itself.
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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O Canada!
By Mike Conlon | July 9, 2010
This morning, Canadian employment figures came in and showed a drop in the unemployment rate from 8.1% to 7.9% on strong jobs growth. The Canadian economy added 93K jobs vs. an expectation of 20K. This belies the good economic story going on in Canada despite the fact that they rely on the US to import their goods and services. Should the US economy slow down, it could affect Canadian GDP negatively.
In the European session, ECB President Trichet made the “we’re not out of the woods yet” comment, saying that there is still question over the health of the EU banking system and that serious changes need to be implemented to get better control over the deficits. The bank stress tests are due in about two weeks.
In the UK, PPI figures came in lower than expected, showing signs that the BOE may be correct in their assessment that inflation would be subside. The minutes from the rate policy meeting will be released on July 21st, and is expected to show a continued dovish stance.
Lastly, we’re seeing Dollar strength this morning despite the fact that risk-aversion is mild. This is probably more of a technical bounce and the function of traders not wanting to hold risk assets over the weekend. US stock earnings season kicks off on Monday.
In the forex market:
Aussie (AUD): The Aussie is lower this morning after posting its best week of gains in nearly 9 months. Bets that a further rate hike in 2010 have increased as a result of the best surge in employment they have seen in nearly 4 years.
Kiwi (NZD): The Kiwi is also lower, trading in sympathy with the Aussie.
Loonie (CAD): The Loonie is the best performer this morning as employment gains bested analyst expectations by a wide margin. There is a good growth story going on in Canada, as they benefit from commodity gains and as long as their largest trading partner to the south (US) keeps spending. In addition, housing starts came in largely in line with expectations.
Euro (EUR): The Euro is lower this morning as the market prepares for the bank stress tests. There is much speculation in the market about what the results will be, and what measures will need to be taken to insure financial health. One such solution would be that the banks may need to raise additional capital. German CPI figures came in as expected, showing signs of some price stability. There are also rumors floating about that the ECB may need to take a more dovish stance with the Euro, which could mean increased quantitative easing or possible rate cuts, though the latter seems unlikely at this point.
Pound (GBP): The Pound is lower as well, as PPI figures fell for the first time in nearly 2 years, easing inflation pressures in the economy. The UK had been seeing inflation outside of government targets, but it appears that it may be coming back to their preferred range. In addition, the UK trade deficit widened as a .2% gain in exports was negated by a 2.4% gain in imports.
Dollar (USD): The Dollar is higher against all but the Loonie, as the market moves toward the safe haven of the Dollar going into the weekend. In addition, the Dollar has been beaten up this week as risk-taking has been the primary driver. Reports are coming out that economists are paring back their expectations for growth in US, but see no signs of the dreaded double dip at this point despite the recent patch of negative economic news. US earnings season also kicks off on Monday, so this could be adding to market fears should corporate profits be down.
Yen (JPY): The Yen is starting out lower this morning, as the Nikkei was able to hold on to gains in the overnight session. There is some mild risk-aversion in the market today, and the Yen is higher than the European currencies.
So today is a bit of a mixed bag. Neither risk-taking nor risk-aversion can be seen as a dominant theme. Good news out of Canada has put the focus back on the N. American currencies, with the European ones lagging.
US corporate earnings will be the big story next week, and if those reports are positive, it could buoy market sentiment higher. While the stock market health does not equal overall economic health, it will act as a good economic barometer and could provide hope that the employment picture may be about to get better.
If those earnings reports are largely negative, then that may open a whole new can of worms as the market is already aware of the general state of the economy. In addition, if Washington DC policies continue to threaten business, then it could be a long time before companies begin to hire employees again, if they are reporting good gains.
Either way, there is still risk in the market. If we can successfully get through next week, the European bank stress tests will pose the next major threat.
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!
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Hungry for Risk!
By Mike Conlon | July 6, 2010
After last week’s sell-off in world markets, investors are feeling more confident about economic prospects as the US markets return from the holiday weekend. Bank stress tests in Europe are intended to show transparency, and EU leaders are “banking on” hopes that the balance sheets are not as bad as previously thought.
Overnight, the RBA left interest rates unchanged in Australia, but signs that inflation (particularly home prices) may be rising is giving the Aussie a boost this morning.
World stock markets are higher this morning, as stock earnings season is almost upon us. There is a common notion that stocks may offer the best chance for growth despite the fact that world economies are putting on the brakes and trying to curb spending.
There is no major news on tap for the US in this shortened week, but we’ll get GDP figures from the Euro zone, as well as the UK rate decision on Thursday.
In the forex market:
Aussie (AUD): The Aussie is higher on risk-taking despite the fact that the RBA left interest rates unchanged. The RBA did say that consumer spending and business investment are expanding, and they may be in the middle of a housing bubble due to housing shortages. This could foreshadow further rate hikes to come.
Kiwi (NZD): The Kiwi is also higher as risk appetite is back to start the week, despite the fact that business confidence figures have fallen as domestic demand slowed. Nevertheless, the market is betting that the next rate hikes will come from New Zealand, as they attempt to thwart inflation. However, the RBNZ has been cautious as economic growth and inflation may not accelerate as quickly as expected.
