2010 August | Forex Blog

August 27, 2010

US GDP Grows by 1.6%

Filed under: OANDA News — Tags: a-2-4-percent, chief-economist, forex round up, grew-at-their, north, second, securities, skating-on-thin, slow-through, their-slowest, usd, wells-fargo — admin @ 1:39 pm

The revised Gross Domestic Product surpassed predictions according to results released by the US Commerce Department this morning. The new figures indicate a 2.4 percent increase for the second quarter but this was tempered somewhat by news that corporate profits grew at their slowest rate in a year, and employee wages in the prior three months were revised lower.

“The economy has slowed a bit and will probably continue to slow through the second half,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We’re skating on thin ice, and we don’t have a lot of margin for error.”

Source: Bloomberg

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Deflation Tightens Grip on Japanese Economy

Filed under: OANDA News — Tags: chief-economist, deflation-for, dollar, forex round up, japan, majority, production-and, sales-destined, skating-on-thin, their-slowest — admin @ 1:25 pm

For the 17th month in a row, Japan’s core consumer price index fell in July, contracting 1.1 percent from the same time one year ago. Compounding Japan’s problems is the fact that the yen is at 15-year high against the dollar and as a country that depends heavily on exports with the majority of sales destined for the US, the result is Japan’s exports are now more costly for retail consumers. Naturally, this has a negative impact on sales and Japanese manufacturers have been forced to cut back on production and layoff workers.

“Given the yen’s gains, exports will slump temporarily and slow Japan’s economic recovery. Japan will thus remain in deflation for another two to three years,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

Source: BBC News

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All Eyes On Jackson!

Filed under: Forex News — Tags: a-range-going, aussie, course, currenc, driver, forextrading, free, government, japan, jpy, like-the-market, mike conlon, practice — admin @ 12:55 pm

As in Jackson Hole, WY, where the annual KC Fed Meeting is taking place and where Fed Chairman Bernanke is due to speak at 10AM EST. So the markets have been trading in a bit of a range going into that meeting and the revised US GDP figures, which are due out at 8:30 AM EST.

Earlier in the UK, revised GDP figures came in slightly higher than expected and growing the most since 2001, as construction spending was higher. However, there is some thought that this is due largely in part to government spending, which is due to expire as austerity measures go into effect.

Overnight in Japan, CPI data showed that prices fell for the 17th straight month and bond prices fell as speculation of currency intervention and further quantitative easing is markedly higher. Japanese PM Kan weighed in on the situation, saying that the government is prepared to take “bold action”. Surprisingly, the unemployment rate ticked down to 5.2% from 5.3% expectations.

So we’ve been seeing some risk taking this morning as Yen weakness has encouraged yield seeking, which also pushed the Nikkei average higher overnight though European stocks are flat to start the US session, as are commodities. So it looks like we are going to play the waiting game until 10, with a possible hiccup at 8:30 if US GDP figures deviate too much from expectations.

In the forex market:

Aussie (AUD): The Aussie is mostly higher as Yen weakness has encouraged some reluctant risk taking and benefiting from higher Asian equity markets.

Kiwi (NZD): The Kiwi is also higher for the same reasons as the Aussie, yet is performing better than it’s neighboring currency as the Kiwi had been most oversold to start the week on lower than expected inflation projections.

Loonie (CAD): The Loonie is mostly lower as the market as it looks like the market is predicting doom and gloom for the US economy. Because of Canada’s close ties to the US, the market reads US economic weakness as Canadian market weakness, rightly or wrongly. (Click chart to enlarge)

Euro (EUR): The Euro is mixed this morning as the market is waiting for Bernanke’s speech on the state of the US economy. There is a stark contrast between the Euro zone and US policy over how to best return to global growth and this could be highlighted by market reaction. (Click chart to enlarge)

Pound (GBP): The pound is mostly lower despite better than expected revised GDP figures. The market believes that the driver of that growth was mostly likely government spending which is due to expire as austerity kicks in. A RICS survey showed that rents were higher which could foreshadow rising inflation.

Dollar (USD): Revised GDP figures came in showing a gain of 1.6% which was better than the expectation of 1.4% but down from the last reading of 2.4%. This has encouraged some major risk taking as markets have woken up from its range-bound action.

