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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Here We Go Again?
By Mike Conlon | August 25, 2010
Yesterday, S&P downgraded Ireland’s sovereign debt which sent bond yields higher for the troubled Euro zone nation. However, German business confidence figures came in better than expected which has counter-balanced the regions prospects and is providing a bid for the Euro.
Here in the US, Durable goods orders came in worse than expected and yesterday’s dismal existing home sales figures shows signs that the US economy may be floundering. This has caused speculation of further Fed quantitative easing to heat up as policy makers attempt to revive the US economy.
In Japan, the official jaw-boning has begun as Prime Minister Noda said he was prepared to take “appropriate action” to combat “one-sided” currency fluctuation.
Overnight, equity markets are lower, and the US stock futures are lower going into the open. Oil has retreated to 71.50, and gold is higher as investors seek safe haven assets.
In the forex market:
Aussie (AUD): The Aussie is higher this morning despite the uncertainty surrounding the elections Down Under. As the votes are being tabulated, right now it appears to be a dead heat. Yen weakness has provided the Aussie with a bid, and completed construction work figures came in better than expected.
Kiwi (NZD): The Kiwi is lower on risk aversion following yesterday’s reduction in the expectation for inflation, despite overall Yen weakness.
Loonie (CAD): The Loonie is also lower as its high correlation to oil prices has reduced demand and general risk aversion and US economic weakness reduces its prospects for economic growth. Yesterday’s retail sales figures are still in the back of trader’s minds.
Euro (EUR): The Euro is mostly higher to start the US session despite the Irish debt downgrade. German business confidence figures came in better than expected to its highest reading since 2007. This has caused yield spreads between German bonds and those of the PIIGS nations to rise. While the PIIGS haven’t had trouble with debt offerings, higher yields could impact their ability to service that debt. (Click chart to enlarge)
Pound (GBP): The Pound is mostly higher with no news on the docket to affect it one way or another. UK Treasury Minister Hoban defended the government’s austerity measures in a BBC interview, and today’s price action could be a technical bounce after 3 days of declines. (Click chart to enlarge)
Dollar (USD): The Dollar is trading higher vs. the commodity currencies and Yen as the US economy appears to be weakening. Durable goods orders came in at -3.8% vs. an expectation of .5% which highlights the effect of the withdrawal of the “stimulus” funds on the economy.
Yen (JPY): The Yen is lower as the jawboning has increased in Japan. Speculation of intervention in the currency has increased as the Yen pulls back from 15-year highs. In addition, export growth slowed as a result of the combination of reduced world demand and the higher Yen, yet it came in slightly higher than expectations. Keep your eyes on this one!
It looks like extend and pretend may be coming to an end. As the US “stimulus” plan comes to end, the economic data is starting to show that private demand is just not there. This is mostly likely a result of government “crowding out” private business as the money came from government coffers.
However, because policy is not in place to encourage private business, unemployment remains high which reduces consumer demand which in turn causes economic growth to stagnate. Uncertainty over financial regulation, tax policy, and health care has left business content to drive profits through reduction and not expansion.
So one would think that it’s time to change these policies, right? Wrong. The answer that is being talked about is either additional stimulus or further quantitative easing! Talk about making a bad situation worse.
It is going to be interesting to see how this plays out and whether the elections here in the US bring about change in policy. Until then, be prepared for the pain.
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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Race to the Bottom, 2.0
By Mike Conlon | August 24, 2010
Risk aversion is clearly the theme this morning in the markets as heightened fears of economic slowdown are weighing heavily on world markets. While economic data as of late hasn’t been horrible, it is the constant fear-mongering from government and banking types that keep the markets on edge.
Case in point: Some British policy-maker (who I’ve never heard of before) came out and stated that the UK faces a “real risk” of a second recession. Really? Any more so than any other region around the globe? Or is this a case of someone, somewhere that wants to see a lower Pound to encourage exports?