Loonie (CAD): The Loonie is also higher as oil prices are higher for the first time in 6 days as risk appetite is returning to the market. Canada’s employment report on Friday will show whether or not the economy is improving, but speculators have pared back expectations of a rate hike at the next policy meeting.
Euro (EUR): The Euro is also higher as comments from various officials regarding the bank stress tests have allayed market fears—for now. EU GDP figures are due out tomorrow, with CPI figures to follow on Friday. The market is expecting tepid growth despite the austerity measures various governments are undertaking to get deficits under control.
Pound (GBP): The Pound is mixed this morning trading lower vs. the risk currencies but higher against USD and Yen. The UK rate policy decision is due on Thursday, and no change is expected. The market is still reacting favorably to the UK budget cuts, however only time will tell if the economy is strong enough to support such measures.
Dollar (USD): The Dollar is mostly lower this morning (but up against Yen) in a week that is light on news out of the US. Comments from various Fed officials will likely be insignificant, and US stock earnings season kicks off next week.
Yen (JPY): The Yen is lower this morning on a classic risk-taking day as carry traders look to re-establish positions. Japanese stocks rallied overnight as a rally in Chinese stocks gave the market direction.
Most of the news that the market has received lately has been negative, yet so far the markets have been behaving resiliently. With not much news on the docket this week, the market will have time to adjust to the notion that we may be seeing slower, but steadier growth.
Next week will kick off earnings of US companies, and they are likely to be positive despite the economic slowdown. Right now, there is uncertainty as to where is the best place for investors to park their money, with fixed income investments paying little to no interest.
That is one of the reasons why the currency market has become one of the fastest growing markets for investors, as it provides alternate opportunities and a chance to benefit from global economic conditions.
Investors have been reaping the benefits that the currency market has provided for some time; isn’t time you join them? There is no time like the present; and if world economic conditions continue to behave as they have recently, the currency market should continue to flourish.
There is always a bull market somewhere in currencies; the trick is knowing where!
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 | June 25, 2010
Overnight, the US Congress unexpectedly came to a deal and has agreed on bill regarding financial reform and regulation. The uncertainty surrounding this bill has been weighing on the markets, as it was unclear what the outcome might be.
As news trickles out of the 2000+ page document and what it means for the banks and the market in general, at least the uncertainty has been removed. Uncertainty= volatility. Now, whether or not this bill will actually accomplish what it is intended to remains to be seen. What my experience tells me is that no matter what is in the bill; Wall St. has already prepared for likely scenarios and has already devised ways to circumvent regulation. In addition, enacting legislation of this magnitude always comes at a cost, and the brunt of that cost is likely to be paid for by consumers, and not the banks themselves. Banks will simply pass through the new cost so that executives can still buy beach houses. If you don’t believe this will happen, take a look at bank stocks that are trading higher in the pre-market.
This comes ahead of this weekend’s G-20 meeting, where the US will push other nations to consider enacting similar reform.
Economic data is out showing that US GDP grew 2.7%, vs. an expectation of 3% and personal consumption figures were at 3% vs. an expectation of 3.5%. This falls in line with what the Fed said the other day that we are seeing growth, albeit moderate.
Overnight, Japanese CPI figures came in at -.9% vs. -1.1% showing signs that deflation may be subsiding.
The market started out in risk taking mode, but it appears that may be reversing.
In the forex market:
Aussie (AUD): New Australian PM Gillard has backed away from the mining tax that was the eventual downfall of her predecessor and is open to discussion and negotiation. The tax was largely seen as anti-investment in one of Australia’s biggest industries.
Kiwi (NZD): The Kiwi is lower despite a widening trade balance surplus but the market is concerned about a potential Chinese slowdown which could hamper demand for exports. However, this figure fell short of expectations (814M vs. 850M).
Loonie (CAD): The Loonie is higher this morning as its major trading partner (the US) appears to be the only country not entertaining the idea of reduced spending. Unlike the other commodity currencies which are more tied to China, expect the Loonie to benefit as long as the US maintains its spending spree.
Euro (EUR): The Euro is lower continuing the trend of heightened fear from the debt crisis. Today marks the fourth day in a row that European stocks are lower as we head into the G-20 weekend.
Pound (GBP): The Pound is mixed this morning and it will be interesting to see what (if anything) comes out of the G-20 meeting. The UK “tax and axe” strategy is diametrically opposed to the US strategy of “spend, extend, and pretend”.
Dollar (USD): The Dollar is somewhat mixed today as the market figures out exactly what this new financial regulation means. In addition, GDP figures were lower than expectations, but showed that growth, while moderate, is occurring.
Yen (JPY): The Yen is higher this morning, as CPI data showed that deflation came in less than expected. In addition, minutes from the rate policy meeting showed that there was actually talk of inflation. The Nikkei was down overnight, and speculation that the G-20 will not come to a consensus over global economic policy has strengthened demand for the safe-haven of the Yen.
