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Collinson FX market Commentary: September 7 2012
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Super Mario (Mario Draghi, European Central Bank President) has come to the rescue in a dramatic fashion with the Bond-buying bail-out package. The 'Outright Monetary Transactions' has been unveiled to a rousing reception with a huge risk-on rally in equities after the markets were caught short and unprotected. The plan is as was telegraphed,sterilised unlimited purchase of 1-3 year bonds.
These bonds relinquish the preferred condition status as previous issues disadvantaged existing holders. This will achieve the ECB's short term goals by lowering participant member debt costs enabling them to service their blown out debt. It technically avoids default but is in effect a bailout for nations with central bank underwriting all short term Government issued bonds. It does nothing to address the deficits that caused the debt and continues to add to it!
The EUR rallied strongly above 1.2600 after the news and must be observed that was insignificant compared to the action taken. Technically this does not break ECB rules, as it operates on the secondary bond market, but this action is completely against the spirit or foresight of the foundation rules. The US equity markets surged toward post-GFC highs and now look to test 2007 record levels. In the US, the ISM Services reported an increase to 53.7 from 52.6.
The precursor to the NFP came in the form of the ADP and Challenger reports and both exceeded expectations. The ADP added 201,000 Private sector jobs beating market expectations. The Challenger Jobs Report also improved with lower job cuts expected. This bodes well for the Non-Farm Payrolls which is keenly viewed especially with the political timing of the Presidential election. This could hardly be more important given the state of the electoral race.
The AUD regained 1.0200 after the risk appetite moves triggered by Europe the headline Unemployment fell locally.
The KIWI moved strongly towards 0.8000 and does appear test this crucial level. The focus will turn to the all important employment number tonight with hope rising.
UK 18ft Skiff Grand Prix 2012 Round 3
Collinson FX market Commentary: September 6 2012
Markets remained on edge after details of the ECB Bond-Buying program filters out to the market. It seems that Merkel has agreed to the unlimited purchase of Government member debt if it is short dated and is neutral to the Money Supply.
This would answer the critics of Monetary Policy expansion through running the printing machines and thus counter the inflationary argument. The unlimited nature of the proposal may overwhelm any intention to allow this sterilisation or sanitation policy. This program would drive short dated yields lower taking some pressure of funding of the overwhelming debt.
This supported the EUR which rallied above 1.2600. This measure does nothing to address the fundamental problem of the growing debt. Continued deficits add to the debt which has become unsustainable in Greece, Spain and Italy.
The can has been kicked down a very short, dead-end street!
US markets remained flat after the news from Europe which should have boosted equities and other risk assets. Productivity was the one glimmer of hope on the economic front rising 2.2%. This is great news but is a direct result of corporate America trimming cost to the maximum over the last few troubling years.
There is limited potential gains left in this economic area. Weekly Mortgage Applications fell a further 2.3% which highlights the state of the US housing market. The AUD has come under recent pressure falling below 1.0200 with a red arrow. GDP has started to faulter domestically and politically the Labor Government has expanded expenditure during a revenue decline.
The KIWI held around 0.7950 but also looks vulnerable in this market.
Markets will focus on the all important ECB announcement tonight and US Jobs Reports!
Collinson FX market Commentary: September 5 2012
US markets began trade for September after the long weekend on a negative note.
Manufacturing data dissappointed with the ISM Manufacturing contracting at its greatest rate in three years. The ISM dropped below the static rate of 50, which was expected, to 49.6. On top of this construction spending hit a new year low shrinking 0.9%. Many leading analysts are now expecting a substantial correction in equities over the next two months reversing recent gains.
The markets have almost reached pre-GFC levels without any substantial fundamental economic recovery. The stabilisation has been bed-rocked by Central Bank monetary intervention which is necessarily temporary with substantial long-term consequences.
In Europe Moody's has moved the EU zone to a 'negative outlook' and warned of downgrades to the main players, and previously sound members, of Germany, Netherlands and France. Expectations are high for the ECB meeting adding liquidity through an interest rate cut and the Bond-Buying program.
There is no unanimity on the Bond program or the mechanism for implementation. Germany is under huge pressure to bend from fellow members and the Obama regime who fear an implosion prior to November elections. The EUR traded below 1.2600 after early gains subsided as risk appetite fades.
The growing discontent has spread to commodity currencies with the AUD trading 1.0220 and the KIWI 0.7940.
The AUD remains under pressure with local economic data turning bad and Govt revenues contracting impacting the budget. The Current Account improved, but for the wrong reasons. Imports fell at a greater pace than exports reflecting the slump in consumer demand locally and global demand for exports. Markets will be focused on the ECB meeting and the all important Jobs reports in the US.
Collinson FX market Commentary: September 4, 2012
The markets in the US were closed for Labor Day so the focus was on Asia and Europe. Chinese Manufacturing PMI continued to deteriorate falling to 47.6 in a steady downward trend.
Markets remained steady as the prospect grows of Chinese monetary intervention. Growing global economic fallout from weakening conditions are now only supported by Central Bank intervention. Bernanke has indicated a penchant for action if conditions continue to weaken.
In Europe, the ECB meeting is expected to announce a much awaited Bond-Buying program to alleviate funding pressures on Italy and Spain. Questions from the Bundesbank have been supported by the German Economic Minister likening the program to a drug administered to the waiting addict! The EUR remained steady trading 1.2590 and the GBP 1.5900 after some improving Manufacturing data perhaps reflecting some light at the end of the UK tunnel.
The Chinese problems have spread to commodity driven Australia with the AUD slipping to 1.0250. The Commodity price index slipped as terms of trade weaken. Inflation spiked to 2.2% impacted by the Govt's new Carbon Tax and Retail Sales dropped 0.8% surprising analysts who were expecting a gain.
Job Advertisements fell 2.3% tempting the RBA to cut rates at today's meeting.
Most surveyed expect no action although some may be required in the near future.
The KIWI followed back to under 0.8000 with Central Bank intervention being the only positive globally. If the only good news is further money printing markets are in real trouble!
Collinson FX market Commentary: September 3, 2012
Jackson Hole came and went.
The anti-climax was palpable, although the prospect of QE remained with Bernanke continuing to promise an additional fix. The prospect was enough to break the weeks equity losses and sustain a rebound.
The European Bailout rumbled on with the Bond-Buying Bank Bailout set to be announced in the coming week. This will temporarily allow Spain and Italy to issue enough debt at a manageable rate with the ECB funding the issuance either directly or indirectly (allowing Banks to enrich themselves in the process!).
Funding further debt does not address the cause of the problem and that is the endless deficits! Draghi has promised to do 'whatever it takes' but this will not be enough. The EUR rebounded to 1.2580 with the prospect of more US Dollars in circulation.
The new week will be flooded with economic data in Europe and the US highlighted by crucial employment reports. Central bank decisions will also drive sentiment with the BofE, ECB, Bank of Canada, RBA all announcing. Expectations will be low, except for the ECB, but Draghi has built expectations in the Latin way.
KIWI broke back above 0.8000 and the AUD reached 1.0345.
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