Forex Blog

November 17, 2011

Forex Market Outlook 11/17/11

Filed under: Forex News — Tags: , , , , , , , , , , — admin @ 6:59 am

All eyes continue to focus on Europe and the rising yield situation as it unfolds and pushes the cost to finance debt to record levels.  Italy and Spain have seen record yields as of late, and now the attention is starting to turn toward France, the EU’s second largest economy.  Spain also downgraded their GDP outlook.

This has prompted a bit of a battle between France and Germany with the former wanting a much greater participation from the ECB in this whole debt debacle.  The idea is that the ECB would become the “buyer of last resort” which theoretically should stabilize the market and allow yields to come down.  This action would be similar to the “bazooka” that the US Fed claimed to be ready to use, essentially scaring off the potential bond vigilantes.

However the EU situation is different and because they have let it drag on for so long the credibility of such an action would be in question.   And this is where the ECB in general runs into problems.  Even if they said that they would be the buyer of last resort, the market would most assuredly test that resolve and it is likely that a worse situation would unfold even if they did follow through with it.  To say that this is not a good situation is an understatement.

Italy and Greece though look prepared to institute the austerity measures they must undertake, as Papademus in Greece has received initial support.  In Italy, PM Monti has also declared himself the Finance Minister, thereby eliminating a potential conflict.  So its Monti or bust!

On the data front, the most important numbers have come from the UK.  Consumer confidence figures came in way lower than expected with a reading of 36 vs. and expectation of 43 which itself was lower than last month’s 46.  But yet the retail sales figures came in gangbusters showing a gain of .9% vs. an expectation of a decline of .2%. 

Perhaps this disconnect can be explained by the fears that are instilled by the government despite the decent economic data that is released.  The government keeps harping on how bad the economy is to justify their easy money position and explain 5% inflation, but I think the economic data tells a different story.   Right now, the UK is doing exactly what should be done around the globe by reducing government spending.  The inevitable dip in GDP due to that action should be welcomed and not feared.  Are you listening, Bernanke?

Here in the US, the data was largely positive with initial jobless claims coming in at 388K vs. the expected 395K.  Building permits also rose 10.9% vs. an expected 2.4% with the expected 603K exceeded by the reported 653K.  Housing starts also came in better than expected, with 628K reported vs. the 610 K expected.  Later this morning the Philly Fed Index will be released and there will be some Fedspeak from one of the Fed minions.

So the number here in the US while not great are improving, and it will be interesting to see if Bernanke can justify further Fed monetary easing with the improving data.  Obviously the risk in the EU could cause a liquidity dry-up so he may have to resort to that line of reasoning.

Nevertheless the markets are in slight risk-aversion mode, having improved some since the data releases earlier this morning.  Yesterday’s move higher in oil to $103 is being explained as the un-wind of crack-spread trades, although I find the timing of the move curious with yesterday’s release of CPI data.

With oil prices above $100 it will be much harder for Bernanke to mask the true inflation we see in the economy unless housing prices continue to tank further.  My general feeling is that the only thing holding back the markets right now is the Euro debt crisis and we would be seeing some massive inflation (in everything but housing) if they truly solved the problem.

But for now nothing appears to be close to light at the end of the tunnel so I prefer to keep my trades to the short-term and take advantage of the volatility, rather than trying to avoid it.

September 9, 2011

Week in Review September 4-9

Filed under: OANDA News — Tags: , , , , , , , , , , , , , , — admin @ 10:30 am

All policy makers have been reading from the same dovish script this week. The general message from central banks is to turn more ‘cautious and neutral’ given the rapid slowing and stagnation evident in key macro indicators. That was the easy part for investors to contend with. The week is ending on a sour note with the market, ahead of the G7, is spooked by default provisioning talk. There is suggestion that the German government is said to be preparing plans to shield its banks in the case that the Greek’s default (denied obviously) has investors grabbing ‘safer-haven’ assets.

Below are some of the highlights of the busy week:


EUROPE

  • SNB sets a floor for EURCHF at 1.20 and will “no longer tolerate” a EURCHF exchange rate below 1.20. The statement indicated that policy makers are prepared to buy foreign currency in unlimited quantities and noted that even at a rate of 1.20, the CHF is still high and should continue to weaken over time.
  • News flow remains generally negative for the EUR. German orders fell -2.8%, m/m- showing further signs of the economy slowing, putting pressure on the peripheries as their fiscal consolidation ability becomes more constrained.
  • The Greek Finance Minister promised a faster implementation of the privatization program and structural reforms-trying to repair relations with Troika.
  • Italian government expects austerity measures will be broadened to include VAT increases and a tax on higher earners, helping keep on track their promised targets despite cyclical slowing.
  • The Germany Constitutional Court rejected challenges to the rescue packages for Greece and other peripheral borrowers and did not introduce any hurdles for the approval of EFSF enhancements. The court also ruled that future aid and guarantees would need to be approved by the budget committee of the lower house.
  • German industrial production rose +4%, m/m, in July. It was broad based and above expectations of a modest +0.5% gain. Note: the data contrasts the deteriorations in manufacturing PMI and Ifo of late.
  • UK, industrial production fell -0.2%, m/m, in July, signaling a weak start to 3rd Q GDP.
  • Norway’s IP contracted for the second consecutive month by -1.5%. Norges Bank Governor Olsen commented on currency strength stating that ‘a krone that is too strong can over time result in inflation that is too low and growth that is too weak’.
  • Chicago Fed President Charles Evans (a voter) commented that the Fed should consider adding a very significant amount of policy accommodation and ignore the 2% ceiling on inflation.
  • BoE and ECB as expected kept rates on hold at +0.5% and +1.5% respectively.
  • Trichet:Euro-zone’s economy will grow more slowly than previously expected and stated that the region faces ‘intensified downside risks’. Monetary policy is still ‘accommodative’,
  • MPC also left its asset purchase facility on hold at +200b.
  • President Obama announces bigger-than-expected $447b stimulus plan
  • Greece pushes Private Sector involvement (PSI) announcement back through end of September.
  • Industrial production in France and Sweden beat expectations in July, rising+1.5% and +2.8%, m/m, respectively. This is on the back of a rebound in auto production post-Japanese supply disruptions.
  • Jeurgen Stark resigns from the executive board of the ECB-rumors of being a reluctant advocate of the “Securities Markets Program” (SMP).
  • G7 finance ministers meet for two-day summit

