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Collinson FX Market Commentary- August 23, 2012 - AUS's Perfect Storm

by Collinson FX on 23 Aug 2012
Image of the Day Practice day, August 21st 2012, AC45 World Series San Francisco. Sander van der Borch / Artemis Racing © http://www.sandervanderborch.com

Collinson FX market Commentary: August 23, 2012

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The Fed's Minutes were released and indicated that QE3 may be 'warranted fairly soon' if economic conditions did not improve. The FOMC Minutes cited the European Debt/Deficit crises and the corresponding slowdown in demand spreading to China and Asia.

This was exemplified with the rising Japanese Trade deficit. Warning bells were ringing when this trade deficit was announced reflecting the serious nature of falling global demand in the worlds third biggest economy and former trade surplus superstar!.

In Europe markets await the outcome of the Merkel/Hollande summit and the response to requests from Greek PM, Samaras, for 'more air to breathe'! The suggestion of further stimulus has driven the Dollar lower and correspondingly real value commodities up. The surprise was the marginal reaction of the Equity markets who would ordinarily explode on the prospect of further Central Bank intervention.

The rally was marginal reflecting the markets expectations and the real effect of security purchases to the nth degree. Bernanke will be loath to intervene in the lead up to the Presidential elections. The EUR regained some ground to 1.2520 with the dollars reaction.

The US Existing Home Sales rose 2.3% but weekly Mortgages fell 7.4%. The AUD reacted positively rising back above 1.0500 after some disturbing investment news. BHP shelved a $30 Billion mining project at Olympic Dam,SA shadowing the much vaunted investment pipeline. Commodity prices and the strong AUD combined with limited Capital and a uncertain political climate with rising tax costs have lead to a perfect storm for mining investment.

This is the single biggest worry for the Australian economy.

The KIWI managed to move to 0.8125 pushed by the weaker USD. Eyes will be focused on the European political developments and the repercussions they will have on Global markets.


Collinson FX market Commentary: August 22, 2012

In a world where Apple has become the biggest company in US history you have to wonder? A company that produces the iPhone and iPad is selling so many, at such a huge margin, that they are now worth more than many small countries. The company is beloved by stock holders but is symbolic of the current downturn in the US.

The brains trust reside in the bankrupt California but all production occurs in China. Sales are global and therefore revenues remain global due to the US tax system. This is indicative of the 'new normal', where growth and revenue occur offshore and the static domestic growth of Western Nations continues to be mired in socialised debt and budgetary crises.

The only respite is further Central bank intervention in expanding liquidity to the banks who refuse to stimulate the small/medium business but rather invest in the impending bubble that is treasuries! The monetary stimulus is eroding citizens wealth in real terms at a dramatic rate but I guess that is the plan. The EUR rallied to 1.2480 after concerns wavered in Europe as Merkel appointee to the ECB, Asmussen, endorsed an unlimited ECB Bond Buying program.

The sheer desperation of unlimited purchase of debt is astounding. It will solve the problem short-term but builds an almost insurmountable problem down the track. Some one has to pay the interest on the debt when budgets can not meet current obligations?!Fitch has warned of further downgrades after rallies in equities hit year highs on the back of monetary stimulus prospects. A removal of cancerous cells, in the form of Greece, may well provide some support for the single currency but that is assuming that Spain and Italy do not need a cull.

The GBP broke out of technical levels on the upside after the Bank of England endorsed a steady interest rate policy.

The RBA reiterated a steady as she goes policy with steady growth and inflation. The need to intervene is not pressing with monetary policy soft providing a surety for AUD holders at 1.0485. The KIWI traded around 0.8100 despite weak Credit Card expenditure and a flight of citizens to the Australian mining sector.

The Fed minutes may provide action but focus will increase on the central bank conference at Jackson Hole!



Collinson FX market Commentary: August 21, 2012

Mixed messages from Europe sent stocks lower although quiet economic data releases restricted moves. The Bundesbank has reiterated their reservations with regards the ECB's intended Bond buying program.

The reality is that Germany becomes the lender of last resort to a spiralling out of control Europe. A story was also circulating of the ECB imposing a cap on EU Bonds, would have enormous implications in terms of free market operation with far reaching unintended consequences. Merkel meets Hollande Thursday so this may have an impact as they mutually attempt to reassure markets. The EUR has traded sideways at 1.2350 and the GBP reaching 1.5700.

In the US, the Chicago Fed's Manufacturing Index slid lower but the lack of a dramatic collapse in the economy prevents the Fed intervening. Markets will look to the EU Debt/Deficit crises developments for direction and the Fed minutes later in the week.

The AUD stabilised to trade 1.0450 with political rumours swirling of an early election driven by a failure in the Budget surplus and an avalanche of pressure from failed economic policies. A look at the RBA minutes may give insight to the Central Banks view of economic conditions.

The KIWI also held below 0.8100 with not much going on domestically. Central Banks and leading politicians will provide market direction with technicals pointing to substantial resistance on the upside!

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