Collinson FX Market Commentary- Mar 26 - Tech sector sell-off

by Collinson FX on 27 Mar 2015 Collinson FX market Commentary: March 26, 2015 - Kiwi wins beauty contest

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Mar 26 - Equities turned south overnight lead by a major sell-off in the tech sector. The NASDAQ has been testing the highs prior to the tech-bubble burst all those years ago! It may be that bubble is stretched once again, ready to burst, but will hold until the liquidity taps are turned off by the Fed. Durable Goods Orders contracted 1.4% leading many to realize the benign nature of the economic recovery in the USA.

US Employment and Inflation statistics are more than questionable, with real Unemployment calculated at over 10%, while CPI data does not include many components which drive cost of living higher. The Dollar rise has been on Central bank rhetoric, while in reality, the Fed are hamstrung by debt service restraints. The EUR trades around 1.0970, a reflection of Dollar reality, rather than any inherent strength in the failing single currency.

The GBP drifted back to 1.4885 but is on a different monetary cycle than the US, Europe and Japan. NZ Trade numbers were relatively positive, with Export and Imports both rising, although imports shaded the Trade balance to the downside. The KIWI traded around 0.7580, while the AUD drifted back to 0.7830, with support from interest rate differentials and a Dollar retracement. Central Banks will continue to dominate with economic data release influencing speculation on action. Growth is not likely to surprise on the upside and inflation will certify this direction.

Collinson FX market Commentary: March 25, 2015 - Kiwi wins beauty contest
Mar 25 - Equity markets drifted lower overnight with an ocean of data confirming a stagnation of growth in Europe and sluggish gains in the US. Manufacturing PMI in Europe was flat, giving little confidence to the train wreck that is the single currency, which drifted around 1.0900.

The rebound in the single currency is solely due to the reluctance of the Fed to raise rates, impacting the Dollar strength, in a sea of liquidity. The GBP dropped to 1.4850, with CPI data confirming the lack of inflation, thus growth. US Manufacturing PMI was improving along with New Home Sales, although the Richmond Fed's Manufacturing Index contracted, contradicting the positive data.The US is drowning in liquidity which undermines the Dollar and prevents any gains in real wealth.

The Fed will not raise rates, with little growth and low inflation, with the inability to service the massive debt accumulated through endless deficits. The weak Dollar was reflected in the commodity currencies, with the AUD trading 0.7850, while the KIWI remained bid around 0.7630.

Chinese Manufacturing PMI (HSBC Predicted) contracted below the all important 50 mark thus hitting commodity demand. The only support for the associated currencies remains the Fed and interest rate differentials. Central Bank monetary policy is the central theme, buffeted by economic data releases, driving the currency wars.

Collinson FX market Commentary: March 24, 2015 - Kiwi wins beauty contest
Mar 24 - Equities continued to live off the Feds reluctance to raise rates with flows in to equities and bonds. Fed member Fisher, commented that 'interest rate rises may be warranted by year end'! Any commentator and student of the Fed would realise the emptiness of their rhetoric.

US and Global economies are not growing at a great pace and inflation is benign, accordingly. There is no pressure to raise rates and in fact many that support interest rates at record lows. The massive expansion of monetary policy is an attempt at stimulating deflationary, indebted economies. The other dominating pressure is the levels of indebtedness, fueled by enduring deficits, driving debt much higher than the pre-GFC levels.

The servicing of the debt is manageable only because interest rates are so low. If interest rates rise, then default for many, would be the only option. The realization that the Fed will not raise rates is filtering through to equity markets which continue to bloom.

The Dollar is also collateral damage, with the EUR rising to 1.0940, while the GBP trade 1.4940. Commodity currencies also booked big gains with the AUD rising to 0.7870, while the KIWI surged to 0.7650! The NZD Dollar is extremely attractive, as economic conditions are marginally less benign, while interest rate differentials provide massive incentive. Expect economic data to translate into Central Bank activity and commentary which control market direction.

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