The number of claims for unemployment benefits in the U.S. rose by 9,000 last week to a seasonally-adjusted 408,000 new claims. The forecast called for 400,000 new claims.
Analysts say that the recent credit downgrade, the resulting plunge in stock market prices, and the European debt crisis have all conspired to degrade consumer confidence. A decline in consumer spending can be expected to trigger lay-offs as employers look to trim costs on the expectation of lower revenues.
Source: Reuters
The Aussie is approaching R3 resitance on the 4-hour chart ahead of tomorrow’s release of the minutes from the rate policy meeting. While the RBA has been quick to raise rates to combat inflation, there is sentiment in the market that feels that they may be just as quick to lower.
With the recent sell-off in commodities prices and slowing global economy, the next move for the RBA may be to take rates lower. Looking at the 4-hour chart below, you can see that the Aussie is currently just below R2 resistance and should today turn out to be a risk-taking day with stock higher in the US, then the Aussie could esaily move higher to just below R3.
Also notice on the chart that previously, the 1.055 level acted as support on two separate occasions, which could also mean that now it has become resistance. Combine this with an over-bought stochastic reading and further Aussie appreciation may be difficult in the near-term.
Risk sensitive currencies continue to be pulled in either direction by risk and aversion trading strategies. There seems little conviction in investors’ actions, with some currency moves remaining modest.
Even with a strong Euro retail sales print (+0.9%) and a German factory orders release this morning (+2.8%), price action remains tentative as the EUR extends this morning’s rally. 1.47 option barriers are expected to slow the ascent. However, it’s the dollars demise that is providing most of the momentum even as the EUR enters overbought technical territory. The EUR feels it wants to stall and sputter.
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.
Yesterday, with little data to chew on and a historical trend to uphold, where the first trading sessions after an NFP release tends to be the quietest session for the month, currency moves were modest. The EUR did happen to wobble ever so slightly on the fear of eventual Greek debt restructuring and the prospect of an investor run on other sovereign debt of financially distressed Euro-zone countries. In reality, there are many lingering unanswered questions that should prevent significant upside to the EUR in the short term. Some German officials remain unconvinced about the Greek bailout plan, referring to it as a whitewash solution. The Greek ‘populous’ opposition continues to grow stronger and contagion remains an ongoing concern. Combined these create an immediate opposition for an extended EUR rally.
The dollar is lower against the EUR +0.69%, GBP +0.61%, CHF +0.18% and higher against JPY -0.11%. The commodity currencies are mixed this morning, CAD +0.54% and AUD -0.07%.
Yesterday’s data has done little to alleviate the loonies woes. The currency is trading close to its yearly lows due to its strong trade association and proximity to the US. Canadian building permits plunged yesterday (-21.1%), wiping out nearly all of this years gains and has analysts questioning the strength of the Canadian construction industry. The trend for building permits and housing starts remains in negative territory and certainly does not support a rate hike by Governor Carney next month. However, Canadian Ivey PMI blew all expectations out of the water (69.1 versus 57.8), a very strong print that balances out the more recent subdued indicators such as building permits.
Last week, the BoC kept their key interest rate unchanged (+1%) and said they will raise it ‘eventually’ as the economy recovers. Policy makers indicated that the recovery is ‘proceeding largely as expected’ and that any rate increases would be ‘consistent with achieving the +2% inflation target’. The Canadian bulls who read the BoC’s communiqué as being hawkish should be happy that they are getting better levels to own the currency.
The loonie is being subjected to the pull of either risk or risk aversion trading strategies. Longer term strategists will wait for this Friday’s employment report before committing to longer term trading positions. Most investors continue to look for better levels to own the loonie (0.9770).
The RBA surprised markets earlier this morning with a slightly dovish monetary policy statement after holding rates steady. They kept rate unchanged for a sixth straight meeting as signs of slower growth from the US and China dimmed prospects for an acceleration in domestic employment.
The RBA would ‘assess carefully’ the outlook for inflation at future meetings. Analyst’s note that Governor Stevens in his statement softened the tone of the penultimate paragraph by replacing the concern that ‘over the longer term inflation can be expected to increase’ with a more specific ‘inflation will be close to target over the next 12 months’. To date the RBA has also relied on the currency’s strength to tighten monetary conditions.
The market does not seem too down beaten by the recent data releases, especially after the RBA had signaled recently in the Statement of Monetary Policy that an anticipated fall in the first quarter growth is likely to be temporary and forecasts a strong rebound to +4.25% in the fourth quarter. Traders are betting that there is a 60% chance of a rate hike in the third quarter. Aussie yields are still the highest in the G10 and always look attractive. The expected mix of trade surpluses and rising capital inflows should provide support for the currency on these much deeper pullbacks for the time being (1.0693).
Crude is higher in the O/N session ($99.28 +0.22c). It was no surprise that crude prices would come under further pressure this week after Friday’s disappointing US employment number. The commodity has been extending last week’s decline ahead of tomorrow’s OPEC meeting in Vienna. It’s expected to be a contentious affair. Some analysts believe that if quotas remain on hold it would provide the excuse to add a $3-5 premium to a barrel of crude. The current global data suggests a falloff in economic activity and a decrease in demand, but if this happens OPEC will only have to tighten their supply.