Yen (JPY): The Yen is now selling off further as better than expected GDP figures have brought about risk taking. Factor in prior Yen weakness due to increased intervention chatter and continued deflation and it all adds up to a weaker Yen. (Click chart to enlarge)

One of the nice things about writing at the start of the US session is that I get to document market action as it occurs live. What started off the morning as mild risk taking due to Yen weakness has totally turned into major risk taking as the US GDP figures show there’s still some life in the US economy.

However, not to play Debbie Downer, but Bernanke will be speaking later this morning and the tone of his speech could affect the markets. I highly doubt that he will intentionally spook the markets, but one never knows for certain.

But for now, the market appears to have shrugged off this week’s horrible housing data and is content to party some more. Hopefully Big Ben doesn’t take the punchbowl away!

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

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Tags: account, AUD, Aussie, blog, cad, course, currenc, currency, currency market, currency trading, dollar, dow, economy, EUR, Euro, forextrading, free, fx, fxedu, gbp, Il, jpy, mike conlon, nzd, practice, ssi, time, USD, Yen

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Construction Boosts UK Economy

Filed under: OANDA News — Tags: about-the-path, bbc, budget, economy, forex round up, implement-the, policies-which, predicted, single-quarter, spokesman-for, sustained, the-government, the-predicted, year — admin @ 12:41 pm

An 8.5 percent increase in construction helped grow the UK economy by a more-than-expected 1.2 percent in the second quarter of the year. The result surpassed the predicted 1.1 percent figure and was the fasted rate of growth for a single quarter since the first quarter of 2001.

“While the government is cautiously optimistic about the path for the economy, the job is not yet done”, said a spokesman for the Treasury. “The priority remains to implement the Budget policies which support economic rebalancing and help ensure the sustained growth that the Office for Budget Responsibility forecast this year and next.”

Source: BBC News

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Risk hinges on Helicopter Bernanke

Filed under: OANDA News — Tags: a-bottom-after, against, currency, dean's fx, economy, gbp, government, growth, spokesman-for — admin @ 10:19 am

Does he seize the moment? His fifteen minutes of infamy? Nope, it will be nothing that exciting, but he is sure to have an impact. The Jackson Hole symposium gives Bernanke the opportunity to clarify the Fed’s monetary policy strategy in the face of a significant slowdown in the US recovery. US economic data leading into the conference has been coming up short, even shorter than all of the modest expectations. Risk appetite hinges on helicopter Ben. Investors want to be guided to more quantitative easing. The market needs to be reassured that QE will restore confidence in the US recovery. Too vague a commitment will undermine risk and we will soon be uttering the words ‘double-dip’!

The US$ is stronger in the O/N trading session. Currently it is higher against 12 of the 16 most actively traded currencies in a ‘subdued’ trading range ahead of Bernanke’s eagerly anticipated address in Wyoming.

Forex heatmap

Yesterday’s US jobless claims point to a disappointing NFP report next week. With no ‘material revisions’ to the data, a weaker employment report is expected. Initial claims fell -31k to +473k, but with a monthly average of +496k would suggest potential loses for next Friday. The 4-week moving average is +487k and continues to drift higher. It’s worth noting that no unusual factors like ‘distorted seasonal factors’ happened to influence this report. Continuing claims fell by -62k to +4.456m, rather static, as claims filter down to the extended and emergency programs. The number of individuals receiving extended (+937k) and emergency (+4.899m) continued to climb, advancing +102k and+199k respectively. In the extended category, we have witnessed a +126% jump since the beginning of the summer, while emergency has increased +50%. In July, Obama approved a bill that restored unemployment benefits to those who have been on the rolls so long that they had run out by June. This program expires at the end of Nov.

Finally yesterday, US mortgage stress indicators eased slightly in the 2nd Q. However, they do remain high (+9.85% vs. +10.06%). Mortgages in foreclosed proceedings were +4.57% vs. +4.63% in the 1st Q. The report is a small piece of good news on the stress indicators. Digging deeper, one notices that the improvement in delinquencies occurred in both prime and sub-prime loans while the improvement in foreclosure indicators was mainly in the sub-prime category. On the flip side, we should not become too euphoric as these indicators remain relatively high and they do tend to be lagging indicator.

