USD- Remaining supported… for the time being 09/03/2009
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The Dollar’s position as last safe haven currency should continue in the next couple of weeks. The greenback made gains last week against the GBP, EUR and JPY and weakened slightly against the CHF, NZD and AUD. So long as risk appetite continues to diminish the currency will gain from a flight to safety among domestic and foreign investors. The DXY made strong gains last week, as global equity markets tumbled on the back of poor economic data and further concerns about the health of the financial system. Further data out this week is expected to confirm a dismal domestic picture. Key data to watch is on Tuesday with wholesale inventories, Wednesday with Monthly budget and Thursday with retail sales. If you look for them there are some crumbs of comfort- ISM manufacturing has risen 3 points from a near 30 year low in December, the nonmanufacturing composite rose more than 5 points in January since November and signs that credit markets are thawing albeit painfully slowly. The Term Asset- Backed Securities Lending Facility will be launched in mid-March, freeing up credit for consumers. Still, the housing market is is still in a mess- with inventories continuing to pile up. Moreover, demand in the form of exports and capital spending has continued to plunge. The ISM export orders index in February was 16 points below its 20 year mean. Commercial construction outlays plunged at a 27% annual rate in the three months ended in January, the sharpest in seven years. Hopes for a recovery in the near term- as in 2009- look tenuous at best. In terms of USD support deterioration and risk if systemic risk abroad look to safe guard the dollar’s safe haven status. However, an unprecedented level of new debt issuance needs to be supported by the Chinese; and this can only take place if growth there remains at a sufficient level to stave off calls to spending domestically, rather than bailout their rich trading partner.
The birth pangs of printing money 07/03/2009
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The smartest man I have ever met, Hans Redeker, explains the new unchartered territory ahead for central bankers.
Gordon Brown is innocent 05/03/2009
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A pretty good defence of our beleagured Prime Minister I would say. Although it still doesn’t excuse his notorious claim to end “Tory boom and bust.”
Goldman predicts worsening recession 05/03/2009
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US Investment bank known for its sanguine view of global economy revises figures downwards from a worldwide contraction of –0.2% to -0.6%. Very bad.
Market Commentary 05/03/2009
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EURUSD -Bearish sub 1.2590. Targeting 1.2410- otherwise, break above 1.2660
EURGBP Bullish above 0.8910, targeting 0.9010- otherwise, break below 0.8860
GBPUSD Bearish targeting 1.360, then 1,3500- otherwise, break above 1.4250
It is testament to the level of gloom that has descended on the market in recent days that the the much anticipated and historic rate decisions were overshadowed by a return to gloom after yesterday’s brief respite. Comments from Wen Jiabao at the annual NPD overnight, in which he expected the economy to reach 8% growth in 2009, appeared to dash hopes for any additional stimulus- rumours of which circulated the market yesterday, causing risk appetite to improve. Equity markets have resumed their downward path, with European bourses declining over 3%. Markets in the US also continued downwards, by around 3% in NY midday trading. Oil declined on the back of the news from China (with Brent crude down 2.3%) and gold is rallying, although only by less than 1% after pairing back earlier gains.
Economic data from Europe has added fuel to the fire. German retail sales plunged -0.6% in January while the market was looking for a small increase. French unemployment jumped to 8.2% in 4Q from 7.6% in the previous quarter and much worse than the consensus forecast. If that wasn’t enough, the 4Q eurozone GDP report showed a huge downward revision to household consumption to -0.9% from a previously reported -0.2% and down from +0.1% in 3Q. The cut in rates by the ECB of 50bps to 1.5% was in line with expectations and so caused little market movement, after initial volatility. EURUSD is trading around the 1.2550 level, following a declining from 1.2665 to 1.2480. The markets have responded positively to comments from Trichet following the rate cut, that further cuts had not been ruled out. The ECB has changed its tone to a more proactive, if still cautious, monetary authority. EURGBP had a 100 pips swing following the ECB and BOE announcements but has settled to around the pre-announcement levels of just below 0.8900.
