Collinson FX Market Commentary- December 16, 2012 - Overhanging cliff
by Collinson FX on 15 Dec 2012
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Collinson FX market Commentary: December 16, 2012
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Markets slipped again under the weight of the ongoing Fiscal Cliff fiasco.
Brinksmanship continues with the President playing his hand taking confidence from the election as do the Republicans in Congress. This is a Political game being played by Obama in an attempt to break the Republicans through acceptance of tax hikes. The situation is desperate and needs to address the spiralling deficit and debt.
The President advocates increased revenues and the Republican decreased spending. It is the Government behemoth that needs to be slashed with expenditure out of control and being funded by debt. The EU increased tax revenues by a ratio of 2:1 over spending cuts and that has plunged them into recession so there should be a serious message in that for the Democrats.
This overshadowed the good economic news with Chinese Manufacturing improving along with US industrial Production. Consumer Prices fell suggesting a problem seeping into the all important consumer sector. The EUR spiked to 1.3150 after QE4 (Infinity) continued the destruction of the reserve currency.
Surprisingly the AUD did not fare that well trading 1.0550 and the KIWI 0.8450. This suggests some underlying domestic concerns as Global Recession would impact demand and thus commodity prices and terms of trade.
Next week will have a close look at Housing in the US and the important GDP number tracking Growth in the worlds largest economy.
Collinson FX market Commentary: December 15, 2012
Global conditions continue to deteriorate with S&P downgrading the UK from stable to negative.
EU Finance Ministers released nearly EUR$50 Billion in Bailout funds to Greece, which will pay the bill for the next few months. The price being paid for security of the single currency is immense and growing at an exponential rate. The marginal tipping point is nigh and this could spiral out of control in the New Year. The answer, according to the Fed, is printing more money than the eye can see.
The gross expansion of the Money Supply and erosion in the value of the US Dollar and US wealth, is a response considered necessary as Politicians dally on Fiscal responsibility. US Retail Sales improved 0.3% and Weekly Jobless Claims fell in the US, but Fiscal Cliff negotiations overwhelmed any economic positives.
Speaker Boehner enunciated the lack of serious consideration by the Whitehouse in negotiations with advocation of revenue grabs and little in the way of spending cuts. It is fairly obvious where the problem lies when you look at the deficit and debt. It is not a revenue problem as Government spending approaches 25% of GDP!
The shallow and brief surge in confidence from QE Infinity soon evaporated with the reality of the situation hitting home. The AUD slipped back and looks to test 1.0500 on the downside with the KIWI just under 0.8400.
Collinson FX market Commentary: December 13, 2012
The big news of the day was the Fed's moves to extend and expand QE infinity. The Fed has decided to replace Operation Twist with further Security purchases to the tune of $45 Billion/month.
This is in addition to QE Infinity which was $40 Billion/month. Bernanke also decided to link the QE to Inflation and Unemployment targets of 2.5% and 6.5% respectively. The immediate effect of this plan is to expand the Balance Sheet to an unprecedented $4 Trillion! Markets, already flooded with cash, reacted accordingly with equities rising and the Dollar falling.
The EUR rallied to 1.3080 and the GBP 1.6150. The Unemployment target may lock the Fed into permanent money printing which will have disastrous repercussions long term. Bernanke has succeeding in eroding US wealth as the value of the USD has been completely undermined and begs for further adjustment. The sheer volume of liquidity has left little alternative for investors who receive nothing from interest rate investments and pushes them to the Equity bubble.
Commodities naturally increase as they are measured in Dollar terms which is being flushed down the toilet. This supported further rallies in the AUD to 1.0550 and the KIWI up to 0.8430. Equities, Commodities and currency moves should all be taken in perspective relative to the mortally wounded reserve currency.
Confidence surges but for all the wrong reasons. The Fed's policy is unprecedented and as a result of the dire state of the US economy so is this a reason to take risk?
Collinson FX market Commentary: December 12, 2012
Equities continued the strong Christmas rally that began last week with confidence rising in Europe and the US.
In Germany the important ZEW Economic Sentiment Index rose 6.9 after large recent losses and low expectations. Eurogeddon seems less important now Christmas is upon us and Politicians disappear to important domestic matters.
In the US, the Fiscal Cliff loses emphasis as boredom sets in with Political antics rather than higher expectations. Leave the leaders to it as an unfavourable solution will be found, however unattractive. The US Trade deficit continued to increase and small business optimism also fell.
The EUR regained 1.3000 as confidence returns and the GBP 1.6115.
Storm clouds gather in Australia with Business confidence unexpectedly collapsing from -1 to -9. This can be seen as a direct result of deteriorating economic conditions with rising costs and increased regulation. This failed to impact the currency which rose to 1.0525 with global confidence.
The KIWI surged to 0.8385 as Homes Sales rose 24.1% and QV House Prices by 5.7%! This is a product of demand and low interest rates coupled with exhorbitantly high building costs rather than improving economic conditions. Political developments will continue to provide direction to markets.
Collinson FX market Commentary: December 11, 2012
Markets continued to rally, following last week's gains, with no bad news to drag them lower.
The 'Fiscal Cliff' negotiations continued to be aired publicly and with a growing feeling that Republicans will concede the momentum to the Democrats and allow tax rates to rise. There seems to be no serious attempt to address the budget/debt blowouts that are spiralling out of control. The past form of Obama is to come to a last minute deal which will be a desperate compromise and do little to address the fundamental issues.
This crisis will be averted until the next one arrives and establishes a trend of lurching from one crises to the next. Solving none but playing politics and winning. The day of reckoning is nigh! In Europe, the technocrat PM Monti has announced his resignation with another election to be called. The Lazarus, Silvio Burlesconi, is set to make yet another return!
The EUR was not aided by the news with the single currency slipping to 1.2930 and the GBP 1.6065. German Trade data reflected growth with both exports and Imports rising although Italian GDP continued to contract immersed in recession. Chinese Trade remained strong but the rate of growth slipped with demand dragging exports back to 2.9% from previous 11.6% growth. Japanese GDP contracted 0.9% pointing to a slow down in Asia which will impact commodity demand.
This failed to hit the AUD, which is testing 1.0500 once again and the KIWI that continues to defy gravity, trading just over 0.8300. Markets will continue to focus on Political developments in Europe and the US as negative data is now expected and has little impact on equities, commodities or currencies.
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