The USD$ is higher against the EUR -0.01%, GBP -0.13%, CHF -0.06% and JPY -0.28%. The commodity currencies are mixed this morning, CAD -0.19% and AUD +0.09%. All week the loonie has been feeling the pain and pressure that comes with being a growth, interest rate commodity sensitive currency. Yesterday, the currency happened to get a reprieve, rallying as risk appetite improved ever so slightly, dragging commodity and equity prices higher. Big picture, Canada is not immune to weaker data reported south of its borders. Over +70% of its trade is conducted there. This ‘faltering economic recovery means the chances for a further BOC interest-rate increases this year weakens day over day’. Finance Minister Flaherty indicated that he saw Canada’s real-GDP for this year at about +3% and expressed concerns over the weakness in US economic data citing Canada’s reliance on exports to US. It is only natural that growth and interest rate sensitive currencies would be dumped even more aggressively. Traders are happy to play the risk-aversion card with longer term CAD bulls looking to pick up cheaper loonies north of 1.0650.

The AUD has inched higher in the O/N session, in anticipation of Bernanke’s speech this morning. Global bourses under pressure have been capable of pushing the AUD to test its one month lows earlier this week. However, in the O/N session with Asian bourses finding its legs has given some life to the growth and interest rated sensitive AUD. On the whole, concerns that global growth is slowing has damped investor appetite for higher-yielding assets. The currency has underperformed against all of its major trading partners and is expected to do so until there is a new Government formed. The commodity rich currency is not isolated, as other growth sensitive currencies are suffering the same fate. Government data has also happened to put a lid on the recent rally. Net result traders are adding to their bets that the RBA will leave interest rates unchanged for the next 12-months. Interest rate differentials play a big part of the currency’s attractiveness. Risk aversion will likely force the bull’s hand, capping rallies with better sellers on upticks (0.8875).

Crude is lower in the O/N session ($73.02 down -34c). Yesterday, crude prices initially rose the most in three weeks on the back of stronger than expected weekly US claims report. Since then it has managed to retreat from its highs as equity prices fell. A weaker dollar has also helped to give the commodity a leg up from its lows. Market should be wary that the underlying situation has not changed, the fundamentals remain very weak, demand does not look good and stockpiles of crude and products remain at a record high for a second consecutive week. Last weeks EIA report showed an unexpected increase for all energy products. US crude stockpiles rose by +4.1m barrels, surprising analysts who had expected a modest decline of -0.1m barrels. Gas inventories grew by +2.3m, while distillates (ex-heating oil and diesel fuel), saw inventories rise by +1.8m barrels. The market had expected gas stocks to fall by -500k and distillates to climb by +900k barrels. The data confirms that the current US supply glut continues unabated, even surpassing record levels reached this month. Analysts note that the ‘commercial supplies of oil and oil products are at the highest level in nearly 27-years, with gas stockpiles well above 5-year averages’. It’s no wonder that crude prices continue to gravitate towards the $70 psychological support level. The report re-confirms the IEA conclusion earlier this month that ‘oil demand could take a substantial hit should economic growth continue to falter’. Speculators remain better sellers on up-ticks in the short term as crude rallies somewhat in this oversold market.

Gold prices backed down from its two month highs as a rally in global equities eased demand for the precious metal as a haven. All week speculators have sought sanctuary in the safer heaven asset classes on the back of weaker equity markets. Investors are trying to put there cash somewhere more solid on mounting evidence of an economic slowdown. Speculators again are supporting the various safe heaven assets on pullbacks, avoiding risky assets due to uncertainties in the markets. With a genuine fear for global growth, by default, should boost the demand for the metal as a protector of wealth in the grand scheme of things. Year-to-date the metal has risen +11.8%. With treasury yields expected to remain low, could promote a quickening inflation rate, which would promote pushing commodity prices even higher. The opportunity costs of holding gold are low due to falling interest rates ($1,238 -50c).

