by Collinson FX
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Collinson FX market Commentary: June 13, 2012
US equity markets rallied on the prospect of further monetary stimulus from the Fed to support faltering global economic conditions.
In Europe Fitch further downgraded 18 Spanish banks which was no surprise to markets. Spanish Bonds hit a new high of 6.807% dragging Italian Bonds up ever closer to the magical 7% considered the trigger for intervention.
The EUR traded around the 1.2500 and the GBP 1.5575 with the Spanish crises climaxing as we approach the all important Greek elections this weekend. This could end badly!? US Markets are now looking forward to further Fed stimulus scheduled to meet next Tuesday after the Greek elections.
QE will trigger further risk appetite in the form of equities and commodities and impair recent USD gains. The stronger Dollar, as a safety play, has impacted trade data with Import Prices falling and Export prices moving up. The NFIB Small Business Optimism Index reflected the weakening economic conditions dropping lower.
Chinese Trade data supported commodity prices and the corresponding currencies. The KIWI outperformed after some strong Housing data showing sales spiking higher and prices improving too.
The NZD rose to 0.7745 and the AUD moved to 0.9930 after briefly testing parity. Commodity countries offer attractive yields and have performed relatvely well of late but are not immune to financial disaster in Europe.
Collinson FX market Commentary: June 12, 2012
Last week's correction rally was the biggest of the year but was sparked by negative news rather than positive economic data.
The 'May Sell-Off' eliminated all the 2012 gains on equity markets and hit asset values as demand plummeted with the European crises materialising.
Last week's gains were directly attributable to market expectations that Central Banks would intervene as global markets unwind which morphed into an intervention in the form of a EU Bailout of the Spanish Banks. The latest domino to fall is Spain, which has requested an EU Bailout while denying it is a bailout, as there are no austerity strings attached.
The semantics failed to impress markets as the latest PIIGS member succumbed. The only one remaining is Italy which must now be in the firing line!?
A new acronym may now be forged but how does the F fit?
The tipping point must be approaching as a greater proportion of nations seek bailout than the few remaining healthier nations. The EU stumped with EUR$125 Billion of further debt to solve the the crises of debt! This is insane, absurd and completely alien to logical economic theory.
Adding further debt will add short term liquidity where necessary but is a tiny band aid on a mortal wound. The EU and ECB has broken all the rules when it comes to economic ratios and reaction in terms of monitisation and lending to critical nations.
The EUR has retraced much of last weeks gains trading 1.2490 and the GBP testing 1.5500 on the downside. The European economy is the biggest market for China so this must impact Chinese growth and demand which will have flow on effects for commodity demand.
This pushed the AUD lower to 0.9880 and the KIWI now looking at 0.7700. It is hard to see last week's rally as anything other than a correction and with the Greek election due on the 17th of June, more volitilty is certain.
The FOMC meeting next week may give some short term relief with further QE but the fundamental crises continues to spiral out of control.
Collinson FX market Commentary: June 11, 2012
Markets finished the week strongly with further gains in equities and risk assets. The poor economic data and the EU crises has spooked markets through May and expectations of monetary and fiscal stimulus has grown. This has sparked confidence although the Fed and the ECB have resisted the temptation.
Markets will be heartened by the news that EU Finance Ministers have agreed to Bailout Spanish Banks to the tune of EUR $100 Billion! The overkill is an attempt to head of fears off panic and a financial market collapse.
The problem is... that the problem is still there and rapidly deteriorating. The answer seems to be to loan more money.
It is incredible that printing more money and extending further credit to already bankrupt nations is supposed to solve the problem. Address the issues, balance the budgets, and stop adding to already critical debt levels.
The single currency has bounced back to trade over 1.2500 but fundamentally this currency is not viable. Commodity demand also gained with confidence which has pushed the corresponding currencies north.
The AUD moved to break 0.9900 and the KIWI breached 0.7700. The EU crises will continue to drive demand from China and in turn commodities. We thus await the European developments focused on Spain and the inevitable contagion.
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