by Collinson FX
Anzac crews sailing the FX yesterday off Takapuna
Collinson FX market Commentary: 20 April 2012
Markets continued to ease with failing confidence in the global economic growth story, dragged down by the EC debt crises. G20 Finance Ministers gather to discuss the situation and have been warned by the 'best Finance Minister' in the world to get their fiscal house in order.
Those in glass houses.....! He is correct, and this is what is underlying the Debt/Deficit crises. The continued inability of member nations to live within their means has been adding to the spiraling debt crises. The IMF has been fundraising and received over $320 Billion in pledges and seeks more. IMF head, LeGarde, warns of the growing debt levels and the preponderance of Sovereign debt assets held on European Banks balance sheet. She estimates the need to sell at least $2.6 Trillion.
The LTRO has bailed out banks but many have taken the easy money investing the borrowed funds at huge margin in Sovereign debt. This has provided massive profits to banks playing the yields but overlooking the Sovereign Debt risk. Deja Vu?
Focus has been on Spain but attention is now turning to a nightmare situation unfolding in the form of France. Moodys look set to downgrade and potential default looks more and more likely. The prospect of a socialist President is only likely to shake market confidence.
The EUR trades 1.3120, looking vulnerable, with the GBP holding 1.6050. In the US positive earnings data has been overshadowed by the EU situation and poor economic data. Weekly Jobless Claims missed expectations and the Philly Fed Business Confidence Index also fell. Housing continued to kill confidence with Existing Homes Sales falling 2.6%.
Commodity currencies drifted with prices as KIWI dropped to 0.8130 and the AUD 1.0325. The AUD is under pressure with Business Confidence falling and the Government extolling the virtues of their yet to be achieved budget surplus to pressure the RBA.
Meanwhile the Treasurer (Who has delivered the biggest budget deficits in Australian history!) and lectured the G20 on fiscal conservatism. Go figure!?
Collinson FX market Commentary: 19 April 2012
Equity markets retreated overnight after a surge the previous session as risk appetite rose. The markets continue to see-saw with the fortunes of the EU debt crises.
The IMF had released upgraded growth forecast but with stark warnings of possible financial collapse sparked by the EU debt crises. The ECB warned Spain that they must control their own debt woes and another LTRO issue would not be forthcoming.
Spain has missed austerity targets and the Budget deficits continue to spiral out of control adding to the already crippling debt. Austerity has contracted economic growth within the EU zone and has set constraints on Banks. They are deleveraging and reducing available credit thus impacting business growth.
The EU Current Account continued to degenerate and construction fell 7.1% offering little on the data front. The EUR eased back to 1.3115 but the GBP rose to 1.6025 after Bank of England minutes confirmed no planned future QE.
In the US, Mortgage Applications rose 6.9% fueled by refinancing rising 13.5%. These applications are boosted by the record low mortgage rates offered. Earnings dissappointed and equity markets eased although levels remain high.
The AUD retreated back to 1.0350 and the KIWI 0.8150 after a 9.9% fall in Dairy Prices.
Markets continue to follow the lead from the EU debt scenario and watch crucial economic data.
Collinson FX market Commentary: 18 April 2012
Risk appetite surged with the demand for Spanish Bills! Over demand met the Bill issue attracted by record high returns and the success has given the markets confidence after widely held fears dissipated.
Austerity has contracted the economy into a probable double dip and without the aid of a corresponding devaluation, the economy suffers. How to address the deficit issues without impacting growth in the economy? Currency devaluation!
The single currency prevents this, thus becoming the fundamental issue preventing the PIIGS nations recovering.The German ZEW Economic Sentiment report beat expectations rising to 23.4.The EUR surged to trade 1.3135 and the GBP 1.5950 as confidence returned to equity and commodity markets.
In the US equity markets spiked considerably higher on the news and further strong earnings reports. Housing remains a serious challenge with Housing Starts collapsing, down 5.8% although Building Permits rose 4.5% countering the poor state of the sector. The IMF added to global confidence raising growth forecast to 3.5% Global GDP and the US from 1.8 to 2.1%.
The commodity currencies reflected the rally with the AUD rising to 1.0415 and the KIWI to 0.8225. European debt will remain in focus with a Spanish Bond issue tonight! A look at the purchasers of this debt would reveal a lot!?
Collinson FX market Commentary: 17 April 2012
Equity markets halted their falls from the previous week with some palatable economic data and absorption of the Spanish scenario.
Last week's losses were based on the growing probability of a default in Spanish debt and a slowing of Chinese growth.
In Europe all eyes remain on Spain as they go to the market to issue new Bonds and Bills all the while the interest rates continue to hit new highs. This is despite all of the funds that poured into the banks via the ECB LTRO scheme.
ECB intervention will be required to prevent a collapse and default which has terrified markets for quite some time. The economy has faced a collapse in the housing bubble which has lead to 23% unemployment. With austerity this situation is set to deteriorate further.
Spain has become the next domino after Greece set an unwelcome precedent. In the US markets watched keenly although equities stabilised with Retail Sales growing at 0.8% beating expectations holding prospects of further improvement in growth. Risk aversion subsided with the EUR rising back to 1.3130 and the GBP 1.5900.
Housing remains weak and the Empire State Manufacturing Index plunged to 6.5 heralding a fall in this previously strong sector.
Commodites benefited the gains giving some support to the associated currencies with the AUD back to 1.0360 and the KIWI 0.8200. The NZD has seen some good news with House Sales rising 25% and Home Prices also continuing to rise.
Markets will focus on earnings in the US with influence from economic data but watch out for the omnipresent elephant in the corner.....EU Debt!
Collinson FX market Commentary: 16 April 2012
Spain looks to be the next shoe to drop! Spanish Banks revealed that they were the recipients of a third of the massive LTRO ECB lending to Banks.
The is a huge red flag to the markets now that Greece has set the precedent. Greek default was managed thus avoiding a complete meltdown in markets but has now given a window to what awaits the remaining recalcitrants. The Spanish Government is said to be in talks with the ECB for further bailout funding while their Bond Yields are rising to critical tipping levels.
This would trigger immediate risk avoidance and a huge negative impact on associated equity, currency and commodity markets. The initial negative sentiment evolved from the Chinese GDP numbers. Earlier rises in markets was based on a growing belief in a 'better than expected' number approaching 9%. The real number missed, coming in at 8.1% if you believe their authenticity.
The EUR sunk back to 1.3070 and the GBP 1.5840. In the US the news from Asia and Europe had further impact on equity markets. Consumer Sentiment dropped with the growing impact of record high gas prices. Commodities were also smashed and the Aussie took a hit falling back to 1.0360 although the KIWI remained fairly solid at 0.8220. This may change if the global fundamentals are rocked by the slow motion train smash coming from Europe.
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