by Collinson FX
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Collinson FX market Commentary: June 8, 2012
Market rallies continued globally despite the continuing storm overwhelming Spain and Europe. Fuel was added to the week-long rally by Chinese interest rate cuts. The intervention immediately sparked confidence despite the bad news from Europe.
Fitch downgraded Spain citing the double dip recession, crippling debt and the dire state of the Spanish Banks. Spanish bonds came off highs after the Chinese interest rate cuts and the hope of ECB intervention. The government have requested that the ECB intervene directly in the bank bailout thereby avoiding austerity restrictions associated with a Sovereign bailout.
The rally extended the US with Jobless claims falling and markets anticipating the Feds extension of monetary stimulus.
This has supported the EUR trading up to 1.2600 and the GBP testing 1.5600. Commodity currencies rallied with the AUD 0.9935 and the KIWI 0.7710 with the expectations of monetary intervention by the Fed. Immunity from the European crises must be temporary because of the very nature of the global economy epitomised by the Banking sector.
Merkel has proposed political and fiscal union as the solution and she is correct.
This cannot happen short term and is very unlikely to happen at all as the democratic citizenship would revolt against further central political power after recent experience.
Collinson FX market Commentary: June 7, 2012
A shock GDP growth number in Australia surprised pundits and markets and embraced recent rallies extending gains in risk assets. European debt crises stumbled on with the Spanish banks begging for a Governmental bailout who in turn requested the ECB directly fund the bailout.
The Germans will not agree to shared assumption of debt obligations so the ECB will be expected to act. President Draghi has placed resposibility squarely back in the politicians court. Markets rallied strongly as expectation of a political solution from the G20.
Risk appetite spiked and the EUR rose to 1.2550 and the GBP 1.5470. In the US equity markets extended gains with the prospect of further monetary stimulus from the Fed. The biege book revealed moderate growth in the economy and no real reason to panic.
The extension of 'operation twist' is likely and the maintenance of the extreme interest rate policy to remain. Central Bank intervention may cure short term liquidity problems with Banks but the underlying problems remain and grow.
This may be a correction on the correction or perhaps a bounce on the road to a bear market. Europe will likely determine market direction over the next few months.
Collinson FX market Commentary: June 6, 2012
Markets stabilised with little in the way of economic news or dramatic events from Europe as the G20 set to meet. Pre-G20 talks have discussed the European crises and the possible solutions including Eurobonds and Fiscal Union. Most EU leaders promote the Eurobond with shared responsibility for the overwhelming Sovereign debt.
Germany is unlikely to accept this without dramatic changes and fiscal union. The question is what price the Germans will demand? The EUR held at 1.2450 and the GBP 1.5370 with markets preparing for some form of QE and further dilution of the USD.
The AUD remained steady trading 0.9730 after the RBA cuts rates by 25 points and warned of 'risks of destabilising global growth environment' impacting China and the EU crises.
The Bank of Canada echoed this sentiment leaving interests rates at the record low of 1%.
The KIWI consolidated around 0.7550 building support. Equity markets in the US reflected the stabilisation of markets and commodities also eked out small gains. Markets await the Fed's reaction and the G20.
Collinson FX market Commentary: June 5, 2012
The flood of negative economic news continued with weak data from China, Europe and the U.S..The previous week broke technical levels and erased 2012 gains in equity markets. Currencies surprisingly resisted the moves with the EUR bouncing back to 1.2480 and the GBP 1.5375. This may be a dead cat bounce as technicals and fundamentals point the same way.
In China Non Manufacturing PMI fell from 56.1 to 55.2. In Europe Investment Confidence remained critically weak and PPI was flat. The U.S. Followed with Factory Orders falling 0.6% and the New York ISM contracting below 50.
Australian equity markets were hammered from the fallout from the U.S. Employment data over the weekend. Job advertisements fell and Company profits slipped a further 4%.
The AUD improved to 0.9725 following a consolidating USD. The KIWI held resistance levels and built back to 0.7570 but further upheavals in Europe are likely to test the all important 0.7500.
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