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Markets Still On Edge!
By Mike Conlon | August 12, 2010
Overnight, the Asian equity markets fell, following yesterday’s 2%+ declines in US equities. This has brought about some continued risk aversion, and US stock futures are lower to start the morning. European stocks have held up modestly, though revised growth projections from the ECB and lower than expected industrial production figures have put some pressure on the Euro.
In Australia, the economy added more jobs than expected, but the unemployment rate ticked higher as more people entered the workforce.
Meanwhile here in the US, jobless claims increased to their highest levels in nearly 5 months, coming in worse than expected and lending more credence to the Fed’s forecast of slower growth.
Speculation is heating up in Japan over currency intervention as the Yen advanced to 15-year highs vs. the Dollar, but it is paring back gains after Finance Minister Noda refused to comment on possible actions.
So we are seeing some mild risk aversion in the currencies, led by Dollar strength due to its safe haven status.
In the forex market:
Aussie (AUD): The Australian economy added 23.5K jobs last month, beating an expectation of 20K, but the unemployment rate ticked higher to 5.3% vs. and expectation of 5.1% as more people entered the workforce. This has lead to the sentiment by some that the RBA raised rates too far, too fast. This will likely bring about a pause in hikes in the near-term, as signs that the global economy is cooling off are prevalent. (Click chart to expand)
Kiwi (NZD): The Kiwi is lower on risk aversion in addition to a private report that showed that manufacturing in NZ declined for the first time in nearly a year. Calls for reduced government spending from Finance Minister English to rebalance the “lop-sided” economy are adding fuel to the fire.
Loonie (CAD): The Loonie is holding up well considering the risk aversion in the market and the fact that oil is trading lower to 76.75. The Loonie is faring better than the other commodity currencies as Dollar strength vs. the rest is seen as more positive despite the economic woes in the US.
Euro (EUR): The Euro is lower as industrial production figures fell .1% vs. and expectation of a gain of .6%, showing economic weakness. Meanwhile, rumblings from both Greece and Spain over their slowing economies have returned focus to the Euro zone, and ECB has lowered its growth forecasts.
Pound (GBP): The Pound is mostly lower except vs. the commodity currencies as perhaps the gains that the Pound made recently were over-extended. Next week, the BOE will release its policy meeting minutes which should provide more clarity into the BOE’s line of thinking. (Click chart to expand)
Dollar (USD): The Dollar is showing strength again today, as risk aversion is the continued theme this morning. Initial jobless claims came in worse than expected at 484K vs. an expectation of 465K. This clearly shows that the economic picture in the US is worsening and not getting better, and if the world’s largest economy continues to slow, it could bring down the whole kit and caboodle.
Yen (JPY): The Yen is seeing strength again today as carry trades are unwound, though it is weaker against the Dollar. Speculation is rising about possible intervention in the currency, as it bounced off of 15-year highs vs. the Dollar. (Click chart to expand)
Talk of a double-dip recession is beginning to heat up again, led by the US government’s failure to inspire confidence in both consumers and business alike. The Fed statement from Tuesday echoed these thoughts, and many believe that more accommodative monetary policy is not the answer.
Some have said that Bernanke is “pushing on a string”, meaning he’s getting nowhere. Jobless claims and home foreclosures continue to rise, and will most likely continue until the REAL problem is addressed.
And what is the real problem, you may be asking yourself?
The problem is that the business climate in the US is so negative right now, that companies will actually do better by contracting and not expanding. Not only does this mean that they are not hiring workers, but potential downsizing to cut costs to meet profits is the new corporate mantra.
So our government threatens more regulation and tax hikes while vilifying those that create jobs! Do you think the CEO of XYZ corp. is concerned that people are unemployed? Not really, he’s chillin’ at his beach house somewhere ready to ride out the storm!
Meanwhile the disconnect between Main St. and Wall St. grows wider as populist policies by politicians further erode both business and consumer confidence. Without confidence, both business and consumers are reluctant to spend which creates further downward pressure on the economy!
Recent polls by the Wall St. Journal show that Main St. is just as fed up with Washington DC as it is with Wall St. It’s no wonder the “throw the bums out” sentiment is starting to gain traction. I just hope it’s not too late!
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