Americas

  • US ISM non-manufacturing PMI defied expectations and strengthened last month (53.3 vs. 52.7). The underlying respondents comments were ‘mixed’.
  • Fed’s Beige Book said the economy grew at a slower pace in some regions of the country as consumers limited their spending and factories curbed production.
  • BoC, as expected, kept rates on hold at +1%. The expected ‘dovish’ tone was applied with Governor Carney sticking to his script laid out in August.
  • US labor data continues to offer up further signs of weakness with jobless claims rising last week by +2k to a seasonally adjusted +414k.
  • US Trade deficit in July reported its biggest drop in nearly three years (-$44.8b vs. -$51.5b, down-13%) as exports surged to a record high and retreating oil prices cut into imports.
  • OECD expects the Canadian economy will avoid slipping into another recession and recover from the second quarter contraction to lead expansion among G7 in the fourth quarter.
  • Canada lost -5.5k jobs in August, full time +25.7k, part time -31.2k and the unemployment rate edged up to +7.3%.
  • President Obama announces bigger-than-expected $447b stimulus plan.

ASIA

  • AUD jobs adverts were a weak -0.6%, m/m, in August which follows the soft -0.7% print in July and suggests another weak employment reading for August.
  • HSBC services PMI fell sharply to 50.6 in August from 53.5 in July. This is the lowest print this year and suggests that the credit tightening measures that Chinese policy makers have imposed are starting to slow the service sector as well.
  • As expected, the RBA kept rates on hold at +4.75%. Market pricing for rate cuts over the next 12-months is unchanged and around +129bp. Policy makers removed the comment that it is appropriate for monetary policy to ‘exert a degree of restraint’. Remains concerned about the medium-term outlook for inflation, but, expect softer global and domestic growth to contain inflation.
  • AUD current account deficit narrowed to $-7.4b in 2nd Q with net exports surprising to the downside.
  • AUD Housing finance numbers were up +1% in August boosted by an increase in investment lending of +1.9%.
  • BoJ left policy unchanged and no changes to its asset purchase program. With the SNB capping its currency expect the JPY to benefit. BoJ continues its wait and see approach.
  • AUD GDP rose a stronger than expected +1.2%, q/q, in 2nd Q , driven by robust consumer spending and strong exports. Governor Stevens reiterated that policy rates are likely on hold and did not point to policy easing anytime soon.
  • Asian central banks BMN, BoK, BI and BSP keep rates on hold
  • AUD Employment fell -9.7k last month, far below the consensus forecast for a +10k gain. The decline was due in part to a -12.6k fall in full-time employment, while part-time employment rose +2.9k. This has now pushed the 12-month rolling jobs created figure to +140k from the peak of +400k one year-ago.
  • Reports from EU Chamber of Commerce in China President stating that the CNY will be fully convertible by 2015

July 19, 2011

Solutions In Sight?

Filed under: Forex News — Tags: , , , , , , , , , , , , , — admin @ 7:31 am

This morning markets are rallying as the Euro zone moves one step closer toward a solution to the debt crisis that has been plaguing them and the global markets in general. The Greek Finance Minister came out and said that an agreement on debt is “attainable” and the ECB seems ready to deal as well.

News in the US today has the Republicans largely going through the political motions of introducing a bill on the debt ceiling debate that will be vetoed by the President if it passes the House, but rumors of a “secret meeting” taking place have raised hopes that a compromise can be reached.

The global markets are in need of some sort of stability as these crises have left Central banks around the globe in limbo as they need to allow these situations to play out before they can potentially raise interest rates to cool off their own expanding economies. At least that’s the thought in Australia and Canada as the release of the minutes from the RBA rate policy meeting and the BOC interest rate decision confirm.

Rounding out the morning are US Housing Starts and Building Permits figures which are likely to beat expectations as the bar has been lowered so much after last month’s dismal reports. So the markets are in risk-taking mode this morning, with global stocks higher, as well as oil and gold.

In the forex market:

Aussie (AUD): The Aussie is mostly higher on risk appetite as the minutes from the RBA rate policy meeting confirmed that the RBA was in “wait and see” mode with regard to the Euro debt and US debt ceiling crises. Inflation is a mild concern but does not outweigh the overall risk to global economic stability.

Kiwi (NZD): The Kiwi is also higher this morning on risk appetite and the carry-over effects of the CPI data that was reported earlier this week. The RBNZ may want to “normalize” rate policy to slow down inflation.

Loonie (CAD): The Loonie is also higher this morning as oil is trading higher despite the fact that the market expects the BOC to leave interest rates unchanged this morning at 1%. The reasoning behind this is similar to that of the RBA, but the market is expecting at least 2 quarter point rate hikes before the end of the year, the first of which could come at the September meeting. (Click chart to enlarge)

usdcad0719.JPG

Euro (EUR): The Euro is also trading up despite the weaker than expected ZEW economic survey figures that were reported earlier this morning. The big news is that Euro zone ministers are moving closer to finding a solution to the debt crisis, as the ECB has indicated it may be more “flexible”. Yields on a Spanish bond offering soared from just 1 month ago. (Click chart to enlarge)

eurusd0719.JPG

Pound (GBP): With no news on the docket, the Pound is drifting higher ahead of tomorrow’s release of the BOE rate policy meeting minutes.

Swissie (CHF): The Swissie is lower across the board as demand for safe-havens has decreased due to increased risk appetite. Gold is also trading slightly lower, though still above $1600.

Dollar (USD): The Dollar Index is falling this morning after much better than expected Housing Starts and Building Permits figures showed that the housing market may not be dead just yet. Improving economic data may mitigate fears of QE3, but we’re not out of the woods yet.

Yen (JPY): The Yen is mostly lower on risk themes and department store sales came in better than expected, showing signs that domestic demand may be improving as a result of the devastating natural disasters.

It’s not over until it’s over, as the saying goes, and these words couldn’t ring more true with regard to the Euro debt crisis and the US debt ceiling debate. While markets may believe that solutions are near, risk still abounds.

Meanwhile, just to update, the BOC did indeed leave rates unchanged, but the hawkish tone could mean a rate hike at September’s meeting.

Until that time, watch the economic data to see signs of economic improvement globally and whether or not Central bankers will be able to address their own domestic economies.

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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July 6, 2011

Is Now The Time To Raise Rates?

Filed under: Forex News — Tags: , , , , , , , , , , , , — admin @ 7:45 am

That’s the question some are starting to ask now as the market has fully priced in a 25 bp rate hike from the ECB for the Euro zone tomorrow. This comes after yesterday’s downgrade of Portugal’s debt to junk status by Moody’s who are concerned that another bailout may be required.

