by Collinson FX
Elliot 7 - 2013 Auckland Cup, Day 3
Collinson FX market Commentary: May 23, 2013
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This is the new reality of markets where Bernanke controls their direction through Monetary policy. The markets ignored economic data and all movements through the week were geared on what Bernanke would say. Equities rose on the prospect of expected 'no change'.
The Dollar rose as confidence returns to the US market and Bond yields rose despite the record liquidity reflecting an appetite for return on investments. Commodities fell as a measure of the strong reserve currencies, as did associated currencies. This is the current state of market moves and the dependency upon the Fed. Earlier equities rose to record levels as the Fed released pre-prepared minutes indicating a 'premature withdrawal of QE would put the economic recovery at risk'. New records were hit and the Dollar remained steady!
Bernanke appeared and a couple of variations from the statement set the cat amongst the pigeons! His language introduced 'tapering' and 'step-down' of QE as employment recovery remains strong and sustained. There was mention of partial withdrawal as soon as June. The Dollar surged and equities crashed as fear spread across markets.
The EUR plunged from 1.2990 to 1.2830 and the GBP dropped 150 points! Monetary Policy now controls markets but Central Bankers fear the creep upwards of Bond Yields as the canary chirps away! A rebellion against Global QE is underway but remains a guerrilla movement at present! EU Leaders meet in Brussels to discuss subjects of weight and the dire state of the economic recession will dominate, with little in the way of answers and more in the way of photos! In the US, Weekly Mortgage Applications plunged 9.8% and Existing Home Sales missed expectations rising only 0.6%.
Economic fundamentals are improving slowly in the US and requires further QE, although the size of the Fed's Balance Sheets is the largest on record and scares the hell out of the Central Bankers. The commodity currencies reacted to the markets accordingly, with the AUD falling from 0.9820 to 0.9680, initially ignoring the collapse in local Consumer Confidence.
The NZD also suffered trading just under 0.8200 until the Dollar rally. The fallout sees the KIWI now trading 0.8050 with little doubt regarding vulnerabilities due to moves by the Fed! Will the Fed temper QE or will the markets take Ben on?
Collinson FX market Commentary: May 22, 2013
The Ben Bernanke funded equity rally continued to march relentlessly on the back QE Infinity cloud. St Louis Fed's President, James Bullard, signalled that QE will continue to boost growth that has been slower than expected.
The Economic fundamentals are weak and thus Monetary Policy is being used to stimulate the economy. This has become a global phenomena with the ECB and Bank of Japan employing the same tactics. Monetary largesse has now spread to the stronger economies of emerging nations and commodity driven ones, such as Australia and NZ, as they combat 'currency wars'.
The trade exposed nations such as, NZ and Australia, have been hit hard by record currency rises for extended periods and now have resorted to tactics to reverse these inequities. The trend is turning and the advantage the USD, EUR and JPY have had is coming to an end. This will not assist export driven recoveries but the strength of the USD, despite QE, is on the rise. Bond yields have turned and equities are looking overbought. A correction in bubbles seems likely.
The EUR is trading around 1.2900 and the GBP 1.5275 reflecting the dire state of the EC.
Commodities have been on the decline with flagging Asian demand and a stronger Dollar but the recent declines have stabilised with the AUD 0.9825 and the KIWI 0.8175.
The rapid recent declines have been no surprise and long overdue.
NZ Budgetry conditions seem to be on the improve as the Government employs steady Fiscal rectitude unlike the record Budget blowouts across the Tasman. Treasury seems unable to read the progress of the economy with record misreads resulting record budget blow-outs year upon year!
The Labor Government have been quick to spend over estimated revenues resulting in a structural crises which should result in their removal from office due to incompetence. The Fed Minutes will be released tonight along with comments from 'the Ben Bernanke' which should drive equity, commodity and currency markets.
Collinson FX market Commentary: May 21, 2013
Markets took a breather from the boisterous rallies we saw in Equities and the Dollar last week. The 'Big Dollar' took a breather and allowed commodities to rebound along with the currencies.
The AUD moved back to around 0.9800 and the KIWI to 0.8175 supported by the commodity gains and the improved risk scenario. The EUR also regained 1.2900 and the GBP 1.5275 with liquidity flooded markets providing credit and the economic news thin. US equities were flat after the surge from last week with little data out to influence directional pulls.
The markets needs little to trigger further gains in equities as investor search for yield in the frenzied equity bubble. US markets will look closely as economic data releases this week while the political junkies are consumed by the scandals enveloping the Obama administration.
Central banks will be watched closely this week, as will the Housing Sector data out in the US.
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