Collinson FX Market Commentary- February 1, 2013 - US sobers up

by Collinson FX on 1 Feb 2013
Collinson FX market Commentary: February 1, 2013

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US equity markets continued to sober up after the bender of January 2013. Economic realities started to sink in as the important US GDP number confirmed a contraction in the worlds largest economy for the first time since the recession technically finished.

The dust was starting to settle despite the enormous amount of liquidity flooding the markets. The Chicago PMI rose to 55.6 which was a boost for Manufacturing but Jobless claims spike and the Challenger Jobs report confirmed the planned layoffs of another 40,930. Fundamentals are all moving in the same direction being strangled by higher taxes and more regulation. The EUR reflected the weakness in the Dollar trading 1.3575 despite the calamitous state of the EU.

German Retail Sales fell 4.7% and prospects look decidedly bearish. The KIWI continued to hold 0.8400 after the RBNZ failed to cut rates, in line with other Central Banks, frightened by the prospect of a housing bubble! The result hits exporters and investors hard with the overvalued currency and higher costs of borrowing.

The AUD traded 1.0440 with all sorts of political turmoil after the announcement of the election closely followed by the arrest of Labor Govt supporter, MP Craig Thomson. He is the face of Union corruption (another great KIWI export!) and the reason Gillard's minority Govt survives. Politics aside, economic fundamentals continue to deteriorate and this can only mean a tough first half to 2013 despite the flood of money supply!

Collinson FX market Commentary: January 31, 2013

US GDP contracted for the final quarter of 2012 surprising analysts but confirming many rational observers fears. The market had been expecting the economy to continue expansion as seen in the previous quarter and the news shocked many.

This comes on the tail of the dramatic fall in Consumer Confidence as Obamanomics impacts the economy. The sheer size of the Govt and the cost results are drowning the private sector with deficits and debt. Obama has advocated raising revenue through taxes instead of cutting out of control spending. The Govt has expanded to 25% of the economy from around 20%. This is a lurch to the left and down the road of socialist Europe and thus the future is clearly laid out. The Fed is to continue QE infinity despite the record breaking Balance sheet of over $3 Trillion Dollars.

The sheer size of this monstrosity will impact the economy and result in hyper-inflation down the road. The GDP numbers confirms the lack of growth which is the only thing keeping the lid on inflation. The EUR remained steady at 1.3560 supported by the weak USD. EU Consumer Confidence remained weak and Spanish GDP was negative extending the recession/depression. In the US, the ADP Jobs report beat expectations for growth in the private sector but Weekly Mortgages fell 8.1%. The Fed left rates unchanged and confirmed weather effects on the US economy so it is full steam ahead on QE!

The KIWI was steady, trading 0.8315, ahead of the RBNZ rate decision with not expectations of action. The Governor should cut rates now, in line with other Central Banks, to protect export markets and stimulate growth internally. The AUD trades 1.0420 supported by commodity demand after PM Gillard named a date for the general election in September thereby kicking off the longest election campaign in history! Economic data confirms the state of global economies and equity markets ignore the fundamentals with the bulls in charge, with their boots full of cheap cash supplied by Central Banks

Collinson FX market Commentary: January 30, 2013

The bull run continues for 2013 equities emboldened by corporate earnings and an economy awash with cash. Investors desperately search for returns with bonds offering little and equities offering dividend returns and capital gains. The Fed has tripled the balance sheet and flooded the markets with cash thereby encouraging a spike in risk asset investments.

Equities are the major beneficiaries as they approach the pre-crash levels.The ability to print money and expand the Fed's balance sheet has taken the Balance Sheet to unprecedented levels which should scare the hell out of most. The only mitigating factor is that the EU and Japan have quadrupled their own Balance Sheet with gross monitisation of debt.

The Debt mounts to way past tipping levels, which should trigger a debt crises but does not...yet! Any rise in interest rates will trigger default and collapse but why should we worry? The EUR continued to gain, trading 1.3485, although the reality of the real world is starting to impact the GBP at 1.5750. In the US, the Case-Shiller Home Price Index continued to book gains contradicting previous housing data although the Consumer has withdrawn with Confidence falling to 58.6 from 66.7! Commodities find support as currencies are undermined by Central banks with the AUD rising to 1.0465 along with the flood waters.

The KIWI found support at 0.8350 with better than expected trade numbers and reserve currency support. Unrelenting confidence must be questioned with the Deficit/Debt crises around the corner but it is hard to buck the trend with Equity markets surging to post crash high testing unchartered territory. Look to economic data releases for a gauge of economic conditions.

Collinson FX market Commentary: January 29, 2013
Markets opened the new week lower with corporate earnings steady and some weaker housing news. The flat open to the week may just be a break in the rally January has developed. In the US, Pending Home Sales fell 4.3% contradicting the housing bulls and confounding market analysts. The sheer size of the housing surplus and weak demand would prevent any sudden and effective turn-around.

Durable Goods Orders jumped 4.6% which is good news and a positive from the consumer. The EUR continues to trade strongly at 1.3450 after the currency wars continue. The Japanese are intent on boosting their flagging export markets by diluting the Yen causing consternation in Europe and the US. The US and Europe have flooded their own markets in liquidity to gain an export advantage and stimulate growth so have little to complain about.

The currencies greatly effected are the AUD and KIWI who remain hugely disadvantaged and has been reflected in the strength of the currencies. The AUD has come off highs but still trades over 1.0400 after renewed floods in Queensland and NSW will preoccupy markets when they re-open after the Australia Day Holiday.

The KIWI begins the week 0.8315 with poor economic performance not being fully included in currency calculations due to Global Monetary largesse. Markets will continue to be driven by Central Banks and Political/fiscal ineptitude. Economic performance will be gauged by data and expectations cannot be high!?

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