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8/03/2012 Big day for markets and, more so, for the euro
EUR/USD
After Tuesday's fears and profit-taking in risky assets, the euro is gradually coming round. And though the day promises to be eventful, stock markets are trading positive. As a result, EUR/USD rose from the lows below 1.31 and is now trading at 1.3170. Today the ECB will hold a regular meeting on the monetary policy. However, the markets will want to pay more attention to Draghi’s press-conference, where he will probably lay his own assessment of the second LTRO auction and speak on the further plans and views of the Bank. For all its importance, the ECB’s meeting won’t probably come as the most risky event of the day. The fact is that later on Thursday or early on Friday markets will see data on private sector investor participation in the Greek debt swap. Remember that for the deal to close successfully the participation rate of all creditors have to be over 66%. However, even this won’t be enough. Even if the deal will be regarded as done, 90% of all money should be involved to reach the required level of "participation". It is rumored that 14% of the creditors are not obligated to participate, and if they take the opportunity, it may eventually ruin the whole deal. However, today’s agenda brings us good news as well. ADP Non-Farm Employment Change in February came in at 216K, which allows us to expect the Non-Farm Payrolls reach the 235K level. The figure is above the average market forecasts and may partly explain the moderate positive, currently dominating in the markets.
GBP/USD
Just like the euro, the sterling is gradually recovering from the weak start of the week. The Cable is now trading at 1.5760 against the 1.57 low, hit on Wednesday night. Today the Bank of England will announce its decision on Interest Rate...Read full review
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9/03/2012 Greek deal is done and markets wait for payrolls
EUR/USD
Thursday proved to be quite a favourable day for the markets. Tuesday’s losses in the stock markets were recouped, and the single currency climbed pretty much higher. EUR/USD is trading near 1.3250 now. Most likely, it will stick to this level until the release of data on the US employment. The results of the private investor participation in the debt swap were postponed to Friday morning. The good news is that the 66% threshold has been crossed, which, actually, was already evident from the leaks yesterday. With the collective action clauses applied, the level of participation in the swap amounted to 95.7%. Such relatively good news allows us to speak about the successful closing of the hardest and most nerve-racking deal, which took six months to be clinched. However, the market reaction to this long-awaited news was not very strong, having come just with a few sales of the single currency. The analogy with what we saw after the summits inevitably comes to mind. The euro is supported on expectations, and invariably depreciated on facts. Something of the kind may happen this time as well. Yet the main motion will most probably fall on the US publication of non-farm payrolls. Remember that the markets are expecting the employment growth of 209,000. After ADP’s data release (the 216K growth in the private sector) we assumed that the official figures would indicate the 235K increase or so. However, yesterday’s data on unemployment claims force to be more cautious. Let’s see. We're not going to change our expectations, suggesting strong data, growth in the stock markets and also higher demand for risk. But in the coming months the statistics may prove much weaker.
GBP/USD
As expected by most market participants, the Bank of England did not change anything in its policy, keeping the rate at 0.5% and the size of the QE programme at 325bln. However, that did not prevent the sterling bulls from taking GBP/USD above 1.58...Read full review
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12/03/2012 Good news does not always excite the market growth
EUR/USD
EUR/USD has been falling since Friday and has lost almost two big figures over this time. The single currency is now worth $1.3080, which is a four-week low. Against our expectations the market did not wait for the publication of statistics on the US employment to start selling risky assets, including the euro. As a result, at the time the non-farm payrolls were released, the euro was already trading as high as 1.3125. The labour market statistics has come in almost as good as expected, showing the 227K increase in the number of jobs (we predicted 235K, while the general market forecast was 206K). Moreover, it can’t but be noticed that almost all sectors can boast improvement now. Employment in manufacturing has been steadily growing for three consecutive months, having added 31K in February after 28K in December and 52K in January. Private sector employment has been averaging out at above 200K over the last six months and grew by 227K in February. The unemployment rate remains at 8.3%, however the disappointing data of January, when the index went down only due to the participation rate reduction, have been a little bit smoothed away. This figure made 63.9% in February against 63.7% in January and 64.2% a year ago. These positive data make the Fed’s extension of its QE programme less possible. But despite the obvious positive data context such expectations triggered the decline in stock markets and reduced the demand for risk. Turning to today, Europeans are expected to back another aid tranche for Greece, which will help the country to avoid a disorderly default. This is also good news, but over recently it’s been too often the case that the market has fallen on the positive news. Technical analysts assume that the common currency will shortly drop below 1.29 on the rising bearish sentiment. However, there is a feeling that the market will be allowed some rest after a strong movement on Friday.
