by Collinson FX
Derry-Londonderry at the start of Race 10 Clipper Race from San Francisco to Panama.
Collinson FX market Commentary: 9 May 2012
The economic repercussions of the political upheaval in Europe were starting to crystallise and manifest in the markets.
Risk off trades became the norm with equities and commodities all taking a hammering. The ramifications from the move to the left politically are beginning to clarify. The new mantra from Europe is 'growth' but how? The presumption is Keynesian in that it requires investment for growth that requires capital. Private capital is not forthcoming so that would require Governmental investment. That cupboard is bare!
Europeans will struggle to borrow further as debt levels now are at a tipping point with deficits pushing them to unsustainable levels. That leaves capital creation in the form of money printing. The ECB would need to expand an already bloated balance sheet with all the dangerous implications that involves.
The EUR held 1.3000 overnight and the GBP continued to hold steady above 1.6150.
In the US, markets were hoping for a decoupling from Europe but has found globilisation has it faults as well as advantages. The NFIB Small Business Optimism rose although economic optimism contracted. Commodity demand fell and the associated currencies look vulnerable.
The Budget was released in Australia projecting a surplus for the first time in this Labor Governments history. Most would not put a lot of stock in this as budgets have been blown with intent over the last years. This Government will be lucky to survive the fiscal year let alone bring in a budget surplus. Continuing political instability destabilises the economy and some conclusion needs to be in the offing.
The KIWI dropped to 0.7880 and also looks to the downside. May looks set to fulfill the adage!
Collinson FX market Commentary: 8 May 2012
European elections dominated markets in Europe and the US with initial reaction negative but settling after digestion. France is the core of the EU and fears that the new Socialist Leader, Hollande , would bring the tenuous balance of the EU down, subsided.
He advocates the reversal of austerity imposed on France and promoted the growth strategy. His economic plan of growth without austerity proposes raising taxes and restoring social expenditure. This economic miracle will be amazing to behold and will be a blue print for the world to follow! Increase spending and tax while reducing budgetary controls?
The impact on debt will be interesting as budget deficits resume their expansion and test debt markets. The pressure should result in a blowout in bonds and thus result in a funding crises in the near future. Resolution of this crises will be interesting and must come from the socialist economic miracle handbook.
The Greek elections saw them turn away from the major political parties who imposed austerity and sought out parties on the extreme right and left leaving a jumbled mess. Communists and Neo-Nazis now move into the mix and it is hard to see a serious political alternative emerge. Greece must now be headed out of the EUR which is probably a positive for the EURO and Greece.
The single currency dipped below 1.3000 with all the upheaval but regained the key level as markets settled in to watch developments. The US markets digested these events with little response. After all was France not always Socialist anyway? Equity markets remained calm, as did the currency, but bears love the month of May. The Aussie regained some recent losses after some positive economic data coming in to today's budget release.
Business Confidence rose as did Retail Sales with a surprising jump in Building Approvals. The only downside was a fall in Job advertisements but the currency did rise to 1.0200 again. KIWI found some support and managed to regain 0.7950.
Details of the Australian budget will be digested but the political turmoil will overshadow the economic forecasts. Europe will remain the big driver in global markets and risk appetite.
Collinson FX market Commentary: 7 May 2012
Equity Markets had their worst week of 2012 as confidence plunged fueled by weakening economic data and political uncertainty surrounding the EU.
The French Election looks likely to promote the Socialist leader, Hollande, who advocates anti-austerity measures threatening the current status quo and spreading uncertainty. The EUR continued lower falling to 1.3075 and the GBP 1.6145.
In the US markets continued to retreat after slower jobs growth in the all important Non-Farm Payrolls number. The actual employment rate dropped to 8.1% but participation continued to plummet threatening any danger of a robust economic recovery.
Commodity currencies suffered as demand fell and economic conditions deteriorated in Australia and NZ.
The AUD slipped lower to 1.0175 and could test parity short-term. The KIWI was hit hard after falling below the major 0.8000 mark has slipped lower to 0.7950.
Risk appetite has disappeared and poor employment data globally reflects the tenuous recovery. Markets will focus on the EU and in particular the French elections and the percieved consequences. Downside looks likely after a week to forget!
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