Collinson FX Market Commentary: 31 May 2012 - Spanish banks exposed

TP52 Superseries racing off Barcelona, Spain

Collinson FX market Commentary: 31 May 2012

The EU crises continued to unfold with the Spanish Banking collapse front and centre. Spanish Government plans to bailout Bankia have come a cropper with the ECB rejecting plans to use Spanish Sovereign debt and effectively asking the ECB to fund the Bailout. This is for nearly EUR$20 Billion, although the Spanish cannot say exactly how much and certainly cannot articulate a bailout plan.

This is the tip of the iceberg as the Spanish Banks are large and heavily exposed to residential debt which has collapsed.

The Bond Market reflects the state of the crises with US and German Bonds hitting new record highs as yields collapse. In stark contrast the Spanish yields have spiralled through tipping point towards 7% and Italian yields now moving through 6%. European Economic Confidence fell to a 2 year low as did the EUR which broke below 1.2400!

The European Commission has called for a Banking Union and Eurobond issuance underwriting debt and spreading the losses in a new inverse Euro-Socialism. They reflect the new call from the Socialist Hollande from France. This must be very attractive to financially sound countries lead by Germany although Merkel has proposed a restructuring program for recalcitrant nations.

The bad news spread across the Atlantic to equity, commodity and currency markets. Equities fell after European news and was further impaired by poor economic data.

Pending Home Sales dropped 5.5% and weekly Mortgage application also dipped despite record low interest rates. US markets will focus on Employment data due out for the rest of the week culminating in Non-Farm Payrolls Friday.

The AUD has been hit hard with risk aversion high and political turmoil undermining the economy. Aussie Retail Sales suffered a major turnaround dropping after steady growth over the last year. Non-Mining stresses plague the economy with Business closures coming daily. The AUD slipped back to test 0.9700 and KIWI followed looking to technical support levels around 0.7500. The EU train crash dominates markets as confidence collapses and risk appetite dissipates.

Collinson FX market Commentary: 29 May 2012

Markets across Europe and the US were closed for a long weekend so there was very thin volume in the remaining trading markets. In China, the Leading Index, drifted lower fueling belief in the slowing growth in China and across the global economy.

In Europe, markets tried to decipher the growing crises evolving in Spain. The Spanish Government has indicated it may attempt to use Sovereign Debt funds to bailout the Spanish Banks. Bankia is the fourth largest bank and has been nationalised because of exposure to toxic residential mortgage debt. It appears that others will follow and the capacity of the Government to provide the necessary funds is doubtful.

In some capacity, the ECB must print money and support the Spanish Government and the Banks in direct contravention of EU law! The EUR held above the 1.2500 mark and the GBP 1.5680.

US Markets were closed for the Memorial Day long weekend so now all attention will turn to the markets reopening tonight.

The Commodity currencies regained some ground with reports from Greece that the Pro-Bailout parties look to be in the ascendency. Support for Greek membership of the EU is growing, as realisation dawns on their prospects without the EU bailout funds.

The AUD rallied to 0.9850 and the KIWI regained 0.7600. Europe will continue to dominate market direction as Spanish Bonds again reach critical tipping levels.

Collinson FX market Commentary: 28 May 2012

Markets closed the week a little shell shocked after more turmoil in Europe.

The Debt/Deficit crises spread to Spain with one of the largest Banks (Bankia) requesting a $23 Billion Government Bailout.

S&P added to the mess by downgrading further Spanish Banks. This crises may well spread across other European Banks with runs likely.

Plans are now afoot to ring-fence the spread of contagion and prepare for the exit of the Greeks. The precedent would then be set and it will be who stays and who goes.

The single currency dipped below 1.2500 looking extremely vulnerable with Greek elections not due until June 17th.

The instability has shattered market confidence and now economic data is starting to reflect this. The commodity currencies stabilised just above lows with the KIWI 0.7520 and the AUD 0.9750.

The new week will focus on Europe and the Banks and a close look at US economic reports. Housing and Employment will be key. The start will be slow with US markets closed for the Memorial Day long Weekend.


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