This also comes after the issues of how to solve the longer-term Greek debt crisis are going to unfold and how a solution is going to be reached without creating a credit event. So far every plan that has been floated has been seen as creating a credit event. Despite these problems, German factory orders came in much better than expected, posting an increase of 12.2% vs. an expectation of 9.5%.

The BOE is also set to decide on interest rates, and though they are expected to remain unchanged, home prices came in last month showing a gain of 1.2% vs. an expected no-change which could add to the inflationary pressure the central bank is ignoring.

A little earlier this morning, China raised interest rates another 25bp in an attempt to slow down their economy, which put immediate pressure on the oil market and risk appetite in general.

Here in the US, job cuts figures increased, meaning there were more plans to fire rather than hire, and Friday’s NFP report will show whether or not there is any hope on the employment front. Reduced numbers are likely to mean that the Fed will maintain current easy monetary policy. ISM Services figures round out the morning.

In the forex market:

Aussie (AUD): The Aussie is mostly lower after the Chinese rate hike and general risk aversion in the market after the Portuguese debt downgrade. Australia’s employment reports are due out tomorrow and dovish comments from the RBA the other day could further pressure the Aussie lower. (Click chart to enlarge)

audusd0706.JPG

Kiwi (NZD): The NZ GDP report that was supposed to be out has been postponed and at this point I don’t have any further information about when it will be forthcoming. So the Kiwi is lower on risk themes today.

Loonie (CAD): The Loonie is also lower as oil prices have pulled back and later this morning Canada will release its building permits figures which are expected to show a gain of 5% after last month’s dismal decline in excess of 20%.

Euro (EUR): The Euro is mostly lower after the Portuguese downgrade despite better than expected German factory orders and ahead of the ECB rate decision tomorrow. Should the ECB decide to not raise rates, then there could be a big sell-off. (Click chart to enlarge)

eurusd0706.JPG

Pound (GBP): The Pound is also lower this morning ahead of tomorrow’s BOE rate decision despite higher home prices as the market is convinced that the BOE will be on hold for some time when it comes to rate hikes. As government austerity continues to add pressure to a declining economy, inflationary fears may be the only bullet left.

Swissie (CHF): The Swissie is mostly higher on risk aversion ahead of tomorrow’s CPI data and Friday’s employment report. Inflation is expected to have declined last month, which could mean that the SNB won’t have to act on rates anytime soon.

Dollar (USD): The Dollar is higher this morning on risk aversion despite the jobs cuts report which is expected to show an increase. The important figure to watch is Friday’s NFP, though the business appears to be unconvinced that the climate is getting better. The debt ceiling debate could help resolve some of these issues if a sensible compromise is reached.

Yen (JPY): The Yen is stronger across the board as carry trades are un-wound because of risk aversion.

The mandate at the ECB is not a dual mandate like it is here in the US. The sole mission of the ECB is to maintain price stability through interest rate policy. This means it needs to keep inflation in check. So they have to look at the strongest economies in the region with regard to how prices are affecting economic growth.

So even though many countries are going through painful austerity measures, it is probably a good thing that prices are not rising as the added costs would affect these countries more directly.

So why is it that the US government, particularly the Fed, so intent on causing inflation here through low interest rates? The answer is the housing market, the health of US banks, and our debt obligations abroad. If the Fed can sucker enough people into buying things now for fear that prices will be going much higher in the future, then they can essentially manufacture economic activity.

This unfortunately is not working, as the banks are not playing along and lending money as they fear further declines in prices due to reduced economic activity and potentially higher interest rates that our creditors may demand.

It is all too apparent that we are heading for what the Fed is trying to avoid, and as interest rates get raised in other regions around the globe, that’s where the money is going to flow. The history books and economic textbooks were written when the US was the only game in town. But that no longer is the case.

So put your money in places where it will work for you by investing in the forex market!

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!

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June 22, 2011

EURO Buyer Beware

Filed under: OANDA News — Tags: , , , , , , , , , , , — admin @ 4:17 am

First hurdle completed. Now the market waits for the next Greek obstacle-the Greek government parliamentary vote on crucial austerity measures next week. The Socialists need to ‘ram’ through some Eur28b worth of stringent measures before receiving a Eur12b lifeline from the EU.

The peoples reaction, Greek citizens are emptying saving accounts and buying gold as they brace themselves for a sovereign default and a run on the banks. The populous continue to discount the Socialist party pledge of ‘save the country’. As longs as the Capital markets believe that Greece will pull through, the EUR will not plummet. If the situation gets so bad that the survival is at stake thats a different story.

Mind you, the IMF is diverting investors attention towards Spain this morning, insisting that they must step up efforts to overhaul their Economy, ‘the repair of the economy is incomplete and risks are considerable’.

The market now waits for Ben’s communique this afternoon. Will he hint towards a QE3 type stimulus or whatever it will be called one day? The market doubts it and expects his rhetoric to put some pressure on the dollar.

The US$ is a stronger in the O/N trading session. Currently, it is higher against 11 of the 16 most actively traded currencies in a ‘whippy’ session.

Forex heatmap

Not a disaster and not unexpected, US sales of previously occupied homes fell in May to its lowest level in six-months. Sales decreased -3.8% to a seasonally adjusted annual rate of +4.81m, the weakest showing since November yesterday. The median sales price was +$166.5k, down -4.6%, y/y. Some good news was the inventory of existing owned houses listed for sale. It fell slightly to +3.72m last month, representing a +9.3 month supply (down from +9.5 months). It seems that higher incomes and job growth is the only solution capable of eating through such large inventory levels. Proof of the housing market continuing to struggle will only detract further from US economic growth. The market has also to absorb the +1.8m distressed properties that continue to weigh down home values.

The dollar is higher against the EUR -0.12%, GBP -0.58%, CHF -0.08% and lower against JPY +0.03%. The commodity currencies are weaker this morning, CAD -0.14% and AUD -0.01%.

With the market expecting a ‘yes’ confidence vote in Greece has allowed investors to strap on risk with the loonie one of the biggest gainers yesterday. Amid global equities and commodities rallying has also aided the currency, pushing it close to its weekly highs versus its largest trading partner. Even the disappointing retail sales data was unable to prevent the loonies’ flight. Retail sales rose +0.3% in April to a seasonally adjusted C$37.4b after a revised decline of -0.1% in March.