The Nikkei closed at 8,991 up +85. The DAX index in Europe was at 5,888 down -24; the FTSE (UK) currently is 5,133 down -23. The early call for the open of key US indices is higher. The US 10-year eased 2bp yesterday (2.51%) and is little changed in the O/N session. Treasury prices have been fluctuating with equity prices, easing from their highs after initial claims fell more than the market expected. Yields seem to have found a bottom after the 19-month record low prints witnessed earlier this week on the back of new home sales unexpectedly dropping last month to a record low and orders for durable goods rose less than economists forecasted. Already the curve has flattened to trigger analyst’s 2’s/10’s +200bp short term objective. Treasuries 7-year note sale came in with a record low yield of 1.989%. The bid-to-cover ratio was 2.98, compared with a 4-auction average of 2.87. The indirect bid (foreign buyers) was 57% (v-strong), compared to the average of 51%. The direct bid was 9% vs. 10.6%. Longer term buyers continue to control the market, that being said, product does look rich on the curve.

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August 26, 2010

Falling Yields Have Investors Selling the Dollar

Filed under: OANDA News — Tags: a-carry-trade, a-daily-stream, a-half-later, a-more-active, chairman, economy, employment, federal-reserve, financial, into-the-second, year — admin @ 2:36 pm

The Japanese yen and Swiss franc continue to lead the way as the preferred choice of funding currency when employing a carry trade strategy, but an increasing number of investors are now shorting the US dollar to finance the acquisition of higher-yielding currencies. With little prospect of the Federal Reserve boosting interest rates in the short-term, and with a daily stream of bad news hitting the airwaves including yesterday’s acknowledgment of a 27 percent drop in existing home sales, followed by today’s 12 percent drop in new home sales, the greenback is struggling to find the bottom. Holders of US-denominated securities are surely concerned, but forex traders – especially those looking to establish large-sized carry trades – are thinking opportunity.

As a carry trade funding currency, the US dollar is currently checking all the boxes on the carry trade wish list:

1. Low interest rates? Check.

The dollar is at an all-time low with respect to yields and this makes USD one of the least expensive currencies to short as the interest owed on open short positions is lower than most other currencies.

2. High liquidity? Check.

The dollar remains the most widely traded of all currencies. Indeed the EUR/USD pairing alone continues to dominate all other currency pairs with roughly seventy percent of all forex trades based on the EUR/USD.

3. Low Volatility? Check.

It’s all well and good to identify a currency with low interest rates with which to buy other currencies, but if exchange rate volatility is so pronounced that at any time it threatens to put your overall position under water, your carry trade could quickly become a liability. Front and center in the Fed’s mind right now, is high unemployment and a slowing economy; thus, it remains unlikely that the central bank will take any action that could cause the dollar to appreciate.

When the Federal Reserve adopted its record low interest rate policy to combat the recession, Bernanke said the rate would remain in place for as long as necessary. Now, a full year and a half later, Bernanke remains committed to this policy with a timeline extending until at least the end of the year. The Chairman has gone on record saying he does not expect an improvement in the employment outlook prior to then.

As recently as three weeks ago, when addressing the annual meeting of Southern lawmakers in Charleston, S.C., Bernanke stated that even though the worst of the past recession is over, Americans still “have a considerable way to go to achieve a full recovery in our economy, and many Americans are still grappling with unemployment, foreclosure and lost savings”.

On August 19th, Bernanke went so far as to suggest that the Fed could find it necessary to return to a more active role to support the economy in the form of further quantitative easing to ensure money continues to flow through the financial system.
“We have to be careful about tightening too quickly,” warned Bernanke. “We can maintain some continued support for the economy in the very near term.”

The position of the Federal Reserve could not be clearer. For the foreseeable future, there are no plans to raise interest rates, and with yields at an all-time low, there is little chance of significant dollar appreciation. Investors will continue to chase higher returns in other currencies, and the sell-off of US dollars to fund these purchases, should continue well into the second half of the year.

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Risk Appetite Returns- For Now!

