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Been There, Done That!
By Mike Conlon | April 15, 2010
Jobs Disappointment!
The number of Americans filing for unemployment rose last week, beating estimates by 24K to 484K. Despite all of the “rah rah” cheering from the financial media and the government, the US economy is still not out of the woods yet. In addition, the number of continuing claims rose, as did the number of those receiving emergency assistance through extended benefits.
Across the pond, the Greek tragedy has now turned into a Greek comedy as this bailout situation still won’t go away. Now speculation is that the bailout package won’t be enough, and that the IMF should have a bigger role. This little “game” being played by the EU is getting tiresome, as it seemingly comes to an agreement right before Greece issues bonds, and then everything falls apart after those bonds are issued. It’s obvious that Germany does not want a strengthening Euro, as they are barking the loudest. They are playing a dangerous game of chicken right now and perhaps they would be better served making an agreement and sticking to it.
In addition, as if Iceland wasn’t causing enough economic problems already; a volcanic eruption from there has spread across Europe causing disruption to airline travel. Look for this to be used as an excuse the next time someone reports worse than expected figures.
Also to note is that China’s economic growth surged to 11.9% for the FIRST QUARTER alone. This may put additional pressure on the government to allow the Yuan to appreciate, which could help slow down this massive economic bubble that is occurring there. This could be problematic for world economic recovery if China demand subsides, especially if they have been the primary driver of recovery. Stay tuned.
In the forex market:
Aussie (AUD): The Aussie is lower this morning on mild risk-aversion as well as well as the news that consumers expect inflation to climb to 4.1% over the next year, which would be the highest level seen in 18 months. However, it should also be noted that if this were to be the case, the RBA would undoubtedly raise rates.
Loonie (CAD): The Loonie is also lower this morning on risk aversion, but faring better than the Kiwi and Aussie as oil prices are only slightly down and still above $85. In addition, Goldman Sachs raised their outlook for the Loonie, which could also be providing it with a bid. However, the last bit of news makes me nervous. My forecast is much rosier than Goldman’s, and my experience has taught me to do the OPPOSITE of what Goldman says. Take that last bit of advice with a grain of salt.
Kiwi (NZD): The NZ PMI index came out earlier showing a better than expected reading of 56.3. Anything above 50 is considered expansion; below 50 economic contraction. Mild risk aversion and lower commodity prices are weighing on the Kiwi.
Euro (EUR): How many acts are in this play? The Euro is lower across the board on, you guessed it, the Greek drama taking place. I was a fan of cliff notes in high school, so here’s the abridged version of how this is going to play out: 1. Greece has a problem and needs to issue bonds; 2. EU can’t agree on a solution, Euro sells off; 3. A last minute solution is reached, allowing Greece to issue bonds causing the Euro to rise; 4) Germany, upset with a higher Euro which hurts their exports, starts rattling the cage and complaining causing the Euro to sell off again; 5) wait for the next “solution” to the problem. In other words, rinse and repeat. They just better hope that investors don’t get tired of this routine and decide to skip the next show!
Pound (GBP): The Pound is mixed this morning as a new poll shows the chance of a hung Parliament occurring decreasing as the Conservatives are leading the Labor party. Expect various election polls to influence the Pound going into the elections. Next week will be the minutes of the interest rate policy meeting, though it is highly unlikely that anything will be different going into the elections.
Dollar (USD): The Dollar is higher on risk-aversion as stock futures are lower, and initial jobless claims came in worse than expected. China over-heating and the Greek situation add to the mix. However, the Empire manufacturing index came in much better than expected, showing that the US does still have an economic pulse.
Yen (JPY): The Yen is benefiting from risk-aversion today as demand is higher to the un-wind of carry trades.
“Look kids—Big Ben, Parliament!” I feel like Chevy Chase in the movie “European Vacation” as he is stuck in a rotary and goes crazy because he cannot stop from going round and round. And like the forex market, we’ve seen this all before.
The Germans are not known for their outstanding playwrights; the Greeks are. Perhaps Germany should take a note from another Greek story-teller Aesop, who is attributed with the story, “The Boy Who Cried Wolf”.
For if the market stops believing what is taking place, then it could cost the Euro in the long run.
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