GBP/USD
Friday was an eventful day not only for the U.S. and Europe. Britain also brought us a batch of important news. However, it didn’t boost any optimism in the market. Industrial production did not surpass the expectations, having lost 0.4% against the previous month and 3.8% against the previous year....Read full review
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13/03/2012 Does Greece take a back seat, giving way to Spain?
EUR/USD
The single currency didn’t continue last week’s downturn yesterday. It was good news, but at the same time the currency didn’t grow on the subsiding fears around Greece. And this is already the signal to give a closer look to the issues currently disturbing the markets. As always there are two directions: Europe and the USA. However, while concerns about America seem to be the whims of a spoilt child, European issues look like life-and-death ones. Tonight we’ll see the Fed’s decision on the monetary policy. No factual action is expected: everybody looks forward to learning the committee’s evaluation of the economic health and their sentiment concerning the economic prospects. After the release of strong employment data market participants expect the mid-year QE to be carried out on a smaller scale than before. The markets behave as if they were given ordinary porridge instead of a delicious apple pie. This is unlikely to last for long. Money is still very, very cheap; inflation will likely speed up because of the rise in energy prices; economic activity is following the right path. Hardly had Europe breathed a sigh of relief concerning Greece, when similar issues started to pop up in other troubled countries. Spain claims that it won’t be able to meet its agreed budget deficit targets, especially under the circumstances of a severe economic recession expected this year. Assuming that the markets will treat Spain in the way they treated Greece, the size of bailout / debt write-off may amount not to hundreds of billions, but to trillions. However, at this stage markets see a great deal of good news and key central banks mainly stick to the expansionary policy. It means that the single currency may get some support and find buyers on the dips.
GBP/USD
The British housing market is gradually stabilizing. According to RICS, house price balance is at 13% (i.e. the number of those who expect the further decline in prices is 13% larger than that of those who await their growth)...Read full review
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16/03/2012 When the good is not good
EUR/USD
Improvement in macroeconomic indicators does not always imply the recovery of the whole economy. Sometimes other factors come into play and distort the picture. That was the case with yesterday’s labour costs data in the euro area. The indicator showed a rather unexpected acceleration of the annual growth rate up to 2.8% in the last quarter of the previous year (when the economy declined by 0.3%). Meanwhile the analysts had quite reasonably expected it to slow down to 2.3%. The data on the employment change didn’t point out any positive changes either. Over the last quarter of the previous year employment fell by 0.2% quarterly and annually. So, why do employers all of a sudden pay more in the time of the economic downturn and job cuts? The answer is simple - the governments are raising taxes, thus forcing companies to make bigger tax deductions. Thus, the recent figures hardly indicate any improvement or possibility of the further inflation speed-up. It’s also very important to note that such distortions are likely to persist in the coming quarters, as most European countries have just stepped into the process of austerity implementation. Yet, improvements in the US are also hard to discern. The number of continuing claims is rapidly decreasing. Yesterday’s weekly data indicated the drop of the figure down to 3.343 million, which is the lowest level since August 2008. But this progress is partly explained by the fact that the period, when people could claim unemployment benefits, has expired. Here it is also possible to include those who have lost hope to find a new job and abandoned their attempts. For comparison, with the similar number of unemployed claimants now and in summer 2008, the current unemployment rate in the US is at 8.3% against 6.1% then, and the economically active population totals 63.9% against 66.1%. Thus, the Fed looks more sensible than the markets, being careful and admitting the possibility of further measures to support the economy. To realize that too markets will probably need a month or two.
GBP/USD
Yesterday didn’t abound in statistics on the UK, but that vacuum in the agenda was filled with various interesting speeches. MPC’s Ben Broadbent noted in his speech that though the recovery from financial crises is usually slow, the household over-indebtedness in Britain shouldn’t be so much fussed over...Read full review
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19/03/2012 Expensive oil: stimulus to spend or threat to growth?
