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No Recovery in Sight!
By Mike Conlon | February 4, 2010
US Initial Jobless Claims came in worse than expected this morning, rising to 480K, the highest level seen in three weeks. Analysts were expecting a slight decrease, so that makes this number “unexpected”. (As a side note, how sick and tired are you of hearing about “unexpected“economic reports as reported by media outlets?) Also to note this morning is that both the UK and the Euro zone left rates unchanged, which was not “unexpected”. So needless to say, this morning is a risk-aversion day.
Here’s the rundown of world currencies:
Aussie (AUD): The Aussie is down this morning as expected. The major news for the Aussie will be made overnight as the RBA will come out with its quarterly monetary policy statement. There was a bit of new this morning that retail sales figures in Australia were down (MoM) to -.7%, showing a negative figure as consumers are starting to become more interest-rate sensitive.
Kiwi (NZD): The Kiwi is getting smacked this morning with the double whammy, losing value due to risk-aversion but also contributing was their unemployment report. Unemployment in New Zealand rose to 7.3%, the highest level in over 10 years, dampening hopes for any rate hikes in the near future.
Loonie (CAD): Building permits in Canada increased in December, showing signs that there may be hope for economic growth. However, the Loonie is down this morning, suffering from its correlation to oil and the general risk-aversion theme.
Euro (EUR): The Euro is down this morning against all but the Aussie and Kiwi, assuming its rightful place in the risk pecking order. The ECB voted to keep interest rates unchanged at a record low 1%, as concern about Greece stills weighs heavily on the common currency. There is a fine line the Euro zone countries are walking, attempting to encourage growth while at the same time reduce deficits and rein in budget shortfalls.
Pound (GBP): The BOE also kept rates unchanged at .5% and has also announced plans to not expand its bond purchase program (QE) for the first time since the program was initiated last march. The UK is trying to balance the threat of inflation at the expense of economic growth. It is also important to know that general elections are coming up in May and the “throw the bums out” mentality has made its way to the other side of the pond and is not only popular in the US. So the BOE is also taking potential political change into account.
Dollar (USD): I’ve already touched on the bad news about initial jobless claims, and tomorrow’s Non-Farm Payrolls Report (NFP) is weighing heavily on the US economy. Readers of this blog know that of course that means the dollar is up, as the flight to safety trade takes hold. Lost in the mix are pretty decent earnings reports coming out of the stock market, though as a most likely result of cost-cutting and firing workers. See the irony here?
Yen (JPY): Lastly, the Japanese yen is the big winner this morning, benefiting from the risk-aversion trade. Because of its status as the reserve currency for the carry trades, when risk aversion takes place, demand for yen goes up as traders flee riskier currencies.
As I scan the different news wires, I can’t help but notice that I haven’t seen one piece of encouraging news out there that would lead me to believe that economic recovery is gaining traction. The only silver lining I found, decent corporate earnings, is a joke compared to what’s going on out there.
At the US market open, stocks are down. Europe is down currently and Asia closed down overnight. Not to be Debbie Downer here but today could be ugly with a capital ‘U’. Oil is down to 76 and change, and gold is down testing 1100.
Remember, in order to benefit from a strengthening dollar, you have to sell a different currency and buy dollars to make gains! Just having dollars in your bank account does you no good except potentially influence your purchasing power. The only way to take advantage of these moves is through the forex market. When you’re sitting there looking at a red screen (because everything is down) and have no idea where to put your money, the forex market can give you a safe haven.
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