This morning the markets are reeling from another earthquake that has occurred in New Zealand. This is the second major earthquake that has rocked New Zealand in the past year, with the first taking place back in September. Thus the Kiwi is down against all major currencies, as this natural disaster will surely lower GDP for some time as the reconstruction process from not one but two earthquakes will take time.This event adds insult to injury on a market that was already teetering on risk aversion as Libyan violence has picked up and the oil market has finally responded to the inherent risks. Crude is up nearly $7/barell to $93, and gold has followed suit higher to $1400 invoking its safe-haven properties.
So today is marked by major risk aversion with all major stock indices lower, though oil and gold are trading higher.
There is some fundamental data out this morning, though it will clearly take a backseat to risk themes this morning. Canadian retail sale figures at 8:30AM, followed by US home prices at 9AM and US Consumer Confidence at 10AM round out the morning. But don’t expect any of these individual data points to reverse markets today. How low we can go is anyone’s guess.
In the forex market:
Aussie (AUD): The Aussie is lower on risk aversion as yield-seeking activity is trumped by the flight to safety. Australia’s close proximity to New Zealand and the sell-off in the MSCI Pac Index have all contributed to a lower Aussie.
Kiwi (NZD): My heart goes out to those in New Zealand who have been affected by the second major earthquake in 6 months. This could have a devastating affect on the island nation has the re-building process from the first earthquake has been stymied. This will surely affect GDP figures, which make New Zealand an extremely unlikely candidate for rate hikes anytime soon, though inflation figures reported prior to the earthquake showed balance. (Click chart to enlarge)
Loonie (CAD): The Loonie is also lower as risk themes take it down as it is linked to the commodity currency bloc despite lower interest rates. Higher oil prices are maintaining the opposite side of the tug of war on the Loonie, though for my mind the Aussie is still a better bet. Retail sales figures are due out later this morning and are expected to show a slight decline of .1%.
Euro (EUR): The Euro is showing resilience in the market and is the currency actually benefiting from higher oil prices. In addition, an ECB council member suggested that the Central Bank would toughen its stance on inflation and perhaps issue hawkish comments. The Euro is basically flat against the safe-haven currencies, USD and JPY. (Click chart to enlarge)
Pound (GBP): The Pound is mostly lower as the market is concerned about UK economic fundamentals and risk aversion just highlights the problems. The minutes from the BOE rate policy meeting will be out on Wednesday, followed by Friday’s GDP report. At some point the BOE will have to address the inflation issue.
Dollar (USD): The Dollar is mostly higher as the flight to safety trade is in full effect. Home price figures and consumer confidence are due out later this morning, but the Fed’s reluctance to tighten monetary policy leaves an already weak US dollar sharing safe haven status with other currencies. This highlights to fundamental weakness of the Dollar.
Yen (JPY): The Japanese yen is the unfortunate beneficiary of the NZ natural disaster as the MSCI Pac Index traded lower overnight. However, as the morning moves forward, the Yen is giving up some earlier gains to both Euro and USD.
Well I guess it was only a matter of time before the geo=political events around the globe finally knocked some sense into the marketplace. I had remarked to someone at the Trader’s Expo that I was surprised to see the market unwilling to accept the inherent risks present. I also said that if the market was so blind to risk, I couldn’t see a scenario that would take it down.
Enter the earthquake in New Zealand. While the timing of the natural disaster seems very eerie to me, and I feel for the people of New Zealand, this was exactly the type of unknown event that I was anticipating that could “smack the markets back to reality”.
It was pretty apparent to me that the markets were moving too far, too fast and if you’ve read my recent blog articles you would know the same. So while it is extremely important to not attempt to impose your own view on the markets and to merely try to follow along, having a healthy skepticism can help move quickly to get off the move and anticipate the next.
Today is the last day of the Trader’s Expo here in NY. It’s been great to have met some of you who have stopped by and for those of you in the area I highly recommend checking it out!
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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