Collinson FX Market Commentary: 25 May 2012 - ANZAC Banks unconvincing

Pic of the Day Flashback to the 1988 Olympics - Kiwi Medalists John Cutler (left) Bronze in the Finn; Bruce Kendall - Gold in the Windsurfer; Chris Timms and Rex Sellers - Silver in the Multihull - Pusan, Korea.
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Collinson FX market Commentary: 25 May 2012

Equity markets weakened again overnight with news from Asia and China failing to inspire confidence. Chinese growth forecasts of 7.5% were lower than expected and may be an overestimate as Bank credit demand in China continues to weaken.

In Europe the EU Summit confirmed Greece as a member of the EURO and endorsed a growth platform. The funding mechanism was floated in terms of the Eurobond but Germany and northern friends do not like this socialisation of debt. The premise is that wealthy members underwrite deficit/debt immersed southern states. This is a permanent redistribution of wealth from functioning nations to recalcitrants. The defection of Greece has forced the ECB and IMF to work a contingency plan to ring fence other member nations from a contagious collapse.

The EUR continued to fall trading 1.2550 and the GBP 1.5650. In the US markets followed Europes lead with weaker economic data. Durable Goods orders were up 0.2% but missing expectations and the PMI index fell to 53.9. Weekly Jobless Claims fell by 2,000 but recent trends appear to have faltered.

The NZD drifted back under the key 0.7500 level after the Government delivered the 'zero budget'. Controlled fiscal expenditure and a return to surplus in coming years. No surprises and steady. Interest rates continue to fall with Banks unable to convince markets that there is demand and upward pressure. The reality is the trading banks have talked their books and argued for upward pressure in the interest rate market which was endorsed by the RBNZ citing inflationary pressures.

The real economic situation has been the opposite because of the lack of growth and demand. Rates should have been lower earlier to stimulate economic growth. It is the same across the Tasman as Banks try to expand margins with higher rates protecting enormous profits rebuilding platinum balance sheets. The AUD dropped back to 0.9720 as risk appetite collapses and reality hits interest rate margins. Europe will continue to dominate markets with economic indicators turning south globally.

Collinson FX market Commentary: 24 May 2012

A dramatic late recovery in US equity markets shrugged off fears from Europe and focused on the economic data. Housing continued to be a beacon of hope with New Home Sales rising 3.3% and Weekly Mortgage Applications also gaining 3.8%.

It is this sector that has dragged the US economic recovery down and the latest news gives hope. A dislocation from the European crises is welcome with all the technicals looking bad. The Greek crises continues to roll on with warnings of a defection and the possible nightmare scenarios unfolding. The uncertainty continue and thus the EUR remains unstable at 1.2585 and the GBP 1.5690.

The French and Italians have agreed to a 'Growth Strategy' with rumoured funding from Eurobonds! Fantastic news it is! The Germans will never commit to funding more Keynesian lunacy. It is pie-in-the-sky political rhetoric. Still it give markets pause although the currency and commodity markets are the true indictors.

The AUD continues to weaken, trading 0.9750 and the KIWI 0.7515 after dipping below the key technical of 0.7500. The Bulls remain optimistic but we are in the middle of an 'Sell in May' phenomena!

Collinson FX market Commentary: 23 May 2012

Markets continued a week of recovery after the previous shaking most investors confidence. The commitment from China and Europe to the Growth concept while embracing fiscal responsibility has given confidence to the corrective rally.

Semantics seem important to World Leaders and 'austerity' has been rejected and 'growth' is now the term. It is insane! How can they have growth without investment and capital? The concept of raising further debt to finance public investment is crazy as most EU nations do not have the ability to raise further debt as their balance sheets are beyond tipping point.

Debt has overwhelmed their ability to service the interest payments. Posturing and verbal games do not fix the deficit or debt crises faced by most. Germany will not stump up for all these seriously compromised economies.

The EUR continued to falter trading 1.2715 and the GBP fell to 1.5765. The OECD reviewed global growth lower from 3.6% to 3.4% reflecting deteriorating economic conditions. Fitch downgraded Japan to AA+ from AAA with their Debt to GDP ratio climbing to an unbelievable 239%!

In the US equity markets corrected for a second day running but this may just be a technical correction. 'May' being the operative word. Existing Home Sales rose 3.4% beating expectations but the jury will remain out until we see a series of positive data coming from the Housing sector.

NZ Inflationary expectations drifted with benign economic activity and soft commodity prices. The KIWI is off lows, trading 0.7585 and the AUD 0.9850. Commodity demand is weak and these currencies remain vulnerable to further jolts from Europe.

Collinson FX market Commentary: 22 May 2012
Markets rebounded overnight as last weeks losses sparked bargain hunters to return. The G8 summit closed with little achievements and a new platitude.

Growth is the word now catering to the new political mantra from newly elected French President. The aspirational notion of 'growth' is what all countries desire. It is a conceptual economic desire all countries have such as profitability, balanced budgets, surplus, low inflation etc. The only problem is how to achieve these growth targets.

The French idea seems to be to invest through borrowing. A new plan is afoot to raise debt through EU backed bonds. A new socialist concept of spreading the risk and responsibility for borrowings. Socialized debt across EU members would be repugnant to Germany who would assume many of EU debts on behalf of the Citizenry.

The Chinese Premier backed calls for growth with inflationary pressures subsiding and everything to gain from economic stabilisation of its markets.

This boosted commodity currencies with the KIWI stabilising at 0.7620 and the AUD moving to 0.9870. The EUR remains weak trading 1.2770 with Greece extremely vulnerable.

G8 members advocated support for Greece to remain in the Eurozone but the Bank runs in Greece and Spain threaten the Banking sector and the EU. The dyke is springing leaks and Politicians have limited fingers. Keep watching the train crash!


Collinson FX market Commentary: 21 May 2012

Equity Markets were preoccupied with the unprecedented float of Facebook which was impeded by technical errors on the Nasdaq which may be a sign of foreboding!?

Equity markets were finally awakened to the omnipresent nightmare that Europe has become. Moody's downgraded 16 Spanish Banks which attacks the EU Banking system and the very heart of the EU.

Attention now turns to the G8 meeting this weekend at Camp David and any solutions they may provide. These International meetings offer little in historical terms but provide fantastic photo shoots on the world stage. Great for the political egos!

The EUR continues to melt, trading at 1.2770 and the GBP down to 1.5810.

In the US, markets were totally preoccupied with the new IPO and with little economic data to drive markets, they were engulfed with the negativity spreading from Europe.

Commodity based currencies continued to collapse with the KIWI falling out of bed. The NZD dropped to 0.7550 and the AUD looking to test 0.9800.

Next week will look at economic data and in particular housing in the US but they will be overwhelmed by events unfolding in the European train crash!

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