by Collinson FX
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Collinson FX market Commentary: July 12, 2012
Equity markets continued to fall hit by lower earnings and lower expectations around the Fed's QE programs. European markets have been undermined by further bad news, this time from the IMF. They warned that Italy must 'break the debt spiral' as Spain moved to introduce a new package of fiscal reduction.
Bond levels indicate that these major member nations are at critical tipping points. US markets took the lead and the sentiment was amplified by the release of the Fed's minutes. The key phrase that tipped the negative reaction was 'unusually high uncertainty' with revised growth forecast lower and Unemployment to remain at these high levels.
The US Trade Deficit narrowed by 3.8% but the devil was in the detail! The reason for the contraction was falling Consumer Demand and Lower Oil prices. Weekly Mortgage Applications were also lower by 2.1%.
The Fed's minutes indicated no new QE just a continuation of the operation twist with major warnings regarding the coming fiscal cliff approaching labelled 'Taxmageddon!'. The Dollar slipped and commodities rebounded giving support to the associated currencies.
The AUD rallied to trade 1.02280 and the KIWI 0.7950. Banks are now revising US GDP growth forecast lower to around 1.5% confirming a slump in demand and the filter through to corporate earnings.
This weeks bearish markets confirm the economic slump and the evolving crises creating uncertainty.
Politicians are unlikely to act to address this due to US elections and the patchwork nature of EU Political control. Hard to be optimistic in this environment.
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Collinson FX market Commentary: July 11, 2012
The economic slowdown is now impacting the previously sterling corporate earnings. The DOW took a nose dive late in the trading day after initially finding some support after EU Finance Ministers announced pending support for the endangered banking sector. EU Finance Ministers look to release EUR$30 Billion of the EUR$100 Billion announced in the latest banking bailout.
Seems a drop in the ocean despite the enormity of the amounts. The exposure these Spanish Banks have will eat that up in no time! Italian and French Manufacturing and Industrial Production continued to tank with worrying signs across the single market. Monetary largesse has not solved fiscal irresponsibility that has now snowballed out of control. The sheer size of the debt and deficits can only mean collapse in these Southern States.
The problem is too big for the Northern Nations to bail as they would go with them! Profit warnings from major corporates in the US has spooked equity markets with fears of the economic armegeddon impacting Corporate earnings. Small Business Optimism continued to plunge and the US looks to uncertain times with Political stalemate in the lead up to November Presidential elections.
The EUR pushed to new lows at 1.2250. Further risk aversion has put some pressure on the AUD now down to 1.0175 and the KIWI slipping to 0.7925.
NZ Home Sales spiked along with House Prices and now stand at pre-GFC levels fueled by low interest rates and lack of supply. Building costs had overwhelmed reality and existing supplies now are insufficient to supply demand. It is all relative though and real wealth continues to fall across the globe!
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Collinson FX market Commentary: July 10, 2012
The earnings season commences after the closing bell in New York with Alcoa. Alcoa surprised markets last go around but will be under extreme pressure with aluminium prices crashing globally and electricity input costs blowing out.This has immediate impact on Aluminium production closures, as experienced in Australia, exasperated by the implementation of the all new Carbon Tax!
Equity markets fell as EU Finance Ministers gather for yet another talk fest to solve the EU debt crises, and more particularly, the single currency. The EUR was trading around lows at 1.2300, under extreme pressure, as Spanish Bonds hit trigger point. Bonds broke through the bailout trigger level of 7% which signalled the bailout of fellow PIIGS nations. Corporate Earnings have been stellar recently but the weaker economic data of late, may start to impact.
The Chinese CPI fell to 2.2% and PPI dropped 2.1%, reflecting a big fall off in demand and growth. The Chinese have acted, cutting interest rates twice in the last couple of weeks. This could be interpreted as panic as the EU crises impacts demand and production. Commodity prices rose, after the Chinese cuts were expected to spike demand for commodities although risk aversion undermined gains in the AUD.
The AUD dipped below 1.0200 with Job advertisements falling. The KIWI followed suit now trading 0.7950. The European crises continues to dominate markets and it would need some fairly radical news to influence sentiment otherwise.
There is no short term fix for Europe, hence the crises continues to unfold and undermine global markets. The US is suffering and the Presidential Election campaign will ensure no radical economic reactionary moves to rectify the situation.
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