Previously, the loonie had slipped against its US counterpart, shredding all technical levels, weakening to its lowest level against the buck in three-months as renewed fears that Greece’s debt problems were out of control spurred a flight to safety. The CAD’s health is heavily linked to its southern economy because of the close trading relationship between the two countries. Yesterday’s intraday volatility moved on fumes, with most market participants happy to wait for the Greek vote.

On the crosses the currency has performed relatively well, boosted by this month’s employment numbers. Expect the Canadian dollar to be subjected to the pull of either risk or risk aversion trading strategies (0.9732).

The Aussie remains on the soft side against most of its trading partners on prospects that Greece will struggle to pass austerity measures next week to avoid a default, damping demand for growth-sensitive currencies. Previously, it was the RBA’s board minutes for June reaffirming a noncommittal Central Bank that first applied the pressure. The market pricing for rate hikes over the next year has fallen 7bp to-6bp.

Governor Stevens and company cited growing concerns in Europe, downside surprises in US data and deterioration in non-mining related industries as giving the board enough reason to remain on hold until further notice. The minutes were also less explicit than RBA Governor Stevens’ speech last week on emphasizing upcoming data like the CPI report. The market is pricing a no hike in August unless inflation and employment surprised on the upside and the situation in Greece clears up sufficiently for a powerful rebound in risk appetite. Global data needs to improve before we can embrace any rate hike policy thinking.

The market is waiting for Bernanke’s communique before traders commit themselves to new strategies (1.0595).

Crude is lower in the O/N session ($93.82 -35c). Oil prices yesterday slumped to a four-month low on the back of weaker economic outlook and a European debt crisis will eventually curb fuel consumption. Analyst’s note, that from its peak this year, crude is off +20%. The technicals see strong support only appearing at around $87.

Prices are not been influenced by bearish weekly inventory data, but, rather by the negative economic news. With NY and Philly manufacturing contracting and European debt crisis deepening is expected to reduce economic growth and eventually fuel demand.

Last week’s EIA report showed that oil inventories fell -3.41m barrels to +365.6m. Stockpiles at Cushing were down -1.14m barrels at +37.76m (NYMEX delivery point). On the flip-side, gas stocks rose +573m barrels to +215.07m, below market expectations of a +1m barrel gain. A market surprise was distillates (heating oil and diesel) posting a dip of-105k barrels to +140.82m (-5.2%). The refinery utilization rate fell -1.1% to +86.1% of capacity, compared with analysts’ forecasts for a slight increase of +0.3%.

Big picture, the market believes that the US has ample crude stocks, allowing WTI prices to remain in check, while the Brent market continues to price in lost production of preferred sweet crude from Libya. Economic headlines are more important to the market right now than inventory levels.

Gold has again rallied as a weaker dollar and concern about Europe’s debt crisis spur demand for an alternative investment. The commodity ended last week better supported as currency volatility boosted demand for the precious metal as an alternative investment. Last week, the metal dropped -0.3% and this after falling -0.9% the previous week. Year-to-date, the commodity has climbed +7.3%.

Big picture, the yellow metal remains in demand on speculation that borrowing costs in the US will remain low after economic data signaled that the recovery may be faltering and on the back of Bernanke’s comments that further stimulus is required. The Euro-carnage will continue to support gold buying.

Support is also coming from the physical gold markets, especially Asia. Their demand for the commodity currently tops the last two-year similar period appetite. Last month alone, India’s demand grew +22%, m/m.

Strong buying recommendations from Goldman and Morgan Stanley have also been good enough reason to drag the commodity higher. The yellow metal is being used as a store-of-value and trades like a currency.

The metals bull-run is far from over with speculators continuing to look to buy commodities on these pullbacks ($1,547 +$1.30c). With the potentially dollar creeping higher, there may be better levels to own the commodity.

The Nikkei closed at 9,629 up+169. The DAX index in Europe was at 7,293 up+9; the FTSE (UK) currently is 5,771 down-4. The early call for the open of key US indices is lower. The US 10-year backed up 2bp yesterday (2.97%) and is little changed in the O/N session.

With a positive Greek confidence vote who would want to apply risk adverse trading strategies? Very few it seems as treasuries remain under pressure ahead of the FOMC meeting today. Market participants do not believe that the US economy is weak enough to justify yields that touched yearly lows last week and are happily steepening the US curve.

Policy makers are expected to leave the accommodative language unchanged and is not expected to do a new round of debt purchases under its so-called quantitative easing program. Bernanke’s post meeting communiqué this afternoon will enlighten the market of policy makers intentions.

The reality, record monetary stimulus is still needed to support US economic recovery. With the Fed expected to remain on hold for a considerable time is creating a new paradigm of longer term lower interest rates.

May 19, 2011

Japanese Recession!

Filed under: Forex News — Tags: , , , , , , , , , , , — admin @ 6:41 am

Last night, Japan reported GDP figures that came in worse than expected, showing a quarterly decline of .9% vs. an expectation of a .5% decline, pushing the YoY figure to a negative 3.7% vs. the expectation of a negative 1.9%. By definition, this puts Japan in recession as the effects of the natural disaster there added insult to injury.

However, the rebuilding that will take place as a result of the disaster may help add to GDP in the coming quarters and Japan has become accustomed to tepid economic growth over the last 20 years so the market reaction has been muted so far.

Speaking of GDP, I mentioned yesterday that the BOE minutes showed that the Central bank didn’t want to raise rates with declining GDP figures, but if those declines are the result of the lack of government spending (one of 4 GDP components) then that should be seen as a good thing and should have little affect on monetary policy.

The reason I say this is because UK retail sales figures came in better than expected, showing signs of life in the UK consumer.

Yesterday’s release of the FOMC meeting minutes showed that the Fed is in no hurry to exit QE2 so the market took that as a sign that all systems are go and stocks and commodities pushed higher to end the day. Oil is back to over $100 and gold is hovering around $1500.

Now the supply/demand debate is starting to enter the commodity space, as adverse weather and flooding are reducing supplies of commodities thereby driving prices higher, but this belies the impact of US monetary policy.

Later this morning we will get existing home sales as well as initial jobless claims which are expected to be back in the low 400s. At this point, economic prospects are beginning to look weaker and the effect of QE2 has created higher food and energy costs and raised stock prices but little else. Thanks, Bubble Ben! I’d ask where Obama is in all of this but I think its probably better that he is not involved.

