Yikes! I guess I was mistaken in my assessment that Fed Chairman Bernanke wouldn’t say anything “dumb” at yesterday’s speech. It wasn’t so much what he said but how he said it. While Bernanke is known as an academic and a reluctant public figure, his mumbling, stumbling, and bumbling through the Q & A session did not inspire confidence in the least.
While we all know that the US and the global economy are weakening, we need real leadership to guide us through these troubling times. Unfortunately, Bernanke is out on an island by himself, and he is getting no help from the politicians in Washington DC. Trying to solve our nations economic woes with monetary policy alone will not work. Period. Until we get our fiscal house in order, we will always be teetering on the edge of the cliff. Where is the leadership?In the Euro zone, German Industrial production figures came in lower than expected, and another ratings agency stated that indeed a rollover of Greek bonds would constitute a default. Let’s not forget that a default will trigger a massive event, led by credit default swaps (CDS) which were termed “financial weapons of mass destruction” and greatly contributed to the economic collapse of 2008. GDP figures came in as expected.
The Fed’s Beige Book report is due out later today but will tell us what we already know, that the economy is weakening. The powers that be are attempting to pass this off as a “soft patch” so that their summer vacations can go interrupted.
Later today we will get New Zealand’s interest rate decision, which is expected to produce no change. Tonight will bring Japan’s GDP figures, and as the Yen strengthens the talk of Bank of Japan monetary intervention increases.
Tomorrow is the rate decision in both the Euro zone and the UK.
So the markets are trading lower this morning on risk-aversion, as the outlook continues to worsen.
In the forex market:
Aussie (AUD): The Aussie is trading lower on risk aversion ahead of tomorrow’s employment report, holding support currently just above 1.06 vs. USD. (Click chart to enlarge)
Kiwi (NZD): The Kiwi is lower on risk aversion as well and this afternoon’s RBNZ rate decision is unlikely to produce a change in policy or a hawkish statement. A weaker Kiwi will be desirable in the event of a global slowdown.
Loonie (CAD): The Loonie is mostly lower on lower oil prices and risk aversion despite the fact that housing starts came in better than expected, posting gains 183.6K vs. an expected 182K. While these are not world-beating numbers, anything positive is welcome at this point.
Euro (EUR): The Euro is mixed to lower as GDP figures came in expected showing moderate growth of 2.5%, though German industrial production figures came in lower than expected. The potential resolutions to the Greek debt crisis are being met with scrutiny, and not all members of the Euro zone are on the same page. (Click chart to enlarge)
Pound (GBP): The Pound is mostly lower ahead of tomorrow’s rate policy decision as Moody’s suggested that the UK’s current credit rating may be in jeopardy. No change is expected for tomorrow’s release.
Swissie (CHF): The Swissie is strong today as dual effect of risk-aversion and an unemployment report showed a rate of 2.9% unemployment are increasing demand.
Dollar (USD): The Dollar is stronger on the safe haven demand despite the weakening economic picture here in the US. If we don’t start to tackle the fiscal side of the equation, we may be in big trouble.
Yen (JPY): The Yen is the strongest today on risk aversion as carry trades are un-wound and tonight’s GDP release is expected to show negative growth. While this is no surprise after the natural disasters that hit them, it appears as though the calls for BOJ intervention may not be worrisome to the markets.
Poor Bubble Ben. The guy is getting no help from Washington DC and is the unfortunate whipping boy for all that ails us. Nevertheless he is doing all he can given the circumstances.
While I give him a lot of heat for the decisions he makes, he is merely reacting to the lack of leadership in government today. I think yesterday’s Q & A session was very telling, and he may not be getting a lot of sleep at night these days.
There are tougher times ahead for us, the longer we continue to extend and pretend is only going to make it worse.
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