This morning, the market is in risk-taking mode as a series of better than expected economic figures have come out showing signs that the global economy is recovering. In New Zealand, GDP grew at its highest levels in almost two years, meeting analyst expectations.
Earlier today the UK reported much better retail sales figures, which rose by the most in almost 2 years. This has sent the Pound higher this morning, despite the concerns about the budget and other news weighing on the currency.
In the US initial jobless claims came in lower than expected but still at an abysmal loss of 442K jobs. While it is good that they weren’t worse than expected, a number this high is not good as it shows that companies are not confident that economic conditions are improving.
In the currency market:
Aussie (AUD): Earlier today, an RBA official stated that, “Australian borrowing costs need to continue being moved gradually toward “more normal levels” to prevent the nation’s economic rebound from stoking inflation, according to a Bloomberg report. This could put gradual rate hikes back into play for the Aussie, as the market has been expecting a pause. The major underlying factor is going to be Chinese demand, which could increase irrespective of a global recovery.
Kiwi (NZD): Gross Domestic Product (GDP) rose .8% from the previous quarter as consumer spending and manufacturing increased at the fastest pace in over 2 years, meeting analyst expectations. This comes in advance of an income tax reduction planned for mid-May, as well as potential rate hikes which were expected around mid-year.
Loonie (CAD): Yesterday, as expected, BOC Governor Carney set the stage for rate hikes, coming possibly as soon as the June meeting. An earlier pledge to keep current rates through June was conditional on the outlook for prices. Should the BOC hike rates in June, Canada would be the first G-7 country to do so.
Euro (EUR): The Euro fell below 1.33 vs. USD earlier today but has since rebounded as the ECB has agreed to extend emergency collateral measures beyond this year. This comes in advance of the EU summit which is expected to come to some sort of agreement over Greece. In the meantime, Germany is still pushing for IMF involvement in any potential bailout which weakens the Euro as investors see this as a case of not “being able to manage their own house.”
Pound (GBP): The Pound is higher this morning against all but the commodity currencies, as retail sales figures crushed estimates and rose the most in almost 2 years. This bodes well for economic recovery in the UK, however yesterday’s meeting on the budget didn’t produce the deficit-reducing measures that some had hope to see despite the upcoming elections. Because unemployment has not risen as much as expected, spending cuts will be postponed.
Dollar (USD): The Dollar is lower today against all but the Yen on risk-taking as the “good news” is that initial jobless claims were “only” 442K, vs. the expectation of 450K. This means that US rate hikes are moving further out raising the cost of capital would even further harm the employment situation. Not really much more to say here, classic risk-taking day.
Yen (JPY): The Yen is weaker today on risk-taking themes s well as news coming from the Bank of Japan (BOJ) that they are prepared for further monetary easing. This comes in advance of tomorrow’s reading of CPI, which is sure to show deflation. The expectation is for prices to have fallen 1.1%. Should the number come in worse than expected, then major monetary expansion could be in order which could send the Yen much lower.
Today is a more “normal” day for the forex market, with a few economic reports spread among different world economies. There was no major bomb or surprise, and for just one more day investors can breathe easy that the world as we know it is not coming to an end.
Part of the problem with financial markets is that they are VERY impatient. Fear, elation, boredom all comes into play on a daily basis. So it is definitely important to not only be able to understand the economic figures, but also to be able to get a “feel” for the market.
And that’s what I try to accomplish here every day!
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