In the forex market:

Aussie (AUD): The Aussie is mostly higher as increased risk appetite is driving markets early, and consumer inflation expectations came in lower than last month’s reading. An important point to remember is that it is the expectation of inflation, and not so much the figure itself, that is the driver of consumer behavior.

Kiwi (NZD): The Kiwi is also higher as budget projections show that the NZ economy will return to surplus in 4 years after the costs of the earthquake are factored in, as government spending cuts attempt to reign in debt levels.

Loonie (CAD): The Loonie is trading higher as oil prices are back to over $100 and the release of the BOC review will show what the Central bank thinks of the state of the economy. Tomorrow’s CPI data release and retail sales figures may provide further clarity on the inflation situation. (Click chart to enlarge)

usdcad0519.JPG

Euro (EUR): The Euro is taking a break from the action today as DSK has officially resigned as Head of the IMF. Now the search for a new chief begins, and in the meantime ECB honcho Trichet will be speaking on the state of the Euro zone economy. Expect the Euro to trade on anti-Dollar sentiment.

Pound (GBP): The Pound is mostly higher as retail sales figures came in better than expected. Sales ex auto fuel came in showing an increase of 2.7% vs. an expectation of 2.2%. If the UK consumer is still breathing in the face of the rampant inflation they are experiencing and not just spending on necessities, then declining GDP due to government austerity should be viewed as a good thing and not used as an excuse to keep rates low for a long time.

Dollar (USD): Well it looks like the Fed is not willing to let the US economy attempt to stand on its own two feet just yet. In no hurry to exit QE2, today’s existing home sales figures will shed light on whether or not the true problem in the US—the housing market—is starting to recover. Initial jobless claims are going to be back in the 400s, and I’m still uncertain how the Fed is supposed to help employment anyway.

Yen (JPY): The Yen is weaker across the board after GDP figures came in worse than expected showing that Japan is indeed in recession. While this not a surprise and therefore the market reaction subdued, I’m not quite certain what it is going to take for Japan to be able to turn this situation around, outside of further monetary easing. The Japanese rate policy decision is due out tomorrow. (Click chart to enlarge)

usdjpy0519.JPG

If a global economic slowdown is due to governments reduced spending, then I am all for it! However, keeping rates low and encouraging higher prices in this type of economic climate doesn’t help the average person.

While the supply/demand debate does have some merit when it comes to commodity prices, I am still convinced that it is Fed policy that is pushing prices higher. I believe that demand is fairly constant whether oil is at $50, $75, or $100.

China is paying with what it considers “monopoly money”, as the massive Dollar reserves they have accumulated mean they will buy at any price. It is the average consumer, however that cannot compete in that environment so higher prices effect them more.

In addition, when true supply issues arise, the fact that prices are already high leaves little room for error. It’s like going to an auction and bidding on something that you really want, but realizing that a billionaire wants it as well. You may as well give up on the spot, as there is no way you are going to win.

Unfortunately, this is the economic story unfolding today.

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!

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April 20, 2011

Reasons for the upsurge in Risk Appetite

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 10:14 am

Risk appetite has been quick to rebound, hot on the heels of rising global equities, buoyed by stronger earnings and Euro data. A number of reasons have emerged in the O/N session that is fueling this appetite.

First, the charge is being led by the antipodeans, mostly on the back of an article that suggests that the Aussie government is considering tax breaks on foreign sovereign investments in Australia, mind you the highest G10 yields also look appealing.

Second, Finnish Prime Minister said that an EFSF package for Portugal is necessary and that Finland should not ‘create problems but help solve them’, however, the program may require some changes to secure approval. In translation, Finland will not be responsible for the failure of the EU providing assistance to Portugal.

Finally, a strong Iberian bond sale, despite higher rates, should help reinforce the perception that Spain is decoupling from the weaker peripheral economies, and lower Euro-zone systemic risk.

Optically, all the reason are just, fundamentally, global economies have a ways to go to sustain this somewhat euphoric nature.

The US$ is weaker in the O/N trading session. Currently, it is lower against 13 of the 16 most actively traded currencies in a ‘whippy’ session.

Forex heatmap

US data yesterday continues to highlight the housing woes that the construction industry faces. March’s headline housing starts (+7.2% or 0.55m) bounced back from February’s very low levels (-18.5%), but the details suggests the US housing sector remains very weak. Building permits, a gauge of future construction, climbed +11.2%, m/m, to an annual rate of +594k. However, year-over-year, overall new home construction was down -13.4%. The housing market has continued to struggle even as other categories of the US economy begin to improve.

Construction has slowed due to weak demand and potential buyers having trouble getting credit. With falling house prices, investors prefer to choose foreclosed properties and other previously owned homes rather than the more expensive new homes.

The USD is lower against the EUR +1.06%, GBP +0.22%, CHF +0.75% and higher against JPY -0.20%. The commodity currencies are stronger this morning, CAD +0.40% and AUD +1.19%.

Canadian inflation data yesterday beat all analysts expectations, even the BoC’s target set out just last week in its monetary policy report, marking the biggest monthly headline gain in 20-years (+1.1% vs. +0.3%) and the largest annual advance in nearly three-years (+3.3%). This after one week when the BoC Governor dampened expectations of a rate hike with a dovish slant on the currency’s value (+4% outright gain this year) creating ‘headwinds’. The core also advanced to +0.7% vs. +0.2%, m/m, and up +1.7%, y/y.

How much of a dampener is the loonie really having on prices? Governor Carney gets to see one more CPI ahead of the May meeting and its then we will get to see if yesterday’s release was a ‘one-off’ print. It may be too soon for policy makers to shift monetary policy by that meeting. The Governor will point to ‘extenuating outside risks’ and we should expect him to remain ‘extraordinarily cautious’.

Other data released showed that Canadian leading index rose faster than expected last month (+0.8% vs. +0.5%), it’s sixth consecutive gain, led by increases in the stock market (+2.2%) and housing index (+2.2%).

After the reports the loonie has advanced to its 2007 year highs outright, and has technically run into resistance profit taking ahead of 0.9500 option protected level. Investors are expected to covet the loonie as an alternative to the EUR and the dollar on pull backs (0.9522).

The AUD rose to a record in the O/N session after stronger European data is adding to signs that the global recovery is gathering momentum. On the domestic data front, antipodeans witnessed a stronger terms of trade, where export prices rose +5.2%, q/q, in the first quarter, while import prices rose +1.4%, q/q. Analysts note that these gains largely reversed falls in fourth quarter and pushed up Australia’s terms of trade to close to their 2008 and 2010 highs. This will give the RBA food for thought and another reason to raise interest rates (+4.75%).