EUR/USD
Last Friday was a quiet day for European markets, but quite a busy one for the US exchanges. Actually, it doesn’t seem to be a surprise, considering loads of important statistics which came from the States on Friday. First, data on inflation were published. Due to the fuel price growth the consumer price index gained 0.4% in February and the annual growth rate remained at 2.9%, as was generally expected by economists. It’s quite reassuring to hear about easing of the core inflation. However, in the coming months it most likely will go up due to the effect of energy prices on the prices of other goods. The industrial production data failed to surprise with any significant growth, though on the whole statistics are still very strong. The annual output growth rate made 4.0% in February against 3.4% in January. Capacity utilization slightly dropped down to 78.7% instead of going up to 78.9% as expected. However, for the most part it can be explained by the increase in capacity itself, which is a good sign, indeed. The March preliminary UoM data on inflation expectations have leaped, showing that consumers are expecting the annual price growth to come in at 4.0% against 3.3% a month earlier. No doubt, it is the result of the pernicious impact of energy prices. So, we just need to see how Americans will react to it. Will they start buying goods at cheaper prices now or will they reduce consumption of other goods because of the increased spending on fuel and food? With Americans the answer to this question is not so obvious as with Europeans, who already now are extremely concerned about the rising oil prices and talking (in particular French-born IMF Chief Lagarde) the pernicious impact it may produce on the just-started recovery process. But leaving the statements of politicians aside, it may be noted that the expectations of higher inflation and the energy price surge play against the dollar, as it was observed on Friday, when traders preferred to take profits after a several-week growth in USD. The single currency shot up from 1.3040 to 1.3180 in a few hours.
GBP/USD
The British pound also took part in this high-demand-for-risk party. The sterling jumped to 1.5860 from 1.57 at the beginning of the day. That upswing was generally spurred by triggering of stop-losses on the break through the resistance around 1.5740...Read full review
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20/03/2012 By fits and starts EUR’s moving up
EUR/USD
The single currency is moving by fits and starts. Apparently, big players prefer to hold back from systematical buying, and trading is now driven mainly by technical factors. Yesterday, just like on Friday, the euro/dollar spent the most part of the day in a narrow corridor. However, within the first two hours of the US session it leapt dramatically from 1.3150 to 1.3260 and then again resumed tracking sideways. The current Forex movement in EUR/USD can be compared to what we saw after the 1st LTRO auction. For a while the single currency was falling as a result of the interbank interest rate cuts, but soon the general improvement in the markets spilt over into buying of risky assets. Then the euro sagged from 1.3050 to 1.26. The current range of the currency’s decline makes 1.34 - 1.30. Thus, the shift ranges as well as the ECB auction sizes are almost the same. What happened next and what shall we expect now? Then, in mid-January, the single currency grew from 1.26 to 1.35. So, in our situation we may well expect that the single currency will reach the area of 1.40 in the coming 4-6 weeks. In addition, both the U.S. and European economic indicators more and more often point at improvement. It’s rather doubtful if these signals of improvement will keep coming in steadily in the coming months (it mainly concerns Europe), but within the next few weeks this very sentiment will most likely dominate the markets, in this way supporting the demand for the euro and triggering the dollar sales.
GBP/USD
Today is an eventful day for Britain. We’ll see data on the Consumer Price Index, CBI’s Industrial Order Expectations and Selling Prices. As for CPI, we don’t see any serious cause for concern. It is expected that the February inflation rate will go up by 0.4% monthly, but will come in at 3.4% against the previous 3.9% annually...Read full review
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21/03/2012 Another tiny little jump of EUR
EUR/USD
Tuesday turned out to be a fairly quiet day for most of the markets. The American exchanges were generally dominated by the correction sentiment, but the scope of correction didn’t give any particular cause for concern, as stocks recouped most of the losses to close out the day. It is noteworthy that the single currency managed to stay almost unaffected by the initial impetus for decline in the US. Regarding the results of the day, the EUR/USD rate remained almost unchanged, and now makes about 1.3260. Such dynamics supports our supposition that the euro has good chances to grow in the coming weeks. Formally, buying was triggered by the news that Greek legislators agreed on the acceptance of the troika’s aid package with the significant majority voting in its favour. Wednesday is unlikely to spring any unpleasant surprises either. Bernanke in his pre-published statement has pointed at conspicuous progress made by the European financial markets. However, he also mentioned that it is too early for the European policymakers to get relaxed on the path of reforms. Improvements in the US construction industry are also worth mentioning. We are no longer that ironic about the possible recovery in this sector, although with reservation that it’s highly probable that the figures similar to those of 2006 (over 2 million new homes yearly) won’t be recorded for another decade. Nevertheless, from the bottom of recession (about 500K) the volume of monthly building permits increased by 40%, having reached the annual growth rate of 698K (in February). As seen in other reports the Americans tend to buy cheaper and plainer homes now.
