by Collinson FX
Image of the Day RS Feva World Championships 2012 - or a comment on the European economic situation?
Collinson FX market Commentary: June 22, 2012
Good news from the Fed has been welcomed by global markets with a sell-off in equities and commodities. The Fed has finally worked out that debasing the economy and the USD by printing more money to pump in to failing banks is not helping the situation. The USD rallied with the EUR falling to 1.2550 and the GBP 1.5590.
Short term rewards by giving the Junkie another hit does not fix the addiction to deficit and debt. The fundamental problem of Europe and the US is debt and this cannot be addressed by running fiscal deficits. This is really simple! Printing money alleviates short term issues but debases wealth and assets. The Fed has not acted through good management but from reality hitting home.
Further monetary stimulus will not assist the economy as credit is not flowing through to the real economy. The Banks are consuming the cheap money and playing the yield curve. In the US Bonds have smashed all time lows and are set to explode in a bubble. Europe has the same issues with the ECB funding Banks who invest in Sovereign Debt booking huge gains from yield curves. The problem is that Sovereign Debt is toxic as PIIGS nations are likely to default and Banks therefore rely on bailouts to remain tenable.
Moodys are set to downgrade 15 global investment banks and Europe look set to fall off a cliff. The new Greek Government look set to go to war with the Troika over austerity but the German led northern nations will not relent as this would be political suicide. The dislocation between the Med countries and the fiscally responsable is amazing. The Italians are now suggesting stimulus to be funded by the stronger nations. The French are suggesting debt write-off funded by surplus nations. It is Disneyland!
The Chinese PMI reflected the manufacturing slowdown in Asia falling to 3 year lows. Meanwhile the KIWI tested just under 0.8000 after some surprising growth data. The GDP added 1.1% confounding most commentators.
Questions must now be asked of compilation methods. This comes after a similar freak number in Australia that contradicts all market indicators. The Dollar rally brought sense to markets with the KIWI retracing to 0.7850 and the AUD 1.0035.
Doubts have been raised with Chinese stats but we must now seriously look at methodology which confirm what many critics have been saying regarding employment and inflation data collation. In the US Housing continues to drag the recovery after Home Sales fell a further i.5%. The philly Fed survey also hit new lows dropping 16.6. The train crash is speeding up.
Collinson FX market Commentary: June 21, 2012
The long awaited FOMC meeting came to a conclusion and Bernanke held a press conference announcing Operation Twist II. The Fed has again reviewed Growth prospects lower and Unemployment higher as they have done for the last few years.
Modelling is almost always more bullish so perhaps the Fed's models should be re-examined. It is a worldwide trend for Treasuries and Central Banks to overestimate headline economic data with fanfare but the reviews lower are downplayed.
Operation Twist Mark II is benign as interest rates, both long and short dated, are at extreme record lows. The challenge is credit lending and the banks ability to push this out to consumers and business. The two problems are the lack of demand, from a lending perspective, and the quality of credit prospects. Stocks dropped after the appearance of Bernanke with realisation that Central Bank intervention is limited and perhaps fiscal rectitude is a pursuit Politicians should employ and endorce.
The USD received a boost from the inaction with the EUR falling to 1.2650 and the GBP below 1.5700. Risk appetite has taken a hit with weaker economic outlooks although being supported by interest rate differentials and some relatively steady economic news in Australia.
The AUD traded 1.0150 and the KIWI slipped back to 0.7950 with some weak Current Account numbers released yesterday. The housing market is a retardant to the global market recovery and Australia is now beginning to suffer with a big fall.
Housing starts dropped 12.6% which seems an enormous drop!? An extended housing recession has killed the economic recovery in the US and threatens to totally destabilise Europe through the Spanish Banks. The 'Good News' is a Greek Government has been formed but for how long and with what effect. They should have been cut loose long ago along with recalcitrant banks!
Collinson FX market Commentary: June 20, 2012
The Fed began their two day meeting today and all expectations are for monetary stimulus in the form of an extension to 'Operation Twist'. The rally built on these expectations has been strong suggesting even further moves may be likely.
Economic data from the US has deteriorated to the extent the Fed will feel obligated to move although solutions must be forthcoming from Europe.
The G20 continues to concentrate on the EU debt crises and advocating growth and banking union readying for closer fiscal and political union. The liklihood will be moves to extend austerity measures into the future and relaxing terms. The full effect of this will be further 'can kicking' and failure to address the real issues.
The biggest pressure remains on the Germans to do more but they will be reluctant to pledge their tax dollars to bailout failed co-member nations. The German ZEW Economic Sentiment report remains an important indicator and this has collpased to negative 16.9 from 10.8!
The EUR reacted with a rally to 1.2715 and the GBP 1.5750 as markets sell the USD with further expansion of liquidity expected in the States. In the US, Housing Starts dropped 4.8% but this was balanced by a surge in Building Permits.
It is hard to see much in the way of positive economic news although the rally in equities and commodities continues to be fueled my stimulus. This has benefitted the higher yielding currencies with the AUD recovering to test 1.0200 and the KIWI now having a look at the big figure 8!
Central Banks and Politicians are talking a strong game but this does not change the fundamentals in the house of straw.
Collinson FX market Commentary: June 19, 2012
The political climax of the Greek elections has come and gone. The G20 meet in Mexico, which is ironic considering the mayhem realised by this nation over the last few years.
The problem with relying on politicians is their inability to lead. The Greek situation is likely to deteriorate as victory is hollow and unlikely to solve the current crises. The teat, that the socialist mass has been sucking on, has run dry.
The simple concept of 'living within their means' is too foreign to a land of socialist utopia. The problems will continue and will spread like cancer to Spain and other PIIGS nations.
The EUR rallied on the news, pushing up to 1.2575 and the GBP to 1.5650. Commodity currencies are major beneficiaries of this dramatic economic/political news and are becoming the new safety play.
The AUD bolted through parity to trade at 1.0115 and the KIWI breaking 0.7900. Major upheavals await, with the Fed likely to announce concerted central bank intervention to test the theory of monetary ineptitude. Printing even more money will not work, but the fiscal conundrum has overwhelmed political leaders. Put the seat belt on!
Collinson FX market Commentary: June 18, 2012
Markets rallied strongly to close the week but for all the wrong reasons. Equities and Commodities all had strong gains but not through market confidence or growing global demand but from expectations of Central Bank intervention.
The AUD blew through parity to trade well above 1 and the KIWI booked gains to trade 0.7870. The crescendo is nigh with storm clouds gathering across the EU and contagion spreading to global markets.
The G20 meet this week and talk of a co-ordinated central bank intervention pumping the banks with yet further liquidity. This will work but is completely destroying the real value of money. We have seen US wealth dissappear over the last years and the Fed is to blame.
The Central Banks across the Globe have held off to monitor the Greek elections and stand ready for massive reaction should the Greeks undermine the EU. The only answer now is the monetary action which only enriches Banks and encourages bloated and inefficient financial institutions.
The greatest fear is the 'run on Banks' which has commenced in Greece and Spain. The EU is said to make an important announcement regarding more long term solutions which must include greater fiscal and political union to match the single currency. Secondary to this will be economic data which has been in serious decline of late.
US Housing will be important but expectations are not high.
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