Collinson FX market Commentary: March 21, 2013
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Markets took a step back overnight awaiting a solution to the new European crises. Cyprus has been given until next week to agree to a bailout package but immediate solutions seem unlikely as the people will not accept a haircut and Germany refuses to bailout Russian depositors.
Perhaps a negotiated agreement will be forthcoming but the Banks remain closed until then. A run on Banks is visually frightening and could trigger panic across southern Europe. The EUR dipped below 1.2900 although the GBP booked gains up to 1.5170 after strong Retail Sales (3.3%) and eternal thanks for not joining the dysfunctional single currency.
In the US, equity markets took a break from the unprecedented rally to monitor the fluid situation in Europe. The Fed continues to bankroll the stock market bubble hoping to stimulate the main street economy. Existing Home Sales rose 0.8%, under expectations. Home Prices rallied 0.6% but the Housing Sector was supposed to be the leader in the economic recovery!?
Insipid gains are better than falls but remain anemic compared with pre-GFC levels. The AUD met with turbulence after yet another leadership spill but the status-quo remained. The turmoil continues so watch this space! The AUD shook off the Political storm and rose to 1.0440 with the KIWI shining at 0.8325. NZ GDP numbers surprised many, leaping 1.5% for the quarter and 3.0% annually.
The 'out-of-the-box' number renewed confidence in the economy but may be tempered by the drought flowing through.
Continue to watch Europe but, uninhibited, it is hard to see US equities falling bar a correction. The Aussie political crises will roll on but the economic fundamentals remain solid despite the chaos which is Labor!
Collinson FX market Commentary: March 21, 2013
The Fed extended the QE Infinity Policy with little changed, as employment improves and the economic recovery remains moderate. Inflation remains under control although GDP growth has been reviewed lower. Threats include Global Eco-Political issues (such as Cyprus) and the Fiscal situation domestically. The upshot is that the Fed will continue to print more money and add $85 Billion every month to pump, by default, ever increasing amounts into the Equity markets.
This bubble continues as the once mighty Dollar is slowly being destroyed. Inflation remains controlled, as growth exerts little upward pressure but real import costs rise with the flagging dollar. Downward pressures from labour and capital returns counter the rise in commodity inflation which keeps 'measured' inflation steady. The unprecedented extension of QE will have far reaching longterm effects on growth and inflation. The warning over fiscal rectitude is hard to believe as the QE pumps the same amount of the sequester every month!
Economic progress is slow and it is hard to see the end game as any rise in interest rates will threaten the US and its ability to service the massive debt racked up. The EUR recovered with the news, to 1.2950, as European leaders struggle to alleviate the latest suicide attempt. Cypriot Banks will remain closed until next week while they sort out the mess in an effort to avoid the inevitable run on banks. The problem is avoiding the run spreading to other Southern Med nations. The limitless cheap money must find a home and equities are easy and liquid, providing one of the only sources of reasonable return. Risk confidence remains the only threat to the avalanche of cash.
The NZD pushed north towards 0.8250, but since come off to .8200 as the Dollar remains embattled despite deteriorating Current Account numbers released yesterday. GDP growth will be today's challenge and expectations should remain low. The AUD also felt the effects of the Fed, improving to 1.0360 with Political turmoil internally marginalising any domestic data releases!
Collinson FX market Commentary: March 20, 2013
The panic emanating from Cyprus is spreading across Europe and the global markets. Cypriot Parliamentarians saw the writing on the wall and hurriedly voted against the hugely unpopular 'Bail-In'. Uncertainty now reigns with no plan B.
They will need to head back to the ECB and IMF and negotiate new terms. The extreme outcomes are a collapse in the local banks and an exit from the EU. This seems unlikely as they have steadfastly avoided this, at great cost, across Southern Europe. The Germans will be compelled to pay, as the consequences of social upheaval or repercussions from upset Russians are far more daunting. The EUR continued to crash dropping below 1.2900 while safety plays were attracted to the USD.
In the US, Equity markets were looking for an excuse for a correction but had hoped it would not be triggered by a full blown EU crises! House Building was up slightly and Building Permits had sustained growth contradicting yesterdays news. Economic news was overshadowed by the pandamonium in Europe and looks likely to continue until a resolution is found. Leadership has been constantly tested in Europe and failed miserably!
The FOMC is meeting and is not expected to change their current dovish monetary policy. The AUD slipped back, with rising risk, to 1.0350 still undergoing their own political insecurity.
The KIWI has been soft of late but holds 0.8220 in the lead up to today's all important trade data. This may not be as bad as expected as it is historical and the worst may be yet to come. All eyes remain on Cyprus and the EU!
Collinson FX market Commentary: March 19, 2013
Markets were spooked as they opened for the week with the Cyprus crises triggering fears across the Euro-Zone. The problem revolves around the EU bailout of Cypriot Banks (which is not unusual!) but the fact that the Government would confiscate depositors funds. ECB had guaranteed depositors and forced bondholders to take the haircut.
This sets a new precedence and the worry is that it could occur in Italy, Spain etc, thus shaking what little confidence citizens have in their banks. This could trigger a run on banks and ultimately lead to another crises which could threaten the Euro-Zone itself. The EUR plunged below 1.2900 as Asian equity markets collapsed by more than 2%. EU Finance Ministers held an emergency meeting and a compromise will be forthcoming. Cooler heads prevailed by the time US markets opened and much of the earlier losses were regained. The EU remains critical and this situation demonstrates the tentative vulnerability of of the single market and the currency.
The impact this has on the global economy cannot be underestimated. In the US, NAHB Home Builder Index fell below expectations adding doubts to the accepted recovery in this sector. The AUD remains mired in political turmoil with many expecting a change in PM this week. The Government lurches from one self imposed disaster to the next and appear to be on the verge of collapse. The AUD may be susceptible to sharp moves as political developments evolve.
The AUD fell to 1.0345 with the Cypriot crises moving flows to the safety of the USD,but has recovered a little to be around 1.0370.The KIWI will be impacted by the turmoil across the Tasman and by EU events, but trades around 0.8230 in the meanwhile!
Collinson FX market Commentary: March 18, 2013
Consumer sentiment brought the market back to earth as the unprecedented rally came to a close. It appears traders on Wall Street are far more confident than the US Consumer. Sentiment fell to 71.8 from 77.6 with the impact of rising payroll taxes and increasing discovery on Obamacare costs.
The almighty consumer is the major driver of the US domestic markets and thus the economy.The Dollar suffered accordingly pushing the EUR to 1.3050 and the GBP approaching 1.5100. The massive Bull run may continue to unfold in the coming week sailing into uncharted waters with only technical chart levels to target. This week will focus on the Fed and the plethora of economic releases lead by the Housing Statistics. The RBA will meet, but expectations for any action are low with the currency flying high testing above 1.0350.
The KIWI also regained 0.8245 after a week of hits emanating from the RBNZ releases earlier in the week. We have seen some earlier downward movement in the NZD & AUD rates this am with the Euro being sold off as the news of the Cyprus banks' bailouts surface.
A look at NZ GDP will be a good guide to the state of the economy but expectations should not be high.
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by Collinson FX - 11:39 AM Fri 22 Mar 2013 GMT
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