The RBA seem comfortable with interest rates at the moment, as highlighted in the released minutes this week. The Governor viewed his policy setting as appropriate, saying they will ‘look through’ higher inflation and slower growth stemming from natural disasters. ‘Headline inflation was likely to be quite high in the March quarter, while GDP would be held down, to a greater extent than earlier assumed’. It’s expected that the RBA will want to see more data that’s not so distorted by weather, which may take some time to come through, before moving on rates again.

Australian yields are still the highest in the G10 and do look attractive. The expected mix of trade surpluses and rising capital inflows should provide support for the currency on any pullbacks (1.0655).

Crude is higher in the O/N session ($109.75 +$1.47c). Oil prices remain supported despite concerns that price close to three-year highs is pressuring the global economy and may cause fuel demand to falter. Saudi Arabia stated that because of weak demand had forced it to reduce its crude output. Saudi’s Oil Minister al-Naimi said that the global ‘market is oversupplied’ with crude, forcing them to cut output last month by more than +800k barrels a day. OPEC said the group is unlikely to alter output targets when it meets in June as there is ‘no shortage of oil anywhere in the world’ even after supply curtailments in Libya.

Last week the IEA said it maintains its 2011 global oil demand growth forecast but noted that the high oil prices are beginning to dent demand growth based on its preliminary data for January and February. Both the IEA and IMF have said that prices above the $100 watermark are beginning to hurt the global economy. Even Goldman is recommending to investors to take profit on the one directional commodity trades. Market remains a better seller on rallies.

Gold has raced to another record, breaking the psychological $1,500 mark, on speculation that the sovereign-debt crisis in Europe will worsen and after S&P revised its US credit outlook to negative. Investors are looking to gold as the ultimate currency. Fundamentally, prices are supported on speculation that record-low interest rates will encourage demand for an inflation hedge amid expectations that the Fed will maintain its accommodative monetary policy in the medium term. Gold, as a non-yielding asset, has a higher opportunity cost when interest rates rise.

The precious metal has become the currency of choice despite Goldman recommending last week that if one owned commodities, the risks outweigh any further potential gain. The metal has jumped +29% in the past year.

The metals bull-run is far from over with investors continuing to look to buy the commodity on dips. Any price pullbacks are viewed as favorable opportunities for investors to continue to diversify into safe-haven assets, especially metal being used as a store-of-value ($1,504 +$9.40c).

The Nikkei closed at 9,606 up +165. The DAX index in Europe was at 7,178 up+139; the FTSE (UK) currently is 6,004 up+107. The early call for the open of key US indices is higher. The US 10-year eased 2bp yesterday (3.38%) and is little changed in the O/N session.

The benchmark ten-year note yield was little changed yesterday, hovering close to their three-week lows, as European periphery debt issues trumped a cut in the US credit rating outlook by S&P earlier this week.

There are a few other factors tentatively supporting the FI market, first, the gain in US housing starts (+7.2%) failing to make up for ground lost the previous month (-18.2) had investors buying on dips, second, the Japanese finance minister, despite the ratings cut, continues to see value in US securities and finally, the Fed’s is buying a total of $11.5b’s worth of US product this week, which will also weigh on yields.

April 19, 2011

US Housing Starts Jump 7.2%

Filed under: OANDA News — Tags: , , , , , , , , , , — admin @ 1:14 pm

U.S. housing starts rose to a seasonally-adjusted rate of 7.2 percent in March to an annual rate of 549,000 new units. Still, the bounce back in residential construction does not signal recovery as an over- supply of homes continues to discourage builders from embarking on new projects.

“It’s mainly a rebound from previous month’s decline. We still think the housing market is very weak, and the high inventory is still depressing sales and prices,” said Sireen Harajli, an economist at Credit Agricole Corporate & Investment Bank in New York.

“We hope to see some signs of improvement toward the end of the year, but we won’t see substantial improvement until 2012.”

Source: Reuters

March 30, 2011

Hawks support dollar against Yen and Swiss

Filed under: OANDA News — Tags: , , , , , , , — admin @ 10:22 am

Markets seem oblivious to any geopolitical data and event risk. Even another Portuguese and Greek downgrade, not far from junk status, has done little for or against the EUR. It just puts further pressure on their bond yields, making it more expensive for Portugal to fund, proof that markets remains resilient or something else at play?

The more hawkish rhetoric we are exposed to the higher US yields want to go. It seems to be Fed Bullard and Fisher’s new ‘vocation’, spread the hawkish gospel. This pick up is supporting the dollar especially against the CHF and JPY and not so much so versus the EUR. This morning’s ADP employment data could set the stage for Fridays’s NFP. The consensus forecast is for +210k this month. Close to expectation and we are back to trading these contained ranges. The market requires a surprise to break the monotony. A strong NFP this Friday will be the best of excuses to push US yields much higher.

The US$ is stronger in the O/N trading session. Currently, it is higher against 12 of the 16 most actively traded currencies in a somewhat ‘subdued’ session.

Forex heatmap

The US housing market recession is not over yet. January’s reading for the 20-city S&P/Case-Shiller HPI yesterday (-3.1%, y/y) points to further softening in house prices before the housing sector reaches a bottom. Analysts note that the monthly decline is similar to the two preceding months, but, seasonally adjusted and the loss was the ‘smallest of the seven straight negatives which followed the loss of tax credit support to home buyers’. This data supports the disappointing housing starts and sales reports and provides some confirmation that we are in the midst of a double-dip scenario.

US consumer confidence fell shy of expectations this month (63.4 versus 64.9), entirely because of less confidence in the ‘future’ whereas confidence in the ‘present’ circumstances picked up. This scenario is at odds with market thinking, who expected that currently higher fuel costs, stock market volatility, little job growth and falling house prices would hit the assessment of ‘present’ circumstances. This thinking is leading to lower spending intentions as higher fuel and other charges crowd out discretionary spending.

Digging deeper, the expectation index (next six-month) led the decline, falling sharply to 81.1 from 97.5, the lowest reading in five-months and the first decline in seven. It was not the only category at fault, weakness was widespread. Consumers’ views on business conditions, employment and income deteriorated, as did their buying intentions for major appliances.

Inflation expectations jumped aggressively (6.7% a year from now versus 5.6%) from February. The problem with this indicator is that customers are influenced by what is already happening to ‘highly visible prices’ (food and energy) rather than where inflation is going in the future.

