Here in the US we have a government holiday today honoring veterans who have fought in previous wars to protect our freedom and way of life. So banks and the bond markets are closed today which means there is no economic news to speak of in the US.
However, the G-20 meeting is taking place right now and early reports indicate more of the same. Long talk, short action. It will be interesting to see if any specific policy is agreed to by the end of the meeting. My guess is there won’t be.
Nevertheless, the return of the Euro debt crisis has been putting additional pressure on the Euro, with the focus now turning toward Spanish and Portuguese bonds, after both Irish and Greek bonds got hammered. This in part comes from the plan put forth by Germany and now backed by France which includes “restructuring” of debt. This could potentially put bondholders on the hook for losses. I guess in today’s world of credit default swaps, losses on bonds are unheard of.
Overnight, Australia reported a surprise jump in their unemployment rate, as more people entered the workforce. They did however beat expectations in the number of jobs created.
In China, CPI figures soared showing an increase of 4.4%. It will be difficult for them to keep their currency subdued in the face of these economic figures. But somehow they will manage to do so and the world will continue to allow it to happen.
In the US, stocks are lower so the Dollar is stronger and this is encouraging a bit of risk aversion in the markets. Without any significant news to move the markets, this trend could continue throughout the day.
In the forex market:
Aussie (AUD): The unemployment rate jumped up to 5.4% vs. an expected decline to 5% as the participation rate climbed to a historic high. This eases pressure on any potential wage inflation, which could quell overall inflation and allow the RBA to pause on the next rate hike which is expected early next year. (Click chart to enlarge)
Kiwi (NZD): The kiwi is mostly higher despite the fact that home prices fell for the second month and house sales declined 36%. However, it should be noted that the Kiwifruit scare will not cause the US and Japan to ban imports, so NZ exports may hold up. A sluggish economy may cause the RBNZ to leave rates steady well into 2011, provided inflation does not pick up significantly.
Loonie (CAD): The Loonie is mixed after yesterday’s trade balance report came in worse than expected. However, oil has traded higher to an 88 handle, as the Chinese economy shows little sign of slowdown and QE2 continuing to push commodities higher.
Euro (EUR): The Euro is lower across the board as the major focus of the global marketplace has returned to the debt crisis. Both Irish and Greek bonds have been punished and now the market is turning on Spanish and Portuguese bonds. Much of this stems from bondholder fear that they may have to participate in the losses if any of these countries need to restructure their debt. (Click chart to enlarge)
Pound (GBP): The Pound is higher across the board after the most recent inflation report showed that continued inflation would be an “obstruction” to further QE, according to the BOE Governor. Inflation has persisted outside of the 2% target for some time and until it pulls backs may make it nearly impossible for the BOE to ease further.
Dollar (USD): The Dollar is stronger today as US equities are selling off after some corporate earnings disappointments. Both banks and the bond markets here in the US are closed, so there is no news driving the Dollar other than risk aversion coming from the EU.
Yen (JPY): The Yen is also mixed today gaining some strength from risk aversion and receiving some weakness from both a higher stock prices and reports that machine orders fell the most in nearly 2 years.
As the G-20 continues and leaders attempt to come to some sort of agreement, the only thing that can be certain is the near impossibility of this happening. The global economy is a series of give and takes and the sooner world leader realize this, the better. Some of these guys would rather cut off their nose to spite their face. More directly, I’m talking about China.
The Chinese economy is booming as the rest of the world struggles. It wouldn’t be so bad if they were a freely floating currency but they are not. Everyone claims that even if the Yuan was allowed to float if wouldn’t fix what ails the global economy.
I say hogwash. The Chinese are no longer an emerging economy. They have been allowed to succeed through unfair practices for so long that they now have the moral high ground when it comes to currency manipulation. If politicians can’t force change, then we as consumers need to take action.
Through all of the economic turmoil the US has been through, where is the “Buy American” sentiment? Why aren’t consumers boycotting cheap Chinese goods in favor of spending a bit more to put Americans back to work? I get the whole free trade argument and the idea that I can have cheap stuff by exploiting cheap labor abroad. But I would much rather pay a little more for goods made here in the US if it will put people back to work. Because at the end of the day that is one less person who needs public support which ultimately raises deficits which cause my taxes to go higher.
This should be a conscious choice of all. Isn’t the unemployed guy who buys cheap stuff at Wal-Mart just perpetuating his own economic degradation?
Until the Chinese join every other nation around the globe in allowing their currency to float freely, then those who continue to support this are ultimately responsible for their own economic decline.
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