by Collinson FX
Image of the Day J-Cup 2012, Hamble
Collinson FX market Commentary: July 27, 2012
Equity Markets contined the strong rally overnight with risk appetite spiking fueled by anticipation of further Central Bank intervention. Draghi has floated the prospect of massive Bond buying to force Sovereign Debt costs lower and this was reflected in the fall in Spanish and Italian Bonds.
Last time the ECB did this they brought rates substantially lower and lent further money for banks to load up on Sovereign debt which back fired when the interest resumed to critical levels. This rally spread to commodities and currencies.
The EUR hit 1.2300 and the AUD rallied strongly towards the 1.0500. The KIWI is now trading above 0.8100 with concerns apparently allayed!
A rally triggered by Central Bank money printing has left many with serious trapidations. The fundamental nature of these rallies are completely contradictory. It is because of the pending economic train smash that expectations arise of monetary intervention.
The printing machines do not solve the debt crises but political cowardice fails to address the problem. Stop spending more than you earn!
This week will be huge across the markets with ECB, FOMC and BofE rate decisions. US Employment and Housing Data will be a big driver of equities globally.
Collinson FX market Commentary: July 26, 2012
Equity markets halted the slide for the week and attempted to stabilise amidst an avalanche of bad news from Europe and the US. Many commentators forsee China struggling as global demand faulters with the double dip in Europe and the contagious impact this will have on the US.
Moves have been made in Europe to strengthen the rescue fund with an expansion of the ESM and possible allocation of a banking license. These are exercises in futility because they do not address the fundamental issue of debt. More debt and ever increasing expansion of the money supply can only lead to disaster. The EUR recovered some ground trading 1.2150 although the GBP suffered after GDP fell 0.7% for the quarter.
In the US, the markets bounced despite some further weak data. New Home Sales hits a new two year low crashing 8.4% undermining any substantial economic recovery. Apple, the biggest company in the world, missed expectations with profit for the quarter after dissappointing sales.
The profitability remains obscene but expectations are stratospheric. New calls for Central Bank intervention have surfaced again sparking the insipid recovery in equities. Commodities rebounded with the relief rally pushing the AUD above 1.0300 again. The KIWI is testing the 0.7900 ahead of the RBNZ rate decision. No moves are expected although it is hard to see why they do not cut further with anaemic growth allowing scope for some stimulation?!
Collinson FX market Commentary: July 25, 2012
Fear gripped European markets after Moody's put Germany, Netherlands and Luxembourg on negative credit watch. The news is grim indeed as these are the nations that have been the bastion of support while all around fall.
EU Officials have also revealed further restructuring of the Greek debt ahead of the troika assessing the progress on austerity measures. The restructuring means further extension of bailout funds which have already overwhelmed the balance sheet. Greece is beyond the point of no return and continued support is an effort to keep the single currency whole.
The black hole is swallowing up billions and the appetite will not be sated. The EUR slipped to 1.2050 and Spanish Bond yields surged. The 10 year breached 7.5% and the 5 year overtook this causing markets to sit up and take notice!
Contagion spread across European markets and to the US. Equities collapsed and risk appetite crashed. This hurt the AUD which dropped to trade 1.0215 and the KIWI to 0.7850.
The Richmond Fed's Manufacturing Activity reported further weakness falling from flat to negative 17! The European news is hitting demand globally which is impacting China and the US. The flow on is falling demand which must impact commodity prices and thus associated currencies.
The AUD plunged as a result with risk not that attractive. All eyes remain on the EU with the crescendo building and something has to give!
Collinson FX market Commentary: July 24, 2012
European markets hit the panic button with a freeze on short selling. This is a red flag and was reflected in equity and bond markets. Spanish and Italian bonds hit new highs with spreads at record levels. US and German bonds plunged with the panic flight to safety with short dated bonds reaching negative yields in some quarters. It appears that the EU is fast approaching critical levels and just now cut Greece loose in the vain hope of saving Spain and Italy.
Realisation must be nigh that the single currency is disfunctional and must now be abandoned in its current form. It may be the Germans leave and and sacrifice the advantage of a weak currency for economic stability. The price of the EUR is far to high a political price to pay for responsible citizens. EU consumer confidence fell further to 21.6 reflecting the serious doubts held by the citizens.
The US followed European markets although equities rallied on the close after the Chicago Fed shows national activity continued to decline. On the corporate earnings front Maccers missed expectations meaning that even the consumers stomachs are beginning to turn.
The higher interest rate yields provided by the AUD failed to find support as risk outweighed greed. The AUD fell to 1.0280 and the KIWI dipped below 0.7900. Technicals now point to the edge of the cliff and if these levels are breached then we have major market adjustments.
Collinson FX market Commentary: July 23, 2012
Equity markets gave up some of the week's gains after more fears over the European debt crises spread across global markets. The focus remains on Spain as EU Finance Ministers approved the Bail Out package for Spanish Banks.
The lack of EURO's seems to spook markets in the more traditional banking run scares. Valencia has indicated it will seek Government Bailout and now the focus will be on the necessity for an additional Sovereign Bail Out. The Greek debacle will also return to the fore with further bailout advances due in August and their failure to meet austerity requirements. The departure of Greece from the Euro may release some pressure although the fundamental dis-functionality remains.
China has indicated intervention to prevent real estate speculation with the economic slowdown now looking to prick the bubble. US Markets fell with little economic news allowing the focus to revert to Europe.
Commodities drifted lower with demand pushing the AUD back to 1,0370 and the KIWI back under 0.8000. The EUR continued lower to 1.2160 after the Spanish 10 year bonds hit 7.27% threatening the very existence of the single currency.
Markets will remain attentive of the EU debt crises while looking closely at US Housing and GDP growth.
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