It’s good to be back in NYC after evacuating for the hurricane. While NYC appears to have fared reasonably well, the same can’t be said of other areas. I hope everyone who was affected by the devastation is able to get back to normal as quickly as possible.
As far as the forex market is concerned, this was nothing more than a minor inconvenience and the show must go on as they say. Markets actually fared surprising well yesterday, as there was major risk appetite in the markets despite a less-than desirable outcome from Bernanke’s speech last Friday. Positive economic news out of Greece was the primary driver, though they are not out of the woods just yet. While some in the marketplace had been hoping for additional monetary stimulus, Monday’s market action suggests that investors are still willing to buy even when there isn’t “free money”.
Yet this morning, we are giving back some of those gains as the focus returns to the Euro zone and the debt crisis they are still facing. The agreement that was reached on July 21st has not been approved yet and there is speculation in the market that Chancellor Merkel of Germany may not have enough votes to ratify the agreement. The politics in Germany have been an important aspect of the negotiations and the market is cautious to see if Merkel can get the required support.
In the meantime in the Euro zone, confidence figures are back to 2008 lows as the global economic slowdown and accompanying debt crisis have left both businesses and consumers feeling malaise. Most of today’s data is sentiment-related so while it is not a true measure of activity, it could be a harbinger of the global economy down the road.
Business confidence in the UK is also at 2008 lows, as declining growth figures and an uncertain global economic picture aren’t things to inspire cheerfulness.
Later this morning, US consumer confidence figures and home prices figures are expected to come in lower, and the market is preparing for this Friday’s Non-Farm Payrolls report which may be the single most important data point.
Meanwhile, gold just jumped sharply as Fed Governor Evans was speaking with regard to monetary policy and these guys need to realize that their words sometimes have consequences. We are going to learn more from the Fed later this afternoon, as the release of the minutes from the last FOMC meeting is due. The interesting thing about these minutes is that market participants will be looking to see what exactly it was that caused the Fed to change policy and set a specific 2-year target for maintaining interest rate policy from the “extended period” language they had used for some time.
Earlier in the Asian session, the Kiwi was higher as building permits figures came in much better than expected, though it is giving back some gains as risk aversion picks up pace. In Japan, the unemployment rate ticked slightly higher and retail sales figures were lower. In addition, Finance Minister Noda was elected as the next premier of Japan, succeeding Kan.
So there is seemingly a lot happening around the globe, though there isn’t one particular thing that the markets can look to for guidance. I suspect that we are going to see continued range-bound activity with a slightly higher bias. Markets may advance in the US session and early Asian session, but decline in the European session.
Right now the major problem affecting the global economy is the continued Euro debt crisis so the longer this drags out or goes unresolved, the weaker those markets will seem. With interest rates at ridiculously low levels (and staying here in the US for at least 2 years if the Fed has their way), the market will reluctantly buy stocks as there is no other game in town. This may bear the guise of “risk appetite” though it is more likely the case of indifference.
Now if the Fed can just get this to translate to the housing market, they might be on to something. But this is a tough haul, and declining confidence figures may make this a near impossibility. In the meantime, if inflation rears its ugly head then we could be in for a major stagflationary environment.