Collinson FX Market Commentary: October 2, 2012 - Equity markets rally

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Collinson FX market Commentary: October 2, 2012

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Equity markets rallied strongly for the new quarter in Europe and the US. European markets received a boost with the Spanish Banks 'passing a stress test' thus enabling Moodys to relent on a downgrade. The risk aversion subsided and equity markets pushed north .

The positive start spread from Europe to the US and was super charged by the Manufacturing data. The ISM Manufacturing Index broke into expansionary territory rising to 51.5 from 49.6 defying recent regional manufacturing reports. Ben Bernanke appeared and reinforced QE infinity extolling it's virtues,. The argument is cheap money will boost investment in housing, equities, business etc, creating greater wealth thus boosting consumption. It has worked superbly well for the last few years in destroying real wealth as the USD slides in relative terms!

The boost to Housing from previous QE has been negligible and this continues to weigh on the economy with construction spending falling for the seventh straight month to -0.6%!

A surge in equities was not reflected in the risk currencies with the AUD holding 1.0375 and the KIWI just below 0.8300. Gold remains popular with the erosion of currencies through Central Bank stimulus.

Central Banks will be watched closely this week with rate decisions across the globe led by the RBA today. The RBA is not expected to cut rates, in surveys of economists, but many believe there is scope for action with low inflation and flagging growth. A surprise cut may well hit the currency!

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