Dangerous times for the euro 19/10/2009
Posted by chrisdshaw in Economics, FX, Politics, Uncategorized.add a comment
BNY Mellon’s Simon Derrick tells the FT why the Indonesian Rupiah is his favourite currency, the AUD is his favourite G10 currency, why the US dollar will continue to decline, that the GBP may be reaching a bottom as political considerations may warn the Labour government away from parity against the EUR, and why the Eurozone may be facing some difficult days ahead if its currency keeps attracting foreign reserves.
Fed poised for interest rate disagreement in 2010? 09/10/2009
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Interesting piece todays NY Times, about emerging debate between Fed hawks and doves over timing of rate hikes.
Alcoa kicks off Q3 earnings season 07/10/2009
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US aluminium producer Alcoa has kicked off the earnings season with a bang by the looks of it, announcing a profit of 4 cents a share (excluding certain items), versus a consensus forecast of a loss of 9 cents. The company said the better than expected results were due to cost cutting and improved metal prices. One result does not move a market this result is bound to take equity markets, which have looked increasingly running out of positive sentiment, higher. The fallacy of a V-shaped recovery may have a little further to run, and with it a further upswing in risk appetite, ie a weaker US Dollar.
Commodity currencies stay king 07/10/2009
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The AUD, NZD and CAD all reached new 12 month highs against the USD today, as commodities continued their bullish run. Gold reached a new high of $1,048, oil was up $1.34 to $71.75 a barrel, while soft commodities were supported by forecasts of rain and snow in central United States. Although the USD has since clawed back some of the gains from these currencies, as well as the JPY, EUR and GBP, a lack of economic data in the US session has failed to provide strong direction to the FX market. Or rather, the market appears to be ignoring any data that may provide a reversal to existing trends; a weaker USD and GBP. Worse than expected, read negative, Q2 Eurozone data made a limited impact on EURUSD, whereas better than expected UK Nationwide consumer confidence figures did little to support Sterling; still reeling from Tuesday’s dire Industrial Production data. Tomorrow’s ECB and BOE meetings on interest rates are unlikely to produce any surprises, although a return by ECB officials concerning “volatility” in the markets may produce some movement.
An emerging theme among commentators in the FX market has been towards the rediscovery of interest differentials as a driver for currency movements. The RBA’s decision to increase interest rates is the first of its kind in the most actively traded G10 currencies, signaling to some FX strategists at least, some return to normality. With expectations among the investment community and domestic monetary policy makers for continued low interest rates in the US and UK well into 2010, the FX market may see further gains among the commodity currencies, particularly the AUD in the next few weeks and months. Beyond, the end of this year, prospects for the AUD, NZD and CAD may be far less certain.
A continued rally in, for the example, the AUD, relies quite heavily on the premise of continued strong, unimpeded economic growth in China and the Far East. Stephen Roach in today’s FT returns to his familiar theme of global imbalances. He warns that China’s path to growth is arguably as unstable for the region and world economic growth and the deficit fueled recovery in the US.
Europe’s looming financial crisis 06/10/2009
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A rather ominous article published in the weekend edition of Svenska Dagbladet has reported alleged emergency plans by the Swedish government for a banking crisis, directly resulting from an imminent default and devaluation by Latvia.
Streuth! RBA raises rates 06/10/2009
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The Royal Bank of Australia has surprised everyone (well, 19 out of the 20 economists surveyed by Bloomberg) with a 25bp hike in its key cash rate. Governor Glenn Stevens, in his post-meeting statement, said: “With growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy”.
Treasurer Wayne Swan said: “The Australian economy is outperforming other advanced economies and I guess many economists will see the decision today as a consequence of economic recovery”.
Global equity markets and commodities have rallied on the back on the news. Gold has reached a new record high of USD 1,036. This is also partly a symptom of a slightly weaker US Dollar, which sold-off overnight on the back of a story by the UK Independent newspaper, that oil producing countries were in advance talks with European countries about moving away from the greenback towards a basket of currencies when pricing oil. The story has since been strongly denied by GCC officials.
Unsurprisingly, the AUD has beaten all other major currencies. The GBP, by contrast, has resumed its trend downwards, following much worse than expected industrial production figures for August released earlier today- the lowest level since 1987. USDJPY is trading stubbornly around the 89.10 level, whereas EURUSD is currently trading just above the 1.4700 handle,having tested the 1.4750 level.