Filed under: Forex News — Tags: a-classic-risk, aud, cad, course, currenc, expectation, kiwi, market, morning-on-risk, practice account, ssi, summer, time — admin @ 1:38 pm

This morning global stock markets are higher, rebounding from 7-week lows. This has encouraged a bit of risk taking, but the question remains: how long will it last?

US weekly initial jobless claims came in at 473K, besting analyst expectations of 485K and better than last week’s reading of 504K. While one week does not make a trend, the fact that this figure was not worse than expected is seen as positive.

In the UK, CBI reported sales figures came in at 35, handily beating the expectation of 18 and showing signs that the UK is economy is still on solid ground.

In the Euro zone, Ireland issued short term debt at rates lower than their last offering, shrugging off the S&P debt downgrade from 2 days ago and bolstering the view that the market has not given up hope of recovery. The offering was over-subscribed, showing high demand for the debt issuance.

So this morning we are seeing some risk appetite return to the market, with commodities and stocks higher on a day that is light on news.

In the forex market:

Aussie (AUD): The Aussie is higher this morning on risk appetite despite the fact that private investment declined 4% vs. an expected gain of 2.3%. The elections appear to be dead-locked at this time, which many are viewing as a positive for stocks, especially the miner who may avoid the mining tax as a result. (Click chart to enlarge)

Kiwi (NZD): The Kiwi is the biggest gainer this morning as oversold conditions due to the inflation report may have been overblown. The Kiwi has sold off the most in recent trading.

Loonie (CAD): The Loonie is also higher due to risk taking as oil prices have rebounded to 73.50. In addition, if US jobless claims continue to improve, then a more positive outlook for the US economy would be positive for the Loonie.

Euro (EUR): The Euro is also higher has Irish debt costs actually were lower despite S&P’s best efforts to push them higher. In addition, loan growth in the EU is picking up at the fastest pace in nearly a year in a sign that both households and business may be feeling more confident.

Pound (GBP): The Pound is also higher on the back of the CBI sales figures and going into tomorrow’s GDP report. The UK economy appears to be rebounding, yet sentiment surrounding the UK austerity measures has left the market confused about economic prospects going forward. (Click chart to enlarge)

Dollar (USD): The Dollar is weaker this morning against all but the Yen in a classic risk taking scenario. Stock futures are higher as initial jobless claims figures came in better than expected. There is a slew of data out for the US tomorrow, and provided the data doesn’t come in way worse than the already lowered expectations, should continue to bring about some risk appetite.

Yen (JPY): The Yen is lower across the board and rebounding some after the intervention talk has begun to heat up. Today’s risk taking and higher Nikkei has provided relief for the safe haven of the Yen. CPI data is due out tomorrow and expected to show continued deflation, which shouldn’t have much of an impact on the market one way or another. (Click chart to enlarge)

Today is a welcome respite from the selling that has occurred earlier this week. With very little market moving news out today, risk appetite has increased. However, we’re not out of the woods yet. As the market becomes accustomed to slower growth, we’re going to experience these swings between risk taking and risk aversion.

Today feels like a slow day, as perhaps traders are finally going to take some time away to enjoy what’s left of the summer. So “no news is good news” and that appears to be the theme for the day.

Just remember to be cautious, as one day does not a trend make.

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!

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US Bonds Hold Steady After Jobs Data

Filed under: OANDA News — Tags: a-carry-trade, chairman, employment, labor-department, report-indicating, the-wake, usd, year — admin @ 1:32 pm

US Treasuries held steady in the wake of today’s Labor Department report indicating fewer new claims for jobless benefits than expected last week. The 30-year long bond was last up just 4/32 in price, yielding 3.57 percent, little changed in yield from Wednesday’s close. The benchmark 10-year note was flat in price, yielding 2.54 percent.

Source: Reuters

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Morgan Stanley Says Some Governments Could Default on Debt Obligations

Filed under: OANDA News — Tags: aud, default-will, described-the, form-it-might, jpy, london, morgan-stanley, rates-provide, renege-on-their, report, research-report, stakeholders — admin @ 1:15 pm

Morgan Stanley analyst Arnaud Mares in the firm’s London office, issued a warning that some governments will have no alternative but to default on future debt obligations.