As expected, the BOE halved interest rates to a new record low of 0.50%, in line with market expectation. In a widely anticipated move it also announced the start of a a program of quantitative easing- a total of GBP75bn to be injected into the economy, by way of buying corporate bonds, medium and long-term government paper in an attempt to support the credit markets. The fact that it stated that this would be conducted over the next few months, and that it would target longer dated paper, led to a sell-off in sterling as investors had hoped for a figure closer to GBP100bn. Another announcement, another opportunity missed to provide shock and awe to the markets; something the UK looks like it sorely needs, given the data coming out of the country. According to the latest Halifax survey home prices plunged a steeper than expected -2.3% in the month of February, taking the three month rate to an awful -17.7%. Cable’s hourly trendline by 1.4010 looks like the next crucial support area and below likely revisits this week’s lows by 1.3950 next.
Stewart rips into Santelli et al 05/03/2009
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CNBC is the latest victim of Stewart’s ire.
Back to Gloom 03/03/2009
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Following this morning’s post the markets have resumed their downward trajectory after the all too brief respite in Asia and early morning trading in Europe. Equity markets in Europe have continued to decline: the FTSE 100 closing down 3.14%,DAX closing 0.52% down. In the Foreign Exchange market the USD has regained strength, reaching a 2006 high against the currencies of its six main trading partners, following Bernanke’s comments that the financial system isn’t yet stabilised reduced risk appetite and a flight to safety. In particular, EURUSD is back to near its 1.2515 January 19 lows. The pair looks vulnerable, given the event risk of surrounding the ECB’s rate decision later in the week. The same applies to Cable, which has been trading in a narrow range- just above the key resistance level of 1.40. Given the lack of decisive break yesterday, I would expect any decisive break to occur below the 1.3940 level, also a possibility given the imminent BOE rate decision. The RBA’s completely unexpected decision to keep its cash rate at 3.25% demonstrates bank rate decisions are not a one way bet.
One crumb of comfort to gain from today was the positive, or should it be lack of, response to Time Geithner’s call to the House Ways and Means Committee that the efforts to stabilize the financial system “might cost more”. The Treasury Secretary’s performance in recent weeks has not been surefooted or consistent. Today’s performance has calmed some nerves.
Even Buffet Has Had It Rough 03/03/2009
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Not even the Sage of Omaha has managed to negotiate the madness of the markets over the last year. An interesting section of his annual letter to investors:
“During 2008 I did some dumb things in investments. I made at least one major mistake of commission and several lesser ones that also hurt. I will tell you more about these later. Furthermore, I made some errors of omission, sucking my thumb when new facts came in that should have caused me to re-examine my thinking and promptly take action.
Additionally, the market value of the bonds and stocks that we continue to hold suffered a significant decline along with the general market. This does not bother Charlie and me. Indeed, we enjoy such price declines if we have funds available to increase our positions. Long ago, Ben Graham taught me that “Price is what you pay; value is what you get.” Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.
I told you in an earlier part of this report that last year I made a major mistake of commission (and maybe more; this one sticks out). Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.
I made some other already-recognizable errors as well. They were smaller, but unfortunately not that small. During 2008, I spent $244 million for shares of two Irish banks that appeared cheap to me. At yearend we wrote these holdings down to market: $27 million, for an 89% loss. Since then, the two stocks have declined even further. The tennis crowd would call my mistakes “unforced errors.” “
Support for the USD in 2008 03/03/2009
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The Bank of International Settlements provides an explanation for the USD Dollar shortage in late 2008.
Morning Market Update 03/03/2009
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Following a sharp sell-off in equity markets around the world, with US markets closing at a level last seen in the spring of 1997 and a strong rally of the dollar as a flight to safety, the overnight Asian session provided some comfort. The decision by the RBA not to cut its key interest rate (leaving it at 3.25%) lead to a rally in the Australian Dollar against the USD from 0.6340 to a high of 0.6459. In an accompanying statement the RBA said it believed that the Australian economy was ahead of the curve in the global economy. Other data out from Australia painted a relatively positive picture: the Current Account deficit was narrower than expected, posting at AUD -6.5bn in Q4 compared with the forecast of AUD -7.4bn. Tomorrow’s Q4 GDP data will give much clearer direction to the market about whether the Australian economy has managed to escape the worst of the downturn.
The return of risk appetite was helped further by a World Bank report saying that the worst of the financial crisis had passed. The EUR and GBP rose against the dollar, reaching 1.2660 and 1.4159 respectively, before softening once again in morning European trading. The UK Purchasing Managers’ Index, a survey of manufacturing companies which gauges the pace of expansion or contraction, fell to 27.8, a record low and far below the consensus forecast of 34.2. Likewise, equity markets were also slightly down, with the FTSE falling 1.2% and the Dax falling about 0.5% in late morning trading.
Brave New World 