Collinson FX Market Commentary- October 5, 2012 - Bond-buying

by Collinson FX on 5 Oct 2012
Collinson FX market Commentary: October 5, 2012

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Central Bank commentary added some support to recent market rallies with 'Super Mario' endorsing the recently announced Bond-buying program. He announced the ECB's readiness to embark on the Bond-Buying program at the request of needy member nations.

The term Jaw-boning seems to have worked nicely with the ECB not having to act at all and the commitment being enough to sway market sentiment. Strangely, they have only committed to underwriting debt to enable members to afford maintenance of ever-growing debt. They have a plethora of austerity measures which have been endorsed and committed to. Unfortunately the deficits roll on adding to overwhelming debt.

The lack of growth has multiplied the problem as recession crushes hope and growing public expenditure to support the social safety net over-runs revenues which are contracting. Equities rallied, despite fundamentals, and the EUR took advantage rising to 1.3015 and the GBP 1.6185. The US found heart in European developments and equities rallied ignoring weaker economic data.

Planned layoffs increased, as revealed by the Challenger Jobs report. Weekly Jobless Claims rose for the week and Factory Orders fell 5.2%. The great redeemer, in the form of Ben Bernanke, saved the day with the revelation of almost unanimity in support of QE Infinity. The dissenter may be in the majority of the real world, in terms of effect.

Commodities rallied giving support to the recently harpooned AUD. The reduced yields had cut the AUD to below 1.0200 but a rally in risk appetite had stabilised recent falls.

The KIWI regained the 0.8200 level and continues to thrive as a target until the Reserve Bank remove the incentive with interest rate differentials. Non-Farm Payroll will drive the close of the week and the stunning win by Romney in the Presidential debate will give heart to markets.

Collinson FX market Commentary: October 4, 2012

Global economic conditions continue to deteriorate with the Chinese PMI falling from 56.3 to 53.7 and the EU Composite PMI at 46.1 remembering that under 50 is contraction! The EUR sits at 1.2900 and the GBP slipped to 1.6075.

Equity markets were trading flat after the poor economic news from Asia and Europe. The upside was some promising news from the US in the form of rising Private Sector Jobs. The ADP Jobs report revealed an increase of 162,000 which may bode well for the all important Non-Farm Payrolls Friday. The weak economic situation has seen a fall in demand with flagging growth. Oil has slipped back with other hard commodities and this trend is likely to continue.

Fundamentals point to contraction so reduced demand will impact input prices with Oil front and centre. Australia has experienced this with the collapse in the price of Iron and Coal leading to a fall in profitability and thus investment.

The RBA has acted by cutting the cost of capital and reducing interest rates. They need to cut them closer to zero to stimulate the local economy and take the heat off the currency which is destroying trade exposed sectors. The Reserve Bank in NZ needs to respond in kind and have a look at rates in Europe and the US. Most Western countries have rates close to zero thus exposing commodity currencies with higher yields. There can be no inflation without growth although energy and food prices continue to rise.

The Reserve Bank has resisted more interest rate cuts to prevent a Housing bubble but this is unavoidable until the cost of housing falls. The cost of housing has been due to the National supply thus the pressures of price comes from the lack thereof. Interest rates must be lower to offset international pressures and the global recession.

The AUD has reacted to the rate cut falling to 1.0200 although the KIWI has remained stubbornly high at 0.8180. Look for Non-Farm Payrolls and Central bank activities for market direction.

Collinson FX market Commentary: October 3, 2012

The RBA surprised economic pundits by cutting rates from 3.50 to 3.25%. Calls from across the struggling economy were heard as economic conditions have deteriorated accentuated by the decline in mining prices and thus revenues.

The RBA also recognised the relative uncompetitiveness the AUD has had on trade exposed sectors including Manufacturing, Tourism etc. The cut in rates hit the AUD, which has fallen a cent to 1.0265, and weakened against crossrates improving export conditions being eroded by moves from Central Banks from the US to Europe.

The cut reflected weakening Global Economic conditions and the refusal of the Spanish to accept a bailout pushing equities lower. In the US this was not swallowed well and the boost received from yesterdays Manufacturing data was not enough to ignore the fundamentals which point to a global recession including the US.

The US is now firmly in election mode with the fiscal cliff likely to spawn fear in investors hearts and wallets. Four more years of economic stagnation may be a great reason to boot out the architect of European Socialism in America!

The KIWI held strongly, despite moves across the Tasman, with the NZD holding 0.8275 and gaining against the AUD moving to 0.8050(1.2400!).

Collinson FX market Commentary: October 2, 2012

Equity markets rallied strongly for the new quarter in Europe and the US. European markets received a boost with the Spanish Banks 'passing a stress test' thus enabling Moodys to relent on a downgrade. The risk aversion subsided and equity markets pushed north .

The positive start spread from Europe to the US and was super charged by the Manufacturing data. The ISM Manufacturing Index broke into expansionary territory rising to 51.5 from 49.6 defying recent regional manufacturing reports. Ben Bernanke appeared and reinforced QE infinity extolling it's virtues,. The argument is cheap money will boost investment in housing, equities, business etc, creating greater wealth thus boosting consumption. It has worked superbly well for the last few years in destroying real wealth as the USD slides in relative terms!

The boost to Housing from previous QE has been negligible and this continues to weigh on the economy with construction spending falling for the seventh straight month to -0.6%!

A surge in equities was not reflected in the risk currencies with the AUD holding 1.0375 and the KIWI just below 0.8300. Gold remains popular with the erosion of currencies through Central Bank stimulus.

Central Banks will be watched closely this week with rate decisions across the globe led by the RBA today. The RBA is not expected to cut rates, in surveys of economists, but many believe there is scope for action with low inflation and flagging growth. A surprise cut may well hit the currency!

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