At least that’s what has been declared in Libya on oil exports as the violence and unrest continues to increase, removing some of the world’s supply of oil. While this supply shock is not great enough to cause a lack of oil, it has contributed to higher oil prices and the risk premium that is built in. Oil is now trading at around $96.25, a two-year high.Yesterday’s double-whammy of Libyan unrest and the New Zealand earthquake sent markets plummeting, and it remains to be seen whether today’s early indications of higher markets is the continuation of the previous weeks’ uptrend, or just a dead-cat bounce.
In other word’s, will the market finally respect the inherent risks to the global economy that the geopolitical events taking place in Arab nations represent? Stay tuned.
Meanwhile in the UK, the Bank of England rate policy meeting minutes showed that a third policy-maker joined in the call to raise interest rates, and the first policy-maker to propose it is now calling for a larger rate increase. This highlights the problem facing some global economies as the balance between controlling inflation and promoting economic growth is the challenge.
So this morning shows some mild risk-taking, though it is uncertain whether yesterday’s move lower was a temporary spike or the start of a trend reversal. Weak US monetary policy has been driving the markets of late, though risk is starting to threaten. Equity markets are looking at a higher open, and gold is now above $1400/oz.
In the forex market:
Aussie (AUD): The Aussie is higher as the risk appetite has returned to the market. Wage inflation data came in slightly higher than expected.
Kiwi (NZD): New Zealand is dealing with the aftermath of yesterday’s tragedy where the number of dead or missing is rising. Damage to the country is going to be extremely costly, and the market has reduced rate hike expectations to nearly zero for the rest of the year.
Loonie (CAD): The Loonie is mixed today and is not responding to higher oil prices as one may think. Yesterday’s disappointing retail sales figures (-.2%) show that Canadian economic growth may be slowing.
Euro (EUR): The Euro is trading mostly higher as its anti-Dollar properties are prevalent today. In addition, speculation of an ECB rate hike is gaining traction as the current unrest in the Arab countries has affected Europe more so than the US which could further contribute to higher inflation. In addition, there is also talk of an extension of aid to Greece. (Click chart to enlarge)
Pound (GBP): The Pound is higher across the board as the BOE minutes revealed another vote for higher rates. GDP figures for the UK are due out on Friday and could bolster this point of view if they come in better than expected. (Click chart to enlarge)
Dollar (USD): The Dollar is being driven by the competing forces of risk themes and weak monetary policy, the former being the only thing that may be keeping the Dollar afloat. Existing home sales are due out later this morning.
Yen (JPY): The Yen is lower across the board as yesterday’s strength from the flight to safety has unraveled a bit. In addition, Japanese trade balance figures came in worse than expected, showing higher imports and lower exports. CPI data is due out at the end of the week which is expected to show continued deflation.
Force Majeure is a term that literally means “greater force” and is a clause than can be invoked if unforeseen events prevent an action. I would say that yesterday would qualify, as both civil unrest in Libya and the earthquake in New Zealand were largely unexpected.
Higher oil prices due to supply shocks could increase the pace of inflation around the globe, forcing Central bankers to have to act pre-maturely to raise rates to combat the problem, which could potentially inhibit economic growth.
Or Central bankers could take the other route, and allow inflation to increase thereby attempting to grow their economies, at the risk of creating economic bubbles. This is a very dangerous proposition that could have worse consequences.
At the end of the day, the economic picture is not pretty so my feeling is that there is more risk in the market than people want to believe. So I am going to err on the side of caution. As yesterday showed, markets can unexpected move lower in a moment’s notice. So be careful out there!
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!
none