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Collinson FX Market Commentary- July 20, 2012 - The economic paradox

by Collinson FX on 20 Jul 2012
Image of the Day Close racing at Copa Del Rey 2012 © Max Ranchi Photography http://www.maxranchi.com

Collinson FX market Commentary: July 20, 2012

Equity markets remained positive despite the continued flow of weak economic data. The global economy is deteriorating and paradoxically risk appetite rises. This incongruous phenomena is a direct result of expectations of further Central Bank intervention to pump still more liquidity in a market awash.

European news was weak with Italian Production orders dropping dramatically and Spanish Bonds rising back towards the magical 7%! The EC bailout of Spanish banks continues and was endorsed by German lawmakers. In the US the news was equally as disturbing with the Weekly Jobless Claims rising by 34,000.

Existing Home Sales fell 5.4% reflecting the continued struggle for the housing sector. Commodities continued to firm supporting the higher yield currencies with the AUD 1.0425 on fire after breaking technical chart constraints. The KIWI broke the big, big figure again trading 0.8040.

The Australian economy continues to out perform global markets with the mining sector dragging the economy along.

The remainder of the economy is under extreme pressure and remains exposed and vulnerable to any dramatic impact of demand and price hits. Central Bank intervention remains the only game in town as fiscal solutions are not forthcoming


Collinson FX market Commentary: July 19, 2012

Ben Bernanke testified to Congress again overnight reiterating the Fed's intention to act if the economy stalled and employment declined. QE3 was not imminent though, as there are signs of life in the economy. Housing Starts rose to a high of 6.3% and Weekly Mortgage Applications spiked to 16.9%.

The good news was tempered by a fall in Building Permits by 3.7%. The Fed's Biege Book revealed the usual 'economy expanded at a moderate rate' and employment growth stalled. The economic news is not good, but is not catastrophic enough for the Fed to intervene. European markets remained stable with the EUR trading 1.2250.

Commodities remain well bid boosting the AUD which has traded strongly at 1.0350. Risk appetite has supported these currencies with yield advatage alhough the KIWI has faultered at the big figure of 0.8000.

Markets have gained all week so the focus will be the economy and earnings in the US markets which will drive global equities and currencies.


Collinson FX market Commentary: July 18, 2012

Bernanke hinted that the Fed was prepared to pull the trigger on QE3 if the markets showed further signs of deterioration. He warned that the 'fiscal tax cliff' faced by the US and the EU debt crises remained significant risks to the economy.

Market analysts read QE3 possible which was a boost to equities and negative on the Dollar. This was a tonic for risk currencies which were already supported by commodity rallies from a weaker USD. The AUD is testing the significant 1.0330 which is a huge technical level after the RBA minutes showed the recent rates cuts are translating into significant growth within the economy.

AUD crosses all had substantial gains even against the shadow that has been the KIWI! The KIWI remains under the big figure 0.8000 with the cross look vulnerable. In the US, Industrial Production rose 0.4% and Manufacturing 0.7% providing some positives. CPI remained flat reflecting tepid grwoth as has been the case across Europe and other OECD countries.

NZ Inflation fell to 1% testing the RBNZ band on the downside. This is a reflection of growth and allows the Central Bank room to at least hold rates lower for an extended period! Now where have we heard that of late?

US Markets now rely on the Fed with no fiscal action expected this side of Christmas and the EU debt crises threatening. It is a precarious balancing act Central Banks are playing and extremely risky!


Collinson FX market Commentary: July 17, 2012

Further grim news from China and Europe failed to spark any risk rally with US Retail Sales confirming the conservative character of the consumer.

In China, the Premier promised further action to stimulate the slowing economy translating that they are in some trouble. The IMF, has warned of continued slowing global growth unless Europe can address the debt crises. It is hard to see a solution in the short term and little will be done in the US with November Presidential elections.

The best to hope for would be the maintenance of the status quo and sideways moves until political solutions are forthcoming. Retail Sales in the US fell 0.5% reflecting the confidence of the all important US consumer.

The consumer is unlikely to spend and capital is likely to remain on the sidelines until decisions are made! Markets will now be looking to a move to 'real QE3' and not just operation twist so concentration will be on Bernanke when he appears before the Senate and House Tuesday/Wednesday. Expectations are for a new repurchase program to pump more liquidity into markets and print more money. What a great idea as this confirms the definition of insanity. New York Manufacturing showed some signs of life but widespread recovery in this sector is unlikely.

The Dollar has retreated on the market expectations with the EUR bouncing to 1.2275. Commodity currencies found support with weak Dollar prospects and the AUD rose back to 1.0250 and the KIWI 0.7970. Economic data will determine some market direction but Bernanke will be key overnight.

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