Let’s face it; wouldn’t every region around the globe prefer to see their currency lower to encourage exports? Thus we are nearing the “race to the bottom, 2.0.” This morning’s risk aversion has pushed the Japanese yen to 15-year highs, and the rhetoric about intervention is now coming directly from the horse’s mouth. Japanese PM Kan stated that “steep currency moves are undesirable” and is looking for joint action from the G-7. It is becoming more apparent that Japan may not have the ability to effectively intervene in their currency alone, as the Swiss National Bank found out recently.
Meanwhile, in New Zealand, 2 –year inflation expectations came in lower for the first time in over a year, prompting expectations that the RBNZ will not raise rates again at the September meeting.
In the Euro zone, the German economy showed it expanded at a 2.2% pace as final 2Q GDP figures were released. The German economy is almost single-handedly keeping the Euro zone economy afloat.
In the forex market:
Aussie (AUD): The Aussie is lower on risk aversion this morning as global market selling has caused the un-wind of carry trades as investors flee yield in favor of safe haven assets.
Kiwi (NZD): The Kiwi is lower on risk-aversion and also because they reported a decrease in the 2-year inflation expectation for the first time in almost a year. The figure showed an expectation of 2.6%, down from the previous reading of 2.8%. It is now highly doubtful that the RBNZ will raise rates in September, especially in light of recent global market fears.
Loonie (CAD): The Loonie is the worst performer this morning, as it has been hit with the triple-whammy of lower oil prices (around 72), bad retail sales figures, and overall risk aversion. Retail sales figures came in at .1% vs. an expectation of .4% showing signs that the Canadian economy is slowing. It doesn’t help that Canada is so reliant upon the US to import from them. (Click chart to enlarge)
Euro (EUR): The Euro is mostly lower on risk aversion, despite the fact that the German economy reported final 2Q GDP figures showing growth of 2.2%. While under normal circumstances this would be considered very good; today is looking more and more like an ugly day overall.
Pound (GBP): Thank you Mr. No Name policy guy for jaw-boning the Pound lower, thereby causing further fear in the markets. The Pound is at 1-month lows to the Dollar, trading just under 1.54. (Click chart to enlarge)
Dollar (USD): The Dollar is higher due to the flight to safety trade and look for it to continue to gain after the existing home sales figures come in which are bound to be dismal. I’m sure the spin cycle will be on high, but make no mistake economic conditions here in the US are deteriorating.
Yen (JPY): The Yen is trading at 15-year highs against the Dollar, as risk aversion is causing the un-wind of carry trades. The jaw-boning is picking up in Japan, but is this going to be a case of too little, too late? Questions abound over whether or not the BOJ can do anything about Yen strength as risk themes may be too large for them to go it alone. This shows the fragile shape of the Japanese economy, and PM Kan’s call for joint action from the G-7 nations may be the final nail in the coffin. (Click chart to enlarge)
It is no secret that everyone would like to have a lower currency value to help their exports which encourages manufacturing and provides employment. The reality is that it is not possible. Thus we see the “race to the bottom, 2.0”, as various reports cause fear-mongering.
As risk aversion picks up steam, it is becoming harder and harder for Japan to slow down the Yen’s ascent. While intervention may have worked in the past, in today’s market it is not as easy to accomplish. They may need to sit through some pain and wait until the world regains confidence in the global economy.
While it is no secret that the global economy will be slowing as governments remove stimulus, the crisis we are in right now is one of confidence. Financial and government types, while out to further their own interests; should be more cognizant of the impact of their rhetoric globally.
While fears of a global double-dip recession are heightened, this is nowhere near as bad as the banking crisis of 2008. When there is fear in the markets, there is also opportunity. For those who know what they’re doing.
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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Is the UK OK?
By Mike Conlon | August 11, 2010
Earlier this morning, the BOE came out with their quarterly inflation report and predicted that inflation will slow below the bank’s target rate. They also said that they are expecting slower growth and that they are prepared to add further stimulus if necessary.