“Governments will impose a loss on some of their stakeholders,” Arnaud Mares in the firm’s London office wrote in a research report today. “The question is not whether they will renege on their promises, but rather upon which of their promises they will renege, and what form this default will take.” The sovereign-debt crisis is global “and it is not over,” he wrote.

In the report, Mares described the risk of default with large, advanced economies as “extremely unlikely”, “but current yields and break-even inflation rates provide very little protection against the credible threat of financial oppression in any form it might take.”

Source: Bloomberg

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Bernanke to dig at Jackson

Filed under: OANDA News — Tags: demand, eur, gbp, growth, housing, jpy, metal, outlook, research-report — admin @ 10:19 am

Those who can make sense of these markets go to the front of the line! It’s a stab in the dark to find compelling reasons why capital markets are acting this way. Yesterday’s US data was woeful and the demand for US 5-year debt was stronger than expected, yet treasuries fall and equities rally. Go figure! The moves make sense for one reason, assuming that with economic conditions so bad, helicopter Ben has to insist on more fiscal and monetary stimulus at Jackson Hole. Low interest rates alone ain’t cutting it. The housing sector is eroding personal wealth, the job situation remains dire and the savings ratio is higher. Cheaper capital has not been put to work as fear dominates, pushing us towards a double-dip recession. Policy makers can either fill the hole or bury the economy at the symposium.

The US$ is weaker in the O/N trading session. Currently it is lower against 13 of the 16 most actively traded currencies in another ‘whippy’ trading range.

Forex heatmap

US data is certainly not disappointing the ‘double-dip bears’. The durable good headline print disappointed all yesterday (+0.3% vs. +3.0%). The details showed a broad based retreat which happens to tarnish the one bright spot in the US economy, business investment. Using non-defense, ex-transport, as a proxy for business investment, it plummeted -8%, eroding all of last quarter’s gains. With retail sales being a threat to 3rd Q GDP, coupled with ‘the’ housing downturn and a weakening business investment has analysts believing that the possibility of negative real-GDP growth occurring is a real possibility. Perhaps the ‘double-dip’ scenario is within our grasp? Digging deeper, there maybe some positives in the report that have not been captured just yet. Analysts note non-defense orders climbed by only +29% compared to an over 2.5x fold rise in Boeing plane orders for the month (75% of the orders occurred at the end of the month). However, that being said, one should not expect revisions to the core, ex-transport print because of the weaker new-order regional surveys. Inventories happened to advance +0.6% for a seventh consecutive gain. The unfilled orders component was down -0.1%, marking the first month of retreat in four.
All signs of a cooling economy.

Records are to be broken, but, not necessarily in this fashion. US new home sales set another new record in July (+276k vs. +315k). The housing sector has the not so envious distinction of recording an -18% decline in registered volumes from the ‘depths of the 1980’s recession’. With new home sales dropping has pushed supply up to 9.1 months of inventory on hand. Adding this to the resale listings of 12.5 months and one can understand the enormity of the inventory overhang facing the US economy. Worst still, all this data excludes shadow inventories that are largely comprised of foreclosed resale homes held off market. There are little positives to draw from this week’s new and re-sale data. Lack of job growth and erosion of wealth is hardly going to be a positive contributor to the housing sector, in fact it will only add to further price pressure. The median (-6%) and mean price (-6%) declined last month, the median price back to the levels seen in 6-years ago.

The USD$ is lower against the EUR +0.55%, GBP +0.65%, CHF +0.09% and higher against JPY -0.02%. The commodity currencies are stronger this morning, CAD +0.46% and AUD +0.59%. The loonie has been feeling the pain and pressure that comes with being a growth, interest rate commodity sensitive currency. It kept intact its longest losing streak in 19-months yesterday as risk aversion drove bourses lower and tarnished the outlook for currencies tied to growth. In the O/N session, some of the currency losses were recouped as the market was believed to have been oversold. Canada is not immune to weaker data reported south of its borders. Over +70% of its trade is conducted there. This ‘faltering economic recovery means the chances for a further BOC interest-rate increases this year weakens day over day’ and diminishes further the appeal of the currency. Over the past two trading sessions, weaker CAD long positions have been squeezed out as fear of a double-dip occurring has investors seeking sanctuary in risk aversion trading strategies. It is only natural that growth and interest rate sensitive currencies would be dumped even more aggressively. Traders are happy to play the risk-aversion card with longer term CAD bulls looking to pick up cheaper loonies north of 1.0650.