All of my years on Wall St. have taught me one thing: that politicians in Washington DC cannot compete with the brainpower of Wall St. Today, champagne is flowing as the uncertainty over the worst-case scenario from financial regulation has been lifted. True, this isn’t a “home-run” for Wall St.; but I can tell you that they have been prepared for EVERY possible scenario to come out of this and already have plans in place to line their pockets at the expense of the general public.
While regulation is good in theory, it always brings about unintended consequences and in the end it is always the consumer that gets hurt. Now that this is out of the way, the G-20 meeting will be the focus of the weekend but don’t expect anything of substance to come out of it.
The major problem here in the US is jobs. Period. Next week’s Non-Farm Payrolls report will show if we are gaining any jobs in the private sector. If this is a bad number, look out below.
So there is potential for risk over the weekend, but my guess is the G-20 will be a non-event.
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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Moderate Growth Ahead!
By Mike Conlon | June 24, 2010
Yesterday’s FOMC meeting came and went as expected, and Bernanke acknowledged that the pace of growth is going to be moderate going forward, backing off from last meeting’s stance that recovery was accelerating. Bernanke cited European debt conditions as being not supportive of growth, and of course he left interest rates unchanged as expected and kept the “extended period” language.
In addition to the FOMC news, US new home sales tanked and were off 33%, confirming the previous day’s data that the housing market is getting worse and not better.
Concerns over Greek debt are heating up as the cost to insure said debt is at an all-time high. Outside of general feelings about the global economy, I’m not certain what has changed in Greece to cause this rise.
What this adds up to is risk-aversion in the market, and Japanese yen and the Swiss Franc are benefiting.
Overnight, New Zealand released GDP that showed growth for a fourth straight quarter and matched analyst expectations. The Kiwi is lower, as the market may have been expecting a bigger number and had pushed the Kiwi too high, too fast.
So there’s no real earth-shattering news in the market today, but rather an overall feeling that economic conditions may be worsening and not getting better.
In the forex market:
Aussie (AUD): The Aussie is lower on risk aversion, but overnight a political coup took place where the Prime Minister Rudd stepped down after losing support of his colleagues. Julia Gillard became Australia’s first female Prime Minister as Rudd lost public opinion largely in part to the proposed mining tax he wanted to impose. Mining is a cash-cow for Australia, and this move was seen as anti-business.
Kiwi (NZD): The Kiwi is lower this morning despite the prospect of another rate hike in July as a result of seeing its fourth straight quarter of growth. The market was hoping the GDP figure would beat analyst expectations, but it “merely” came in as expected at .6%. The Kiwi was the biggest gainer yesterday, so this is a case of market anticipation falling flat. Nevertheless, this is still positive for the Kiwi.
Loonie (CAD): The Loonie is lower this morning as well, taking its cues from oil prices which have “retreated” to $76 and overall risk aversion in the market due to the notion that the pace of global economic recovery may be slowing.
Euro (EUR): Concerns over European debt are heating up as European stocks fall for the third day in a row. Perhaps the market is expecting the US to lead us to recovery, and yesterday’s FOMC statement made it pretty clear that may not be the case. I can’t see anything specific that would lead me to believe that anything today is different than last week. Then again, I don’t have insight into the inner-workings of European banks. The Swiss franc has been seeing massive inflows of capital as investors move out of the Euro, and it’s gotten to the point where it may be financially untenable for the SNB to try to intervene again.
Pound (GBP): The pound is higher against all but Yen, as the market “needs” somewhere to park its capital. This is a vote of confidence for the UK budget plans and BOE policy statement which show that the UK may be in the best position to tackle their debt and see growth at the same time. The Pound is back to 1.5 vs. USD.
Dollar (USD): Oh the dollar. It’s catching a bid from risk-aversion, but it’s clearly no beauty-prize winner either. Yesterday’s FOMC meeting and new home sales figures all but take a rate hike off the table for 2010. This morning, jobless claims are lower than the previous week, but still in ridiculously bad territory. Durable goods orders rose ex-transportation, but overall they shrank, though less than expected. Bottom line: the US economy is still weak. Until policies are instituted that will incent companies to create jobs, our slide into Japan-style stagflation is imminent.
Yen (JPY): The Yen is higher across the board on risk-aversion. Japanese stocks are lower as concerns over Europe may hurt Japanese exports, which have been driving economic recovery.
Unfortunately for the world, the US still rules the roost. We started the economic crisis, and now we’re pro-longing it. Yet bad behavior has been replaced by bad policy; and we are slowly sliding into the economic abyss as politicians compete for the next vote.
Meanwhile, banks have been bailed out, executives have paid themselves enormous bonuses, and they sit on the money and don’t lend for fear that regulatory and other economic factors will make it a losing proposition. Or they can’t lend, because they have too many toxic assets sitting on their books and are anticipating the next wave of deflation that will put more home-borrowers under water.
The “solution” to the housing crisis was the tax credit, and it’s just been reported that 14,000 unscrupulous folks bilked the government out of some $25 million, including 240 death row inmates. Government efficiency at its finest! What’s a few million anyway? We’re TRILLIONS in the hole already, and we’ll just keep spending.
Oh yeah, but at least we’re not the EU! Have treasury put that on the dollar bill!
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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