Meanwhile, the UK economy reported that it added jobs at the fastest pace in over 21 years, handily beating jobless claim estimates. In addition, average weekly earnings came in slightly higher than expected.
So it’s the UK economy is questionable right now, as data is not supportive of the weaker view of the economy, but the BOE may be hedging its bets in the event they experience a major downturn.
So far this morning we are seeing major risk aversion, with world stock markets lower, US equity futures lower, and both Dollar and Yen strength. This comes on the heels of the FOMC meeting yesterday, which the market initially read as positive as it pared losses and finished down marginally after having been much lower.
But as I said yesterday, it would be difficult to predict the market reaction to the Fed announcement, with competing views jockeying for position. So while yesterday appeared to be favorable, today is showing just the opposite. Global growth is slowing, and more negative economic forecasts from Central Bankers could induce a further round of risk aversion.
Adding to the mix was a report that Chinese industrial growth slowed even further, and inflation spiked to its highest levels this year.
In the forex market:
Aussie (AUD): The Aussie is lower on risk aversion and slower Chinese growth despite the fact that consumer confidence figures came in at 7-month highs. The sentiment index gained 5.4% after the RBA left rates unchanged as inflation remains in check. The Australian employment report comes out tomorrow.
Kiwi (NZD): The Kiwi is lower on risk aversion as well, with no major news on the docket until Thursday’s housing price index and retail sales figures.
Loonie (CAD): The Loonie is also lower this morning, being hit by the double whammy of risk aversion and lower oil prices, breaking the 80 dollar mark down to 79.50. In addition, the trade deficit widened as exports declined, most probably a function of a slowing economy here in the US.
Euro (EUR): The Euro is also lower as its status as the “anti-dollar” is in full force this morning. There is no major news on the docket today for the Euro; however Friday will bring the Euro zone GDP report which will show the status of the economy. (Click chart to enlarge)
Pound (GBP): The Pound is mixed this morning trading as would be expected in a full blown risk aversion scenario. The BOE cut growth forecasts, but employment figures came in better than expected. (Click chart to enlarge)
Dollar (USD): The Dollar is enjoying its status as the world’s reserve currency this morning, showing strength despite the fact that world markets have reacted negatively to yesterday’s Fed announcement. US trade balance figures came in worse than expected, but that should come as no surprise.
Yen (JPY): The Yen is the big winner this morning as is typical under risk aversion scenarios. The USD/JPY pair broke the “line in the sand” of 85, and it will be interesting to see if the BOJ does anything to halt Yen strength. We did get comments from the Japanese Finance Minister, who said that they would closely monitor “one-sided” yen moves. (Click chart to enlarge)
It what may seem like a cruel irony to some, the US reports a slowing economy and potential further easing, and the Dollar is “rewarded”. While additional liquidity may make its way into the economy, overall negative sentiment may not turn around.
I mentioned yesterday that we could be looking at “Japan 2.0” which is now looking more and more like a reality. As everyone around the globe scrambles to act in their own best interests, there are going to be clear winners and losers. However, as forex traders we must be prepared to follow the market regardless of how things look.
Things can change quickly very quickly in financial markets, so it is important to keep an open mind and trade what you see and not what you think you know.
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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Jobs In Focus!
By Mike Conlon | August 4, 2010
This morning, the markets were still reeling a bit from yesterday’s pullback, but the ADP employment change figures came in showing a gain of 42K jobs vs. an expectation of a 33K gain. This caused the market to flip, and risk-appetite appears to be increasing as we head into the stock market open here in the US.
This comes after an interview yesterday with Treasury Secretary Geithner, where in an obvious CYA move, stated that the employment picture may get worse before it gets better. He is due to speak again later today.
Overnight, PMI figures in the UK and the Euro zone came in slightly less than expected, ahead of tomorrow’s interest rate policy meetings for each. Neither is expected to move on rates, though the UK may be more ready to return to normalized policy.
