Collinson FX Market Commentary- 17 April - Market falls halted

by Collinson FX on 17 Apr 2012
Collinson FX market Commentary: 17 April 2012

Equity markets halted their falls from the previous week with some palatable economic data and absorption of the Spanish scenario.

Last week's losses were based on the growing probability of a default in Spanish debt and a slowing of Chinese growth.

In Europe all eyes remain on Spain as they go to the market to issue new Bonds and Bills all the while the interest rates continue to hit new highs. This is despite all of the funds that poured into the banks via the ECB LTRO scheme.

ECB intervention will be required to prevent a collapse and default which has terrified markets for quite some time. The economy has faced a collapse in the housing bubble which has lead to 23% unemployment. With austerity this situation is set to deteriorate further.

Spain has become the next domino after Greece set an unwelcome precedent. In the US markets watched keenly although equities stabilised with Retail Sales growing at 0.8% beating expectations holding prospects of further improvement in growth. Risk aversion subsided with the EUR rising back to 1.3130 and the GBP 1.5900.

Housing remains weak and the Empire State Manufacturing Index plunged to 6.5 heralding a fall in this previously strong sector.

Commodites benefitted the gains giving some support to the associated currencies with the AUD back to 1.0360 and the KIWI 0.8200. The NZD has seen some good news with House Sales rising 25% and Home Prices also continuing to rise.

Markets will focus on earnings in the US with influence from economic data but watch out for the omnipresent elephant in the corner.....EU Debt!

Collinson FX market Commentary: 16 April 2012

Spain looks to be the next shoe to drop! Spanish Banks revealed that they were the recipients of a third of the massive LTRO ECB lending to Banks.

The is a huge red flag to the markets now that Greece has set the precedent. Greek default was managed thus avoiding a complete meltdown in markets but has now given a window to what awaits the remaining recalcitrants. The Spanish Government is said to be in talks with the ECB for further bailout funding while their Bond Yields are rising to critical tipping levels.

This would trigger immediate risk avoidance and a huge negative impact on associated equity, currency and commodity markets. The initial negative sentiment evolved from the Chinese GDP numbers. Earlier rises in markets was based on a growing belief in a 'better than expected' number approaching 9%. The real number missed, coming in at 8.1% if you believe their authenticity.

The EUR sunk back to 1.3070 and the GBP 1.5840. In the US the news from Asia and Europe had further impact on equity markets. Consumer Sentiment dropped with the growing impact of record high gas prices. Commodities were also smashed and the Aussie took a hit falling back to 1.0360 although the KIWI remained fairly solid at 0.8220. This may change if the global fundamentals are rocked by the slow motion train smash coming from Europe.

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