Grown-up politics reaches the UK- support for Sterling? 06/10/2009
Posted by chrisdshaw in Economics, FX, Politics.1 comment so far
One of the more depressing themes to have emerged in recent months has been the inability of the main political parties to address the growing fiscal problem in the UK. Despite numerous warnings by credit rating agencies, concerns expressed by the IMF and growing murmurs among the investment community about the need for a new era of fiscal austerity, neither of the two political parties until recently had spelt out precisely what they would do. Indeed, Gordon Brown demonstrated new lows in his ability to be straight with the British people, insisting until very recently that Labour would continue to increase spending (“investing”) in real terms over the next few years, in contrast to the Conservatives’ ideologically motivated cuts. This attempt to put clear blue water between himself and his opponents looked ham-fisted and disingeneous. The lack of credibility in Brown’s statements added to his already diminishing authority in government and the country. It also inhibited serious debate between the two parties about the tough choices the government will have to make after the election.
However, as Brown’s position has been undermined by Treasury figures, briefing by cabinet members and the entire investment community, grown-up politics has finally prevailed, with the Prime Minister finally admitting that in the unlikely event of his party winning the next election he would in fact make cuts. This has now allowed the Chancellor to outline Labour policies, including freezing public sector pay. The Conservatives, meanwhile, have begun to announce their own plans. A more mature and honest debate was long overdue, particularly with the British people. A recent Ipsos MORI poll revealed that only 24% think spending on public services needs to be cut to improve the public finances. One of the many factors weighing on Sterling has been the political inactivity over addressing the fiscal deficit. The latest developments are welcome and provide investors one less reason to sell sterling. All else being equal, the new political environment should be mildly positive.
Hold the front page 06/10/2009
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Great link to a series of newspaper front pages covering the dark days of the financial crisis September 15- October 14.
Dollar facing renewed pressure, Aussie to gain 06/10/2009
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The FX market has started the week in muted form, with the US Dollar facing renewed selling pressure. Positive economic data released earlier in the day in Europe supported the EUR and GBP against the dollar, as did profit taking from investors on risk averse long US Dollar positions following Friday’s poor Non-Farm Payroll figures. Risk appetite has since picked up, with a US equity market rally on the back of Goldman Sachs recommending large banks and ISM data showing service sector expansion for the first time in 12 months.
Overall, the lack of any significant statement on the currency markets by the G7 following this weekend’s meeting in Istanbul, also weighed heavily in the US Dollar; particularly in light of statements last week by G7 officials and Geithner restating the “Strong Dollar” policy. Instead, they repeated concerns of “excess volatility and disorderly movements in exchange rates”. Given that the FX markets currently display none of these conditions the absence of any definitive statement shows an absence of substantive support for the greenback. Comments this evening (ET) from the head of the New York Fed William Dudley stating that the Fed Funds rate would remain “exceptionally low for an extended period” has put further pressure on the USD, reinforcing its new found role as a funding currency.
The most notable winner against the USD today was the Australian Dollar, reaching a high of 0.8797 on Monday from the close of 0.8640 on Friday. All eyes are on the RBA interest rate decision, announced later this evening. Although the consensus forecast strongly expects the 3.00% cash rate to be left unchanged, the market has fully priced in a 0.25% rise in interest rates by November. Whether the AUD rally be over following tonight’s decision remains to be seen. However, given the current bearish tone to the the USD, GBP, a more complicated picture for the EUR, and a possibility of intervention in the JPY, any pullback in the AUD is likely to be short-lived, a bullish trend is likely to resume.
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Depression, not recession 02/10/2009
Posted by chrisdshaw in Economics.add a comment
Edward Harrison of Credit Writedowns argues that the world economy, let alone the US, is too weak to begin a consumption led recovery. Government expenditure needs to remain at the current high level for many years to come until the private sector continues to repair its balance sheet. Given that this is poltically unfeasible….
“Get ready because the second dip will occur. It will be nasty: unemployment will be higher and stocks will go lower than in 2009. I am convinced that it is politically unacceptable to have the government propping up the economy as Koo suggests it should. The question now is one of timing: when will the government stop propping up the economy? The more robust the recovery, the quicker the prop ends and the sooner we get a second leg down.”
Brave New World 