Home prices in the both the UK and Australia came in higher than expected showing signs that prices may be heading higher which could be an early warning sign of inflation. The RBA will be releasing its quarterly monetary policy statement tomorrow as well.
Lastly, the market is waiting for Friday’s Non Farm payrolls report, which will be a truer measure of jobs growth here in the US. Initial jobless claims come in tomorrow, followed by NFP on Friday.
In the forex market:
Aussie (AUD): The Aussie is higher this morning as home price figures and trade balance figures came in better than expected. In addition, the ADP jobs report helped buoy risk appetite.
Kiwi (NZD): The Kiwi started the morning lower on Asian stock market weakness overnight, but is retracing losses as risk appetite is increasing this morning. Tomorrow NZ will report its unemployment rate, which will show the health of the economy.
Loonie (CAD): The Loonie is mostly higher on risk appetite as well, and Friday’s jobs report is expected to show seven straight months of jobs growth. In addition, oil is hovering around 82.50, near recent highs.
Euro (EUR): The Euro is slightly lower after PMI figures and retail sales numbers came in slightly lower than expected. This comes ahead of tomorrow’s interest rate policy meeting, which is expected to yield no change. On a positive note, Portugal got off a debt issuance without a problem.
Pound (GBP): The Pound is also lower to start the day as PMI figures came in lower than expected. However home prices came in higher than expected, which could cause the BOE to relax statements about stimulus and begin to foreshadow a return to normalized monetary policy. The market is not expecting a rate change.
Dollar (USD): The Dollar is mostly lower as risk appetite is increasing after the ADP jobs report showed a better than expected gain. This helped turn equity futures from negative to positive, and perhaps the resumption of risk-taking may occur going into Friday’s NFP number.
Yen (JPY): The Yen started the morning showing strength as the Nikkei and other Asian stock markets sold off after yesterday’s pullback in US stocks. However, the Yen is giving back gains as risk taking and demand for carry trades picks up.
This week, it’s all about jobs. In fact, it is ALWAYS going to be about jobs. If people aren’t working, then they aren’t spending which ultimately will drag the economy lower. Reports of the profligate and wasteful spending of the stimulus program intended to keep unemployment below 8%– how giving monkey’s cocaine will help people get jobs—have showed to be an unmitigated disaster.
In addition, corporations with plenty of cash in the bank are doing nothing with it at this point as the uncertainty over current economic policies and taxes prevents action. Meanwhile, our Treasury Secretary all but admits that the jobs figures could get even worse; even though he claims recovery (read article) is taking place!
Talk about speaking out of both sides of his mouth! Yet this should come as no surprise to anyone as this has become par for the course. Friday’s NFP figures will show how far along we are in recovery, and I’m sure there is already spin put in place to respond to any possible reading.
Either way, don’t be surprised to hear that he told us so! Gee, thanks Tim!
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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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Chinese Slowdown To Derail Recovery?
By Mike Conlon | July 1, 2010
Overnight, manufacturing growth slowed in China more than expected as the Chinese look to curtail inflation and their housing market. While the market views this as negative, China has been expanding at a break-neck pace and my opinion that slower, more sustainable growth should be welcome.
However, this spotlights the reduction in world demand as economies pare back to combat deficits and economic uncertainty and lack of confidence is causing consumers to reduce consumption.
In the UK, industrial production figures show a slight drop from the previous month, however in Japan, the Tankan manufacturing confidence figures fell less than expected.
Retail sales figures were lower in both Australia and Germany, though German manufacturing numbers were in line with expectations.
In the Euro zone, a successful bond auction from Spain countered yesterday’s news that Moody’s ratings agency was putting Spain’s AAA credit rating under review.
And lastly, in the US, initial jobless claims came in higher than expected, showing 472K vs. an expectation of 460K. This does not bode well for tomorrow’s Non Farm Payrolls report, though it could be setting us up for a surprise to the upside.
So this morning we are seeing US dollar weakness, and Euro and Yen strength.