The AUD has ended two downward days on speculation that Japanese policy makers may consider intervening in the markets and dampen the demand for JPY. Comments from Japanese officials have squeezed their currency lower across the board again in the in the O/N session. Global bourses under pressure have been capable of pushing the AUD to test its one month lows earlier this week. However, in the O/N session with Asian bourses finding its legs has given some life to the growth and interest rated sensitive AUD. On the whole, concerns that global growth is slowing has damped investor appetite for higher-yielding assets. The currency has underperformed against all of its major trading partners and is expected to do so until there is a new Government formed. The commodity rich currency is not isolated, as other growth sensitive currencies are suffering the same fate. Government data has also happened to put a lid on the recent rally. Net result traders are adding to their bets that the RBA will leave interest rates unchanged for the next 12-months. Interest rate differentials play a big part of the currency’s attractiveness. Risk aversion will likely force the bull’s hand, capping rallies with better sellers on upticks (0.8868).

Crude is higher in the O/N session ($73.11 up +60c). Yesterday, crude prices fell after the weekly EIA report showed an unexpected increase for all energy products. Not helping matters was US economic data giving little evidence of an upsurge in future demand to make an impression in this stock saga. US crude stockpiles rose by +4.1m barrels last week, surprising analysts who had expected a modest decline of -0.1m barrels. Gas inventories grew by +2.3m, while distillates (ex-heating oil and diesel fuel), saw inventories rise by +1.8m barrels. The market had expected gas stocks to fall by -500k and distillates to climb by +900k barrels. The data confirms that the current US supply glut continues unabated, even surpassing record levels reached last week. Analysts note that the ‘commercial supplies of oil and oil products are at the highest level in nearly 27-years, with gas stockpiles well above 5-year averages’. It’s no wonder that crude prices continue to gravitate towards the $70 psychological support level. The report re-confirms the IEA conclusion earlier this month that ‘oil demand could take a substantial hit should economic growth continue to falter’. Speculators remain better sellers on up-ticks in the short term as crude rallies somewhat in this oversold market.

Gold has climbed to a seven week high and continues to stay the course this morning as investors seek sanctuary in the safer heaven asset classes on the back of weaker equity markets. With global bourses under pressure, investors are trying to put there cash somewhere more solid on mounting evidence of an economic slowdown. Speculators again are supporting the various safe heaven assets on pullbacks, avoiding risky assets due to uncertainties in the markets. With a genuine fear for global growth, by default, should boost the demand for the metal as a protector of wealth in the grand scheme of things. Year-to-date the metal has risen +12.1%. With treasury yields expected to remain low, could promote a quickening inflation rate, which would promote pushing commodity prices even higher. The opportunity costs of holding gold are low due to falling interest rates ($1,243 +$2.50c).

The Nikkei closed at 8,906 up +61. The DAX index in Europe was at 5,910 up +11; the FTSE (UK) currently is 5,133 up +24. The early call for the open of key US indices is higher. The US 10-year eased 1bp yesterday (2.50%) and is little changed in the O/N session. At one point treasuries happened to advance, pushing the yield on the 10-year note to the lowest level in 19-months, as new home sales unexpectedly dropped last month to a record low and orders for durable goods rose less than economists forecasted. The curve flattened enough to trigger analyst’s 2’s/10’s +200bp short term objective. Treasuries 5-year note sale came in with a record low yield of 1.374%. The bid-to-cover ratio was 2.83, compared with a 4-auction average of 2.65. The indirect bid (foreign buyers) was 51% (v-strong), compared to the average of 41%. The direct bid was 9% vs. 12.7%. In total, the US plans to sell $102b of debt this week. Today we get the final allotment, 7-year notes (+$29b). This will be the smallest monthly offering of ‘the’ combination thus far. Longer term buyers continue to control the market, that being said, product does look rich on the curve.

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