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Collinson FX Market Commentary- August 31, 2012 - Eyes on Jackson Hole

by Collinson FX on 31 Aug 2012
Finn start Race 1 - Weymouth 2012 Olympic Regatta © Richard Gladwell www.richardgladwell.com

Collinson FX market Commentary: August 31, 2012

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Equity markets continued to tumble as the realisation that Bernanke may not act pre-election. The economic data releases continue to decline but not at a rate that warrants Central Bank intervention. It is the static nature of the economy globally that really challenges equity and commodity markets.

Without falling off a cliff the addict is denied the short term fix. The bloated state of US and EU economies has not translated into credit infiltrating markets as liquidity is invested into banks who reinvest into Treasuries and debt taking advantage of the spreads. The free-lunch for banks builds their balance sheets, which is desirable, but would have been preferable through banking prowess rather than Banking welfare.

The EUR declined as news leaked that Spain has resisted applying for a bailout until they no the terms of surrender. The ECB must be on the verge of a Bond Bail-out package in an attempt to limit debt servicing requirements. This will be essential but certainly no solution to the deficit conundrum. The EUR dropped to below 1.2500 with Confidence slipping from the investor,consumer and business.

In the US, equity markets reflected the reality that QE may not happen with anaemic economic data and realisation that it would probably not help. Commodities lost ground with weak demand and mild support for the USD pushing the AUD below the psychological 1.0300 level.

Hard commodities have taken a serious hit but agricultural demand has remained steady with the US drought impacting.

The KIWI has non-the-less followed big brother down below the BIG figure of 0.8000. All eyes are now on Jackson Hole and the Ben Bernanke!


Collinson FX market Commentary: August 30, 2012

The European markets remained quiet with the month of August a holiday month and Political leaders working on a solution for the EU Debt/Deficit crises. The ECB President, Draghi, has been so consumed with a Bond-Buying program that he has been unable to attend the Central Bank conference at Jackson Hole.

A solution is in the wings but this will be fundamentally a bailout to cap interest rate yields so indebted nations can afford to service their bloated debt. This does not address the deficit which continues to drive the debt north. In the US, markets have experienced extremely low activity because of the holiday season and record low interest in equity investment, outside Wall Street. The Fed's Beige Book was released and showed growth in 9 of 12 sectors although Manufacturing activity continued to struggle.

Pending Home Sales jumped 15% to 2 year highs although Weekly Mortgage Application fell 4.3%. The GDP number increased to 1.7%, which is an improvement, but is way under what is necessary for a sustained economic recovery. The economic data may be enough to convince Bernanke to hold off on further QE prior to the Presidential election.

The week will remain quiet until Bernanke speaks with the Republican National Convention and Hurricane Isaac providing some distraction. The EUR drifted to 1.2525 and risk sentiment is on the slide. The AUD fell further to 1.0350 as global demand for commodities weaken and locally Construction dropped 0.2%. The KIWI has been hit too and now looks set to test the BIG figure of 0.8000 on the downside.


Collinson FX market Commentary: August 29, 2012

Markets continued to dither ahead of Ben Bernanke's address to Jackson Hole at the end of the week. There was plenty to pre-occupy markets with the Hurricane Isaac fast approaching New Orleans to celebrate the 7th anniversary of Hurricane Katrina and the Republican National Conference.

As markets await the Wyoming Central Bank conference the ECB President, Draghi, has declined to attend citing a heavy work load ahead of the EU meeting next week. Draghi is drowned in problems with the need for a new Bond Buying program to bolster of his claims of saving the single currency.

The EUR gained ground with many believing a solution is nigh! The EUR rallied to1.2565 despite tepid economic data. In the US, the S&P Case-Shiller Home Price Index, rose 0.5% but this was countered by a fall in Consumer Confidence. The Richmond Fed Manufacturing Index continued to show weakness in this sector. Markets will continue to dawdle until Friday where many expect QE3 but Bernanke will be reluctant to act before the Presidential Elections.

The AUD continued to deteriorate back to 1.0375 after New Home Sales fell 5.6%.

The KIWI has also drifted back to 0.8050 and may test the big, big figure if commodity pressures continue to push lower and the AUD remains vulnerable.


Collinson FX market Commentary: August 28, 2012


Markets moved sideways with no major economic data releases to provide direction. The key factor in markets is the extremely low volume even considering summer trading. The confidence in equities is at historical lows as the consumer remains on the sidelines. The low volumes have still not effected the moves up as the NASDAQ trades at 12 year highs but these have been fueled by fiscal policy and the flood of cash awash in the markets.

When the liquidity is withdrawn from the economy, that will be the test and the current volumes should serve as a warning. In Europe, markets await further news on the debt/deficit crises and developments surrounding Greece. A temporary secession from the single currency is the latest rumour and jells with the chronological map of a year end departure.

It is never likely to return but more likely to serve as a precedence for other failed states. The EUR traded around 1.2500 waiting for some moves in market sentiment. In the US markets await Jackson Hole and the appearance of Ben Bernanke. It is at this venue he announced QE two years ago!

The Dallas Fed's Manufacturing Activity report dropped 1.6 cementing weakness in the manufacturing sector. Politically, the Republicans meet for the Convention in Florida as Hurricane Isaac unsettles the Gulf region. Commodities drifted lower as global demand slumps and risk appetite stalls. The AUD fell below 1.0400 and looks vulnerable to global weakness.

The KIWI also drifted below 0.8100 with little local economic news to provide direction.



Collinson FX market Commentary: August 27, 2012

Co-ordinated endorsements for Central Bank action had the desired effect on equity markets with a rally to close the week. The ECB announced the prospect of Bond-Buying to target bands for yields to restrict the cost of rising debt. This will effect markets and drive interest rates lower, short term, although the funding of this will rely on printing Euro $. This is inflationary and has the effect of destroying wealth of citizens to bankroll the fundamentally flawed and bankrupt nations.

Merkel has reiterated the need for Greece to fulfill commitments under the bailout clauses but has appeared with Samaras in Berlin to show support. Bernanke, coincidentally, also endorsed further QE action promising delivery of future dope to the addict. It is unlikely that he will act prior to the November Presidential election for fear of Political bias and the ECB is restricted by legal restraints and unity amongst members.

The EUR is trading around the 1.2500 mark and lack of Central Bank action will undermine confidence but action will undermine the EUR. Damned if you do.....!? Markets are very wary of the USD and the EUR as is witnessed by the cross rates. Central Bankers will gather this coming week in Jackson Hole, Wyoming, providing furtile ground for jawboning and markets will be determined by participants. In the US, Durable Goods orders increased by 4.2% buoyed by strong airplane orders thus supporting improved market sentiment.

The rally in equity markets failed to improve the prices of commodites as monetary stimulus does not improve global demand! This is the problem with double dip recession hitting the European market. The AUD drifted lower to trade around 1.0400 and is looking extremely vulnerable to increasingly weaker global markets.

The KIWI has reacted relatively well with soft commodities faring better and the KIWI holding above 0.8100. On to Wyoming!


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