In the forex market:
Aussie (AUD): The Aussie is lower this morning as retail sales figures and building permits declined giving investors’ reason to believe that Australia may be finished with rate hikes for the rest of the year.
Kiwi (NZD): The Kiwi is lower this morning as the global slowdown and the news out of China is putting pressure on the currency.
Loonie (CAD): The Loonie is lower as oil is down, but it is trading higher vs. the Dollar. Yesterday’s GDP figures caused selling in the Loonie and today Dollar weakness is paring some of those losses.
Euro (EUR): The Euro is higher across the board as a successful bond auction in Spain is giving the market confidence that the banking situation may not be as bad as expected. In about three weeks’ time, the results of the bank stress tests will be in and that will show the true health of Euro zone banks.
Pound (GBP): The pound is mixed this morning, trading back over 1.50 vs. USD despite the fact that manufacturing figures came in slightly lower than last month but in line with expectations. At this point, there is more confidence in the measures the UK is taking with regard to its finances than what is happening in the US, and this is reflected in recent Pound strength vs. the Dollar.
Dollar (USD): The Dollar is lower across the board as jobless claims came in higher than expected showing that the employment picture is not getting better. In addition, uncertainty over the financial regulation bill is causing trepidation, but overall the economy is still moving forward despite the employment picture. According to Alan Greenspan, our former Fed chief, this is a “normal slowdown” within the greater context of recovery.
Yen (JPY): The Yen is showing strength this morning though giving back some earlier gains. The Nikkei was down 2% last night, providing the Yen with a bid. The Chinese slowdown as caused the un-wind of carry trades, and the Yen is trading at a 6-month high vs. the Dollar.
As I mentioned yesterday, the only thing that matters here in the US is jobs. The employment picture is not improving and tomorrow’s Non Farm Payrolls report had better be decent or we could see a sell-off going into the long 4th of July holiday weekend.
I hate to continue to harp on policy here in the US, but there is a distinct divide in the economy. To put it bluntly, you have those that receive government hand-outs and those that eventually pay for it. One group is productive, the other isn’t.
Congressional plans to extend unemployment benefits are one such problem. While I feel badly for those unable to find work, at some point you have to lower your expectations and regroup. Because unemployment benefits are essentially equal to minimum wage, there is a disincentive to get off of the couch and work.
In addition, the financial regulation bill (which in my opinion is absolutely needed), has missed the mark. Two major problems that caused the financial mess have gone largely untouched (Fannie Mae and Freddie Mac).
Instead we’re going to get a bunch of rules and a business climate that is deemed unfriendly to business, which will help perpetuate the cycle of unemployment. Add future tax hikes to the mix and you can see where this is going. When it comes time for investors to decide where to invest their money, are they going to choose countries that are making an effort to return to fiscal responsibility, or the country with a blatant disregard for it?
I know what I would do. Hopefully, you do too!
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Less Money Needed!
By Mike Conlon | June 30, 2010
There was encouraging news overnight as the ECB said it would lend banks less than analysts had predicted, showing signs that the European banking system may not be in as weak a state as the market thinks. In addition, German unemployment changed less than expected and the unemployment rate remained steady showing signs of economic stability. Euro zone CPI figures fell back to 1.4%, slightly better than analyst expectations.
In the UK, consumer confidence figures fell to 6-month lows as residents prepare for budget cuts, and BOE policy-maker Adam Posen said that UK recovery is tentative and could risk sliding back into recession. Look for continued loose monetary policy unless inflation figures really heat up.
In the US, the ADP employment change came in less than expected and could serve as a harbinger of Friday’s Non-Farm Payrolls report.
In Australia, bank lending and house price gains showed that the economy has been resilient in the face of rate hikes but whether that trend continues remains to be seen.
Canadian GDP figures came in flat, showing neither growth nor contraction but missing analyst expectations of a .2% gain.