The USD is stronger against the EUR -0.11%, CHF -0.24% and JPY -0.74% and weaker against GBP +0.35%. The commodity currencies are stronger this morning, CAD +0.22% and AUD +0.16%.

The loonie only knows one direction when global risk sentiment increases and commodity prices remain elevated, and that’s higher outright. Despite a Canadian government being toppled last week, the ‘hawkish’ tone from Governor Carney over the weekend about how the elevation in commodity prices generally leads to higher interest rates is giving the loonie its bid tone.

Investors should expect the Federal political uncertainty to have a limited affect on the Canadian dollars strength. The currency will be supported in the long term by its fundamentals, a sound financial system and a strong job environment.

The market continues to focus on the global ‘big picture’. With stronger data from its largest trading partner and global hawkish rhetoric ahead of inflation will in the end benefit the CAD. Its longer term support will continue to come from commodities and increased risk tolerance.

These dollar rallies are providing an opportunity to want to own some of the commodity and growth sensitive currency (0.9715).

The AUD rose to its strongest level since its 1983 float benchmark high (1.0316) in the overnight session, as demand for the Aussie on these pullbacks is being boosted by expected government reports this week likely to signal a strengthening in the domestic economy. The twin theme of inflation and commodity prices continue to support the currency. The AUD had failed on its last attempt at the new record, on speculation that the Fed will end its bond-buying program, raising prospects the supply of dollars will eventually fall.

The currency has been supported by investors pricing out the possibility of a rate cut and pricing in the chance of a rate hike again next month. The probability of a reduction in Australia’s benchmark interest rate on April 5 is 13%, down from as much as 34% last week.

Appetite for growth and commodity sensitive currencies depends on the new found stamina of risk tolerance by investors. Further appreciation depends on investor’s interpretation of global future interest rates (1.0287).

Crude is little changed in the O/N session ($104.54 -0.25c). Crude prices broke the trend and rallied for the first time in four-days in yesterdays session on signs that the US economy is gaining momentum. Fed Bullard indicating that the CBank may need to exit QE2 early and US bourses seeing black has given some positive sentiment to the black stuff. Oil has risen +28% in the past year.

Also aiding prices was the Saudis indicating that they were planning to boost its drilling rigs by as much as 30% to maintain its spare capacity after making more oil available to compensate for shortfalls in Libyan production.

Expect the market to remain skeptical about how soon things could return to normal if NATO and the rebels get the upper-hand in Libya. Damage to the Libyan facilities remains unknown. Libya has seen its oil exports cut off due to the month long rebellion and Western sanctions. Market participants continue to worry about contagion. Recent events will make it unlikely that investors will see a ‘swift normalization’ of crude-oil production in the region.

Today we get the weekly inventory report and the market anticipates a small headline drawdown, unlike last weeks EIA inventories reporting the expected supply increases. Stocks of crude rose +2.1m barrels, right on estimates. Unlike gas, whose stockpiles declined -5.3m barrels versus a market drawdown of only-2m. Distillates (heating oil and diesel) were flat for the week. Analysts had anticipated a decline of -1.5m barrels.

On deeper pull backs the Middle East and North African situation will continue to dominate in the event risk category.

Gold is trading on the back foot again, capping its longest losing streak in three months, on bets that US interest rates are about to move higher as the economy strengthens, eroding the allure of the yellow metal as an alternative investment.

Despite prices gaining 28% in the last year, the commodity is down -0.3% this quarter. The prospects of a sustainable economic recovery will crowd out some of this over subscribed trade. After reaching record highs last week commodities are finding it difficult to create any follow through, apart from silver. However, with so much global uncertainty it’s difficult to find a reason not to own some of the commodity in your portfolio.

The metals bull-run is far from over with investors continuing to look to buy the commodity on dips. These price pullbacks are viewed as favorable opportunities for investors to continue to diversify into safe-haven assets and push for those new record highs.

Geopolitical uncertainties and event risk to date have managed to support higher commodity prices. With the metal being used as a store of value, the asset class is expected to remain better bid on deeper pullbacks ($1,420 up+$3).

The Nikkei closed at 9,708 up +250. The DAX index in Europe was at 7,016 up+82; the FTSE (UK) currently is 5,956 up+24. The early call for the open of key US indices is higher. The US 10-year backed up 4bp yesterday (3.49%) and is little changed in the O/N session.

Treasuries fell as the US government sold $35b of five-year notes at the highest yields in almost a year on concern that the Fed may end debt purchases early as the economy is beginning to shows signs of recovery. Fed President Bullard stating that they may be able to cut about $100b from QE2 program managed to push the curve higher.

Yesterday’s five-year auction was ‘soft’, indicating that investors and dealers are confused in what the Fed is going to do. The issue was 2.79 times subscribed, versus four-auction average of 2.73%. Indirect bidders took 42.4% of the supply, above the 36.6% average and direct bidders took 11.2%. The market will now focus on the last of the week’s auctions, the $29b 7-year issue this afternoon. Will dealers manage to make it a third consecutive soft issue this week?

Investors can expect geopolitical and event to continue to support FI on much deeper pull back.

March 17, 2011

What to expect with Yen G7 intervention

Filed under: OANDA News — Tags: , , , , , , , , , , , , , — admin @ 9:37 am

The immediate effect of the sharp rise in risk aversion has been to push the JPY and the CHF sharply higher. Markets are now focusing on the growing likelihood of intervention. The G7 will hold a conference call to discuss the yen tomorrow.

What can we expect? The minimum, clear authorization from the G7 members to intervene to stop this yen appreciation on the back of repatriation fears. The market can expect joint intervention to have the biggest affect and send the strongest signal to investors. Direct intervention may not create that major reversal higher for the dollar, but, it will provide a floor and possibly reduce volatility in the currency pair.

The US$ is weaker in the O/N trading session. Currently, it is lower against 13 of the 16 most actively traded currencies in a ‘volatile’ session.

Forex heatmap

Weaker fundamental data out of the US yesterday has taken a back seat to Japan and the Middle-Eastern concerns. Investors continue to add to their risk aversion trading positions.

Yesterday’s US housing starts posted a sharp decline (+479k vs. +618k), plummeting -22.5% month-over-month. This is again strong proof that the US housing market will be a drag on this quarters GDP. Homebuilders sentiment remains depressed, influenced by excess supply, rising sales of distressed properties and a US labor market that remains vulnerable.

