Financial News & Fundamental Analysis - page 4
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European and Japanese Inflation Data in Focus; Canada Waits on BoC, GDP
Bank holidays in the United Kingdom and the United States on Monday have dampened trading conditions to start the week, but overall, the last week of May should be exciting nevertheless once full liquidity returns. Of note, we’re watching risk trends in Japanese financial instruments develop, given the sell-off of JGBs and the Nikkei at the end of last week, culminating in the USDJPY’s worst single day performance in over two years.
This week, the growing theme that everyone should be focused on is the issue of deflation – or in most cases, disinflation – that’s been plaguing the world’s developed economies. German, broader Euro-zone, and Japanese inflation gauges are due this week, and given the intense focus on inflation in these regions (Germany and the Euro-zone are afraid of it; Japan can’t get enough of it), volatility around these data releases is highly likely.
North America isn’t to be forgotten, with the government reading of consumer sentiment in the US due out on Tuesday, with the first revision to the 1Q’13 US GDP report on Thursday. Straddling these US data releases are two important Canadian events, the first being the Bank of Canada Rate Decision on Wednesday, and finally the 1Q’13 and March GDP reports due out on Friday (Canada reports m/m, y/y, and annualized once per quarter).
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Crude Oil, Gold Set Sights on US Consumer Confidence Data
Cycle-sensitive crude oil and copper prices are trading cautiously higher amid a broad-based recovery in risk appetite. A quiet European economic calendar shifts the spotlight to May’s US Consumer Confidence report, where sentiment is expected to print at the highest in six months.
S&P 500 index futures are trading firmly higher ahead of the figure despite its presumed implications for a speedier reduction in Fed stimulus provision, which only last week seemed to unnerve investors. With that in mind it will be curious to watch traders’ reaction once the outcome crosses the wiresas a benchmark for the markets’ preferred interpretation take on the US business cycle
If markets opt to view an improvement in consumer sentiment through in terms of its implications for stimulus, a stronger outcome may undermine risk appetite and weigh on shares along with crude oil and copper. Alternatively, if investors read such an outcome in terms of the supportive role a stronger US recovery would play in underpinning global growth, the opposite result can be expected.
The likely response to stronger US data from the precious metals space seems a bit less ambiguous. An increasingly firm link between the US Dollar and the 10-year US Treasury bond yield suggests a supportive outcome that bolsters bets on a near-term reduction in the size of QE purchases will boost the greenback. This in turn seems likely to weigh on gold and silver amid ebbing anti-fiat demand.
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Results of 10 round of "Master Scalper"
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May, 27 2013. 22:00 terminal time - Demo
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Australian Dollar Looks to RBA, US Jobs Data for Direction The Australian Dollar found itself under pressure once again last week as shifting monetary policy expectations continued to undermine demand for the high-yielder. The sharp swoon in the AUDUSD exchange rate since the beginning of May has been accompanied by a brisk narrowing of the yield spread between benchmark US and Australian 10-year bond yields. This implies an Aussie-negative realignment of investors’ perceptions of relative returns to be had from holding one currency over the other. That spread hit the lowest level since early February 2009 last week, sending AUDUSD downward to yield the weakest close since October 2011.
Euro to Rally as ECB Fails to Implement Negative Rates
The Euro was a top performer this week despite flashes of excessive volatility – the EURUSD saw prints close to $1.3100 and 1.2800 – as a slight uptick in data coupled with general anxiety over several of the single currency’s counterparts allowed gains to be found. To be clear: the Euro-zone economic picture is still horrid, with the region’s Unemployment Rate hitting 12.2% in April, an all-time high; while the youth Unemployment Rate (25 years old and under) continue to skyrocket, now at 62.5%. Certainly, there is a social crisis resulting from the economic crisis, an issue that will become more prevalent in the coming months as the US economy trends higher – on a relative basis, making Europe look that much worse.
Luckily for the Euro, issues outside of the region are garnering a great deal more attention at present time, affording it the opportunity to continue to post sizeable gains against the commodity currencies especially. Political tensions have been reduced to a low simmer in recent weeks, as the global economy seemingly waits around for the German elections in September because, let’s face it, there aren’t going to be any substantive shifts in the core’s stance on austerity until Angela Merkel can be sure that she retains her chancellorship.
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Euro: ECB’s Draghi Says Economic Situation Remains Challenging
The Euro is giving back the overnight advance to 1.3042 even as the economic docket showed manufacturing in Europe contracting at a slower pace during the month of May, and the single currency may continue to track lower ahead of the European Central Bank (ECB) meeting as the Governing Council remains poised to carry its easing cycle into the second-half of the year.
Prior to the interest rate decision, ECB President Mario Draghi reiterated that the economic situation in the euro-area remains challenging as the region remain mired in recession, and warned that monetary policy cannot substitute for structural reforms as the EU scales back its push for austerity.
Although the ECB is widely expected to keep the benchmark interest rate at 0.50%, the central bank may show a greater willingness to implement additional rate cuts in order to shore up the ailing economy, while the Governing Council may come under increased pressure to introduce more non-standard measures as the governments operating under the single currency become increasingly reliant on monetary support.
Euro and Pound Rise Despite Decline in European Equities
It’s a slightly paradoxical European Forex trading session so far this Monday, as the Euro and Pound are both trading higher against the US Dollar, but European equities and bonds are showing risk-off aversion. GBP/USD is trading 0.44% higher and the Euro is trading 0.18% higher, but the FTSE, CAC, and DAX equity indexes are all trading at least 0.70% lower.
The incongruence seen in the markets may be due to expectations for the upcoming Bank of England and European Central Bank decisions this week. The better than expected manufacturing PMI’s released in today’s session may provide reason for the ECB to not further cut its interest rate or for the BoE to not add to its quantitative easing.
EUROPEAN SESSION UPDATE: USD/JPY rebounds back above 100 as Nikkei closes up 2%; Aussie sustains losses despite RBA rate hold…
Attention during today’s European session in the Forex markets may have remained focused in Asia and Australasia, as the Yen and Aussie continued to make significant moves while the Pound and Euro stayed relatively quiet.
The Japanese equities index closed 2.05% higher today, which was accompanied by an unwinding of nearly all of the Yen gains seen in yesterday’s session. Japanese Prime Minister Abe said that he sees recovery signs in production, consumption, and GDP, but he said that there are unstable movements in the financial markets. He added that a strong Yen made companies less willing to invest.
Central Banks are Feeding the Next Crisis: A Bond Bubble
It is often said that every crisis is created in the aftermath of the prior one. The Federal Reserve and other central banks response to the 2007-2009 financial crisis has been to drive interest rates to extremely low levels by engaging in unprecedented balance sheet expansion . The intention of these policies has been to force investors out of cash and back into paper assets. In this narrow regard they have succeeded, spawning a bubble in bonds as investors have been forced to take on more credit risk in search of unobtainable yields in an artificially ultra-low rate environment. But how long can such a dynamic last? History shows that at some point in the not too distant future focus will quickly shift away from return on capital and back to the return of capital. In this article we will analyze further the yield bubble and its impact on the global macro environment.