So today is a bit of a mixed bag, with earlier risk-taking on the European bank news giving back some gains. Stocks are mixed to slightly lower with commodities relatively flat. Today is the last day of the second quarter, so we could see some window dressing which could mean volatility in stocks.
In the forex market:
Aussie (AUD): The Aussie is giving back some gains after bank lending and home price figures showed how strong the Australian economy has held up despite the RBA’s rate hikes to cool the economy. While the trading day started off in risk-taking mode, the Aussie may decline if we flip to risk aversion.
Kiwi (NZD): The Kiwi is lower this morning as the RBNZ said in its annual Statement of Intent that it will continue to remove economic stimulus as the NZ economy recovers. Part of this statement has been construed as backing away from tighter monetary policy, citing global economic conditions.
Loonie (CAD): A bit of a reversal for the Loonie this morning as well, as risk-taking waned and GDP figures came in lower than expected. GDP stalled after gaining for 7 straight months as retail sales declined as the government removed temporary tax relief measures.
Euro (EUR): The Euro is higher across the board this morning as the ECB said it will lend less to banks to cover their debt payments than the market was expecting. This shows that the financial health of European banks may not be as bad as expected and that they are largely able to meet debt obligations. There has been major fear about the sovereign debt exposure of these banks, and this announcement took that fear down a notch.
Pound (GBP): The Pound is lower this morning as comments from the BOE said that recovery is tentative and consumer confidence figures fell to 6-month lows as budget concerns weighed heavily. However, house price figures rose to 2-year highs in a sign that the property market may be stabilizing.
Dollar (USD): The Dollar is mixed as the ADP employment change showed a gain of 13K vs. an expectation of 60K jobs gained. Friday’s Non-Farm Payrolls report will really show how far along we are in the employment picture and economic health, but this worse-than-expected figure may be foreshadowing.
Yen (JPY): The Yen is showing some strength against all but the Euro as risk aversion appears to winning the morning battle. Yen started the trading lower as Asian stocks continued to sell-off, but then reversed on the Euro bank news, only to reverse again on the ADP jobs report.
Yesterday’s sell-off may have been an over-reaction to negative sentiment in the market but the important thing to remember is that global economies are still fragile. As various governments remove stimulus, economies will now be forced to stand on their own.
In the US, it’s all about jobs, jobs, jobs. As long as people are unemployed and unable or unwilling to spend, economic recovery is going to be fragile. Part of the problem is that we don’t have policies in place that encourage private sector growth, as looming tax hikes to support out of control spending weigh heavily on private business.
So this most recent scare is all about confidence. It is obvious that people don’t have confidence in their government’s ability to improve conditions. It doesn’t matter what the policy is, there is NO confidence right now.
However, there are pockets of economic strength around the globe and those who are employed are experiencing a MUCH different economy than those who aren’t. Some are beginning to say that this is the “new normal”; where we will have economic growth AND high unemployment. I beg to differ.
I understand that emergency stimulus measures were necessary to prevent us from going over the cliff but enough is enough. The sooner the government removes the training wheels from the economy, the sooner citizens will learn how to ride again. Because at this point, the US government is holding us back, and not letting us move forward. Friday’s NFP will either confirm or deny this assertion, and the market will respond accordingly.
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BOE Not Unanimous!
By Mike Conlon | June 23, 2010
Minutes released from the Bank of England’s rate policy meeting showed that the vote was not unanimous to keep rates unchanged at .5%, for the first time in nearly 7 months. Inflation concerns were the cause of the dissenting vote, as CPI figures in the UK have been above targets. While the BOE expects inflation to subside in the ensuing months, that may not necessarily be the case.
This comes a day after the emergency budget which was announced yesterday, calling for a reduction in spending and an increase in taxes.
In the US, the FOMC rate decision is due out later today, so expect to see some volatility in dollar-related pairs. It is widely held that there will not be a change in policy, but some market participants are betting that we may see a change in the language regarding policy. This would give credence to the rising sentiment that the Fed may raise rates later this year. Personally, I don’t see this happening and I think the Fed will be on hold for the remainder of the year.