Last week’s EIA release showed that supplies rose +2.88m barrels to +373.8m, the highest level in two-years. Analysts had expected supplies to fall by -1.6m barrels. Continuing the streak, gas inventories increased for a fourth-week, climbing by +2.55m barrels to +212.3m versus an expected gain of +900k barrels. In contrast, distillate stocks (diesel and heating oil) fell-976k barrels to +140.1m, the lowest level in two-years.
Big picture, the oil demand-supply situation is relaxed, and there’s no danger of any shortage. In theory, lower global interest rates should help the commodity which competes with yield-bearing assets for investors’ cash. However, the US driving season has begun and consumers will speak with their wallets. All eyes remain on OPEC’s actions, if any.
Gold remains better bid on speculation that borrowing costs in the US will remain low after economic data signaled that the recovery may be faltering, hurting the dollar and boosting the appeal of precious metals. The weaker dollar sentiment is creating a positive metal scenario. Low rates are going to be dollar negative and gold positive.
Strong buying recommendations from Goldman and Morgan Stanley have also been good enough reason to drag the commodity higher this month. 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 gold on deeper pullbacks ($1,549 +$1.90c).
The Nikkei closed at 9,442 up+63. The DAX index in Europe was at 7,135 up+50; the FTSE (UK) currently is 5,881 up+18. The early call for the open of key US indices is higher. The US 10-year backed up 2bp yesterday (3.02%) and is little changed in the O/N session.
The market is pricing in some concession ahead of this week’s US funding requirements, specifically concentrating on the long end of the curve. US 10’s trading sub +3% has many wondering is Q3 around the corner. Yields seem to want to print new yearly lows daily. The US government will auction $32b of three-year notes today, $21b of 10-year debt tomorrow and $13b of 30-year bonds on Thursday.
The Market should not expect too much of a back up given the recent data and as traders increase speculation that Bernanke and company will hold its target rate for overnight lending at virtually zero into next year. The market will have to wait to get some bad news on inflation before giving up on this bull bond scenario even as we piggyback record low yearly yields.
The euro gained 0.8 percent to $1.423 in New York this morning after German Chancellor Angela Merkel said there would be no debt restructuring for Greece. The comments were intended to calm fears after yesterday’s statement from Eurogroup Chair Jean-Claude Juncker suggesting that a “soft” restructuring could be necessary.
Merkel likely also hoped to ease investor fears that the recent arrest of IMF Managing Director Dominique Strauss-Kahn in New York could derail efforts to deal with the European debt crisis.
Source: Reuters
The Bank of England and the European Central Bank both announced that they would be holding the line on interest rates. In addition to keeping rates at 0.5 percent, the Bank of England also said it would not be expanding its quantitative easing program.
The European Central Bank will maintain the current rate of 1 percent which has been in effect for seventeen straight months. ECB President Trichet will provide a statement later today in which analysts will be looking for clarity on further spending plans and insight into the ECB’s thoughts on the recent appreciation of the euro against a weakening US dollar.
Source: Bloomberg
BBC News
The euro has enjoyed a strong rally so far this summer. It has quietly gained on its early summer low of $11.8, and recently surpassed $1.30. Despite the recent strength of the euro, several investment firms have gone public with predictions that the euro rally is unlikely to last.
BNP Paribas for instance, suggests the euro could end 2010 at $1.08. One school of thought, is the possibility of an upswing in carry trades using the euro to finance the purchase of higher-yielding currencies.
Source: Reuters
A spokesperson for Hungary’s Prime Minister attempted to distance the government from comments made on Friday suggesting that Hungary is in imminent danger of financial collapse. Hungary’s currency – the forint – immediately dropped 6 percent against the euro.
Hungary is currently negotiating an extension of the $25bn (£17bn) rescue bail-out it received from the IMF and the EU in October of 2008. The new government won the recent election on promises of massive tax cuts that appear to be impossible to fulfill while still meeting EU budget requirements.
Source: BBC News
A strong increase in industrial orders together with greater demand for exports, helped push German investor confidence to an index rating of 53 compared to 44.5 in March. This was substantially better than the prediction of 45.1.
“The financial market experts’ positive expectations seem to have been decisively reinforced by the recent increase in exports and stable incoming orders,” an official with the ZEW which conducts the survey noted in a statement released with the results.
Source: The Associated Press
A strong increase in industrial orders together with greater demand for exports, helped push German investor confidence to an index rating of 53 compared to 44.5 in March. This was substantially better than the prediction of 45.1.
“The financial market experts’ positive expectations seem to have been decisively reinforced by the recent increase in exports and stable incoming orders,” an official with the ZEW which conducts the survey noted in a statement released with the results.
Source: The Associated Press
The Office for National Statistics announced this morning that the UK inflation rate for March jumped to 3.4 percent from 3 percent the month before. The rise in inflation as measured by the Consumer Price Index (CPI) was greater than expected.
The Retail Price Index also increased, coming in at 4.4 percent compared to 3.7 percent in February. According to the ONS, higher fuel prices were the greatest contributor to the increase in retail prices.
Source: BBC News
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