Yesterday, the Irish Finance Minister came out and said that Ireland would not need to access the EU emergency fund to bail out its banking system, allowing yield spreads to decrease as confidence came back to the market. European stocks are higher to start the morning, following overnight gains from the Asian equity markets.
The Pound is lower this morning as home price declines and mortgage applications that were slightly less than expected are weighing on the currency. Minutes from the monetary policy meeting are due out on Wednesday, which will provide a clearer picture of the BOE’s stance on inflation and potential rate hikes.
Speaking of rate hikes, in Australia the RBA Governor Stevens said that policymakers may need to resume raising rates despite the fact that the Aussie is at 2-year highs vs. USD.
US stock futures are higher this morning going into President Obama’s town hall meeting today sponsored by CNBC. While this is most likely going to be a coordinated event, don’t be surprised to see the market move on any perceived economic negativity coming from the President. This comes a day in advance of the Fed rate policy meeting tomorrow, where Fed Chairman Bernanke will give his economic outlook.
This week is a little bit light on news, so expect there to be a lot more talk to fill the void.
In the forex market:
Aussie (AUD): The Aussie is higher this morning on the RBA Governor’s statement about interest rates, pushing it to near 2-year highs. Tomorrow the RBA will release its rate policy meeting minutes. There is not much further economic data due out for Australia this week so expect the Aussie to trade on risk themes.
Kiwi (NZD): The Kiwi is also higher this morning as consumer confidence figures came in slightly better than expected. In addition, GDP figures will be released later this week so a surprise to the upside could push the Kiwi higher despite the warnings of the impact of the earthquake.
Loonie (CAD): The Loonie is mostly higher despite wholesale sales figures that came in worse than expected at -.1% vs. an expectation of a gain of .1%. Canadian CPI data is due out tomorrow, followed by retail sales figures on Wednesday which could give clues about the robustness of the Canadian recovery.
Euro (EUR): The Euro is tracking mostly lower despite the statement from the Irish Finance Minister and that bond yield differentials are seen as narrowing in the near future. There is not a lot of news on tap for the Euro this week, with PMI figures due out on Thursday. So expect the Euro to trade on its “anti-dollar” status and risk themes.
Pound (GBP): The Pound is mostly lower as housing prices declined more than expected ahead of the release of the BOE’s rate policy meeting minutes. The BOE came out and said that the recent Pound rally may be indicative of renewed investor confidence in the outlook for the UK economy; however recent deflationary data suggest that the BOE won’t budge on their outlook for monetary policy.
Dollar (USD): The Dollar is mixed this morning trading higher vs. the Pound and Euro. Today’s Presidential town hall meeting could potentially induce volatility as all eyes are on the FOMC meeting tomorrow afternoon. Initial jobless claims and various home data round out the week and should provide insight into the near-term health of the economy.
Yen (JPY): The Yen is holding steady as the market weighs the ramifications of last week’s currency intervention. While there hasn’t been enough risk in the market to test Yen strength, negative FOMC comments could show Japan’s resolve to weaken its currency.
When it seems like there is nothing happening in the global financial marketplace, sometimes the speculation heats up to induce market volatility. This couldn’t be truer than what is happening in the Euro zone as the deficit problems of the PIIGS countries are well-known and therefore become easy targets.
However, the commitment to austerity, while most likely the solution to their problems, means that the countries must flirt with lower growth projections and walk a fine line to financial health.
Meanwhile, the market I still trying to figure out what exactly the outcome of Yen intervention will be, and economic projections here in the US may be the ultimate decider.
The number one issue here in the US is the employment situation, which has induced a lack of economic confidence which is causing stagnation. The FOMC meeting tomorrow could tell a very different story than what we are being led to believe.
Or we could get the continued “extended period” language that Bernanke has relied on from previous FOMC meetings, but at some point, the market may expect more. Either way, expect volatility before and after the meeting.
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