Yesterday’s abysmal housing data confirmed that deflationary forces in the housing market may be the start of another leg down.
In the Euro zone, German consumer confidence came in slightly better than expected and PMI figures were largely in line. However, concerns over Greek debt have perked up again.
Overnight, the Yen was higher as the Nikkei was down taking its cues from yesterday’s sell-off in the US stock market.
This morning will bring US new home sales figures as well as Canadian retail sales figures. Any major deviations could send the respective currencies lower.
But expect volatility going into the FOMC announcement at 2:15 EST.
In the forex market:
Aussie (AUD): The Aussie is lower as stocks sold-off in the overnight session but it is gaining back some ground heading into the US session. Risk aversion has driven the Aussie lower, and there is some concern that Chinese demand for metals and energy is causing a rift in the Australian economy.
Kiwi (NZD): The Kiwi is higher this morning in anticipation of GDP figures which are due out later tonight. The expectation of .5% growth will likely be exceeded as demand from China for raw materials has the NZ economy picking up steam. Should the number best expectations, then the likelihood of a rate increase at July’s policy meeting will increase.
Loonie (CAD): The Loonie is lower this morning as oil prices are pulling back from the $78 level, and retail sales figures came in worse than expected. Analysts were expecting a decline of .4% and the figure showed a decline of 2.2%, a big miss. Canada is to the US what Australia and New Zealand are to China. If recovery here in the US is floundering, then it may not bode well for the Loonie and the Canadian economy in general.
Euro (EUR): The Euro is a mixed bag this morning, as it is up against the North American currencies but down against the rest. The EU is considering a bond levy on countries that don’t adhere to debt-to-GDP guidelines which of course brings the Greek debt crisis back to center stage. In addition, business confidence was down in France, though consumer confidence was higher in Germany. Go figure.
Pound (GBP): The Pound is higher across the board, giving a vote of confidence to both the government for their budget and the BOE. The lone dissenter in the rate policy meeting is concerned about inflation, as growth targets may exceed expectations. That’s a “nice” problem to have, considering the economic condition of the US.
Dollar (USD): The Dollar is mostly lower prior to today’s FOMC meeting. Yesterday’s poor housing data sent stocks lower, and today’s new home sales aren’t expected to be much better. This should be enough to keep the Fed unchanged in both language and policy, and the market is starting to catch on to the fact that the smoke and mirrors of government spending may not be enough to stoke the economy. Go back and take a look at my discussion of biflation from a few days ago.
Yen (JPY): The Yen is mixed as well, trading higher vs. USD and CAD (both showing weakness) and the Euro (debt concerns) but lower vs. GBP, AUD, and NZD. So today can neither be classified as risk-taking or risk-aversion, but much of the yen strength was derived from weakness in the Nikkei, which sold off following the US stock market decline.
I think today really shows the difference to how the market reacts to different policy pursuits from around the globe heading into this weekend’s G-20 meeting. On the one hand, you have the EU and the UK who are committed to reducing deficits and trying not to raise taxes too much to discourage business (in fact the corporate tax rate was lowered in the UK), and the policies taken by the US.
The US is going the other way, expanding deficits and throwing good money after bad at our financial problems which can only result in higher taxes when it comes time to pay the piper. President Obama was rebuffed by Chancellor Merkel of Germany with regard to how to best combat the global financial crisis, and it appears as though the market agrees with the EU.
Weak housing data here in the US show that the stimulative effects of government spending may have slowed a decline in the economy, but have not fixed the problem. Now taxpayers (and their children and grandchildren) face an enormous burden for what adds up to temporary conditions.
The change people voted for was for less government spending and indeed we’re seeing change—even more and more spending! Hopefully this course can be reversed before it’s too late. I never thought I’d say this but now is the time we should be taking our economic cues from Europe, and not their prior policies that landed them in this mess.
Those who don’t learn from the past are doomed to repeat it.
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