Digging deeper, single units came in at +375k (-11.8%, m/m), while the print for multi units was +96k (-47%, m/m). Year-over-year, starts have declined -20.8% from last Februarys print.

Certainly not helping the housing sector was building permits maintaining their downward trend last month (-8.2%, m/m), with declines reported right across the whole sub-sector.

Other data revealed a headline surge in US PPI, rising +1.6%, the biggest gain in nearly two-years. Digging deeper, the surprise was the aggressive spike in food prices, up +3.9% (largest month-over month increase in 37-years). The market should expect some pass through effect to CPI. Energy prices were not being left behind, rising a sharp +3.3% and the fifth straight month-over-month gain. I wonder what Ben is thinking of inflation now?

The USD is lower against the EUR +0.55%, GBP +0.24%, CHF +0.62% and JPY +0.75%. The commodity currencies are stronger this morning, CAD +0.14% and AUD +0.05%.

The CAD recent moves are oblivious to stronger domestic fundamentals and that includes yesterdays manufacturing sales surprise. The headline print surged +4.5%, m/m, the most in three-years and again should provide strong positive first quarter GDP results.  Strength was recorded across all subcomponents and especially in the transportation sector. In price-adjusted volume terms, gains came in even stronger, up +5.5%, breaking the no-growth trend that persisted throughout much of 2010.
   
With risk aversion trading strategies dominating and investors heading to the sidelines fundamental and technical analysis tends to be thrown out with the bath water. The loonie has been whipped, like growth sensitive currencies, and is eyeing parity outright as investor’s aggressively unwound higher yielding, commodity growth sensitive currencies, as fear becomes infectious across asset classes with hourly Japanese developments.

Close to parity, CAD buying interest is expected to appear again. Logically, there should be a strong demand for the currency because of its fundamentals, however in this ‘fight or flight’ trading environment, logic is mostly ignored. Expect the depth of the backup to be dictated eventually by cross-action. These dollar rallies provide an opportunity to want to own some of the commodity and growth sensitive currency that is supported by stronger fundamentals and a sound fiscal position (0.9887).

Despite being one of the biggest currency losers earlier this week, falling to its lowest level vs. JPY in four months, the AUD has whipped back in the O/N session, but any further gains are a struggle. The currency remains under pressure on fears that its second largest trading partner, Japan, will have a deepening affect on the Australian economy, forcing the RBA to ease rates.

Investors’ expectations for an RBA rate increase have reversed since the March 11 quake and now factor in a possibility of a cut in the overnight cash rate target (+4.75%). Investors are betting there is a 27% chance that Governor Stevens will cut the cash-rate by-25bp at their April 5 meeting. That is up from 22% on Tuesday.

Earlier this week, the RBA minutes were in line with recent official rhetoric and supports markets view that the RBA is likely to sit back and assess the developments in other markets. However, investors are betting that with circumstances continually changing from Japan, risk aversion trading strategies continue to favor JPY and CHF buying, despite the threat of intervention, and the selling of higher yielding commodity currencies.

By day’s end, its all about what happens at the Fukushima nuclear plant and how the G7 members will attempt to calm the markets (0.9859)

Crude is higher in the O/N session ($98.91 +0.93c). Big picture, oil remains under pressure as Japan’s demand loss continues to outweigh Middle-East tensions despite the commodity settling higher yesterday. Technical analysts believe that the commodity has the potential to print $92 in the short term after registering a 29-month high last week.

The turmoil in Bahrain has been providing the market with enough support to withstand the global equities slump and the growing nuclear concerns in Japan. Also providing some support is an IEA report estimating that the outlook for global oil demand this year is little changed, stating that more time is required to determine the impact of Japans earthquakes.

Prices also got a boost from a smaller-than-expected increase in the weekly EIA report. Crude inventories rose +1.7m barrels last week, less than the +2.1m barrels expected. Gas supplies fared no better, declining -4.2m barrels, vs. expectations of a decline of -1.5m. Stocks of distillates (heating oil and diesel) decreased -2.6m vs. a drawdown of +1.4m barrels.

It’s basic economics, supply and demand, Middle-East potential supply constraints being cancelled out by the worlds third largest economy. Japan has closed 29% of their domestic refining capacity. This has affected about +1.3m barrels of the country’s total of +4.52m barrels per day of capacity. With future consumption questionable, demand from the region is expected to remain soft in the short term.

On deeper pull backs the Bahrain situation will eventually dominate. Saudi troops have entered the country, irritating Iran, and are expected to protect ‘vital installations in Bahrain and maintain stability and security’.

Gold has found some traction. The market believes that the recent price plummet was a ‘tad’ overdone. Over the last week the commodity has fallen just under +4%. The commodity’s bull run is not over, and investors are looking to buy the metal on dips as this asset class has been very much a profitable lemming trade this year. These price pullbacks are viewed as favorable opportunities for investors to continue to diversify into safe-haven assets.

Big picture, commodity prices are being supported by geopolitical factors and inflation threats. Even hawkish global rhetoric has managed to support higher commodity prices. Before last week’s unfortunate events, consumer prices were also boosting the demand for the precious metal as a hedge against global inflation. Recent data reveals that Chinese’s inflation has accelerated the most in six years, and UK consumer prices the most in two years. Even US data is showing that their inflation numbers are edging higher. With the commodity being used as a store of value, the asset class is expected to remain better bid on deep pullbacks. The metal has climbed +26% in the past year ($1,396 +0.80c).

The Nikkei closed at 8,963 down-131. The DAX index in Europe was at 6,565 up+51; the FTSE (UK) currently is 5,623 up+26. The early call for the open of key US indices is higher. The US 10-year eased 6bp yesterday (3.23%) and is little changed in the O/N session.

Ten-year notes are pushing yields to their lowest level in a year as risk aversion trading strategies intensified after last weeks Japanese earthquake. Investors are speculating that Japanese insurers will need to sell the longer dated maturities to pay claims for damage. The BOJ is trying to dispel this thought process.

The BOJ efforts to provide more liquidity and expand an asset-purchase program have thus far failed in halting the sale of global equities by risk avers investors. Even the Fed delayed buying back product yesterday as a plunge in yields at the time of the schedule close of the transaction added to volatility. With this risk aversion momentum, ten-year yields are in danger of breaching 3% in the short term.

Japanese investors are the second-largest foreign holders of US debt and own $882b of US Treasuries. The market is expecting them to be a net seller to finance their immediate operations.

Investors can expect geopolitical and event risk in the Middle-East to continue to support FI gains in spite of stronger economic data.

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