GBP/USD
The inflation rate in Britain formally proved higher than expected, but the gap between the factual and expected figures can hardly be called significant. Monthly consumer prices added 0.6% against the predicted 0.4%, while the annual growth rate coincided with the expected slowdown to 3.4% in February against 3.6% a month earlier...Read full review
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22/03/2012 Are Gold and Aussie out of favour?
EUR/USD
Yesterday the US market remained in the mode of slight correction, which actually failed to produce any significant impact on the EUR/USD rate. At some point the single currency rose to the two-week high of 1.3280, but didn’t manage to consolidate at this level. Apparently, the markets needed a larger batch of news to decide on the further action. The only interesting statistics came in on the existing home sales. According to the data published by the National Association of Realtors, home sales fell by 0.9% in February to the annual pace of 4.59 million. However, last month sales jumped by 5.7%, so there’s no cause for concern about the stability of recovery in this sector. As was mentioned yesterday, the Americans tend to purchase more homes when their prices go up. This report has shown the reverse side. The decline occurred on the rise in the average sale price from $154.6K to $156.6K. When compared with the minimum levels at the height of recession, the market volume have grown by 40%. Besides, as you remember, the new home sales have increased by about 50%. Thus, finally we get the picture of quite a healthy growth. Today’s data on the European flash PMI for March have come in surprisingly weak. The composite index has fallen to 47.7 against the expected 49.6 and 49.0 a month earlier. The services sector doesn’t feel better. Instead of going up to 49.3 the composite indicator has fallen to 48.7 from 48.8 a month earlier. This index is a creditable indicator, so its weak figures have served as a strong impetus for selling, nipping in the bud all attempts of the bulls to fight for the 1.33 point.
GBP/USD
The British government made every effort to smooth out the release of the new budget. And we should say, they have succeeded. As has been generally expected, the 50% income tax for the wealthy will be replaced by the 45% one starting next year...Read full review
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23/03/2012 Eurozone PMI has become a real cause for concern, but will it be long-lasting?
EUR/USD
The European PMI data caused quite a stir yesterday. Prior to their release markets had been cheered up by the more or less stabilizing situation in Greece and decrease in spreads of peripheral bonds to the corresponding bonds of the core countries. However, yesterday's PMI figures proved to be really alarming and triggered sales of the single currency, which eventually fell down to 1.3130. Yesterday we mentioned that PMI is a good GDP indicator. To show it more vividly Markit publishes the PMI and GDP graphs. According to them the eurozone is likely to slide into recession in the first quarter. This goes in contrast with what has been promised by German indicators. But don’t forget that Germany is just a part of the euro area. As a result of tough austerity measures the periphery keeps suffering a severe economic downturn. So, even Germany cannot escape this lot, because most of its production is targeted at the export to other European countries. The US, on the contrary, enjoys a batch of quite positive news. The number of initial claims for unemployment insurance benefits continues to go down. At the same time, the total number of those who are currently entitled for the benefits is decreasing as well. According to most recent data, last week the number of initial claims fell to 348K, the figure we haven’t seen since the beginning of 2008. Nevertheless, we still consider that Europe keeps following the path of recovery, though perhaps not as quickly as wanted. Liquidity provided by the ECB has done its part in smoothing over the effects of the sovereign debt crisis. The single currency may quickly recover from yesterday's sales and rush to new local highs in the coming days.
GBP/USD
Yesterday the British pound fell innocent victim to the euro decline. While the single currency managed to recover and recoup its losses by the end of the day, the pound closed out the day negative, just above 1.58...Read full review
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