1: Open Directory Project | The Web Directory Solution Google+ Economic news: May 2012

Tuesday, May 22, 2012

Yen weakness and BOJ meeting

Bank of Japan started today the monthly two days meeting to discuss the economic situation that usually precede any rate or monetary policy adjustment; with an interest rate close to zero there won't be any action on the rate side but what speculators are betting on is an increase or continuation of bond purchase that usually act as a boost to equities.
This is probably the reason of the YEN weakness we've seen from the beginning of trading on Monday across Asia that continued through the North American session with a pause during the European opening hours.

                                         CLICK ON THE CHART TO GET A BETTER VIEW

On the chart you can see how the USD/JPY bounced from the 61.8% Fibonacci retracement calculated from the low of February the 2nd to the high of March the 15th.

Yen particularly weakened against the so called "commodities currencies" (CAD-NZD-AUD) and perhaps the most aggressive traders and money managers are starting a new round of "carry trade" after the huge unwinding of position that took place on the currency market last week.

The Japanese currency was sold massively against the Mexican Peso and Singapore Dollar among the others; the MXN/JPY is considered the king of carry trade since it offers one of the greatest interest rate differential on the currency spot market.

Yen strength and volatility is seen by Japanese officials as the biggest threat to a stable recovery as recently stated by Nissan CEO Carlson Ghosn and we all know the impact on the GDP of the third largest economy of the world the automotive industry has.

The leadership of Japan in electronic products was gained over the years by more aggressive nations like South Korea and China in fact, SONY, the biggest and most famous Japanese producer of consumer electronics has recorded, in 2011 the first year in red since more than two decades.

Monday, May 14, 2012

Is the Aussie ready to bounce?

Now that the Australian dollar dropped to parity with the U.S. dollar many are wondering if this level will work as support or if the value of the southern pacific currency will continue to move south.
As we know the dilemma is not an easy one to answer, in fact, nobody knows what the next move will be in any currency since there's such a variety of  participants in the forex market that only Central Banks have the power to really move a price.
Most of the times, even their efforts to depreciate or appreciate a currency has a short term effect and market always win the battle. Anyway RBA has never manipulated the market and Prime Minister Gillard recently stated that will never act in such direction, beside that, a weaker AUD can only benefit the Australian economy that recently showed signs of difficulty.

Home loans in Australia are moderately rising (+ 0.3 %) despite the prediction was of a substantial decrease of  2 % and the move from the People's Bank of China of cutting reserves ratio requirements is the equivalent of an interest rat cut.
The surprise from investor may help boosting equities for a while and as we know, when equities rise, riskier assets like the AUD rise with them.

The only question is, how long will markets need to be stimulated with emergency liquidity injections?                     It seems like Central Banks around the world are acting according to a mutual agreement, whenever liquidity is required to keep economies buoying there will be a major Bank providing it; first was QE from the FED, then Japan and Europe and lately China.
For how long will this game keep working and what will happen when the game breaks down?       

Thursday, May 10, 2012

Will "risk off" take a pause

What we' ve seen in the past two days in markets is commonly called a "risk off" scenario.
 Market participant are suddenly realizing the overall economic situation is not as nice as it appeared and they are massively getting rid of risky assets; the Euro,the Aussie, the Kiwi, Gold and Silver dropped significantly.
Oil is at the lowest level of the past 3 months, the U.S. dollar and the Yen are rising and all major indexes in Europe and Asia are heavily heading down.

Wall Street is holding, but if we take a closer view of the past two trading days in the U.S. we can notice market opened with a big drop to recover at around 11 a.m. EST, just when European markets closed for the day.
This is not  a coincidence, in fact, most of the bad news are coming from Europe: Greece, after the elections held on Sunday is facing a political situation that will probably bring the country to new elections.

                                                          image © Daniel Steger for openphoto.net CC:Attribution-ShareAlike

 None of the parties is able to form a coalition government, the numbers are simply not there to form a stable coalition and Mr. Tsipras, the politician who is supposed to form the government instead of Mr. Samaras  who couldn't form it without the consensus of the second political force elected, already said the measures adopted to bring the desperate financial situation of the country back in track will be re-discussed.
Of course this is not good news for the financial institutions who saved the country from bankruptcy and a new bailout will probably be necessary. Will Greece leave the Euro? What was considered a taboo is now been taken into consideration and major banks across Europe are preparing to this event that could undermine European confidence. Is Europe and the Euro really just an experiment as some american academics has always alleged or the Euro is here to stay? History is teaching us all monetary unions has not survived after the the first decade so the Euro would be the exception.

On the other side, European banks are, once again, under pressure; Bankia, the third biggest Spanish Bank had to be nationalized, the State had to purchase 45% of the Bank in order to keep it alive and avoid a Tsunami that is barely comparable to what Lehman Brothers was in 2008. Analysts around the world are starting to think: who will be next? Dexia ,who was massively helped by French, Belgian and Luxembourg intervention to avoid the collapse or maybe the Italian Monte dei Paschi di Siena who booked major losses during 2011 ( something around 8.5 billions €)?
Or maybe Royal Bank of Scotland who had to be saved by the U.K. or  even CommerzBank who was taking big loans from the exceptional LTRO issued by the ECB witch gave the continent relief basically giving money almost for free at 1% interest rate for three years?

Looking at Asia and the rest of BRICS we notice that the so called emerging economies are actually taking the role emerged economies once had,  being now the locomotives of the world.
But for how long will China grow at this pace? We are already seeing a slowdown from the double digit growth rate we where used to, China's growth is now close to 8% and the quinquennal plan did not gave any solution on how to boost internal
consumption of goods in order to make China less dependent from export. Salaries are growing but they will have to grow much more to see the Chinese middle class taking part to the Real Estate market witch will probably be the next bubble if  those hundreds of thousands of houses and apartaments don't find a owner.
In conclusion the crisis is far from being over and maybe the best start of the year for equities we've seen in years will just remain a year that started well to pull back in the second half, something we've already seen in 2010 and 2011.        

image © bman ojel
for openphoto.net CC:Attribution-ShareAlike
agenzia delle entrate; equitalia

Monday, May 7, 2012

Euro break support

                                            CLICK ON THE CHART TO GET A BETTER VIEW   
Euro broke a strong support level against the dollar. The 1.30 figure, over the past 3 month, worked as support and price was bouncing off every time was approaching this level. Markets are probably worrying about French presidential and Greek Parliamentary elections results.
There was quite of a huge gap down right at the open, but shall we trust this as a signal price will drop further or shall we expect a rapid retracement back to the Friday close?
Investors are looking for safety in this uncertain moments buying U.S. dollars and Japanese Yen witch are widely perceived as safe heaven currencies, on the other side we see depreciation of the most risky assets like the commodity currencies (AUD,NZD and CAD).
Volatility is expected to rise significantly during the day not only on Forex; all major indexes are testing important support levels (see DAX, NASDAQ, ITA 40 for example).

                                              CLICK ON THE CHART TO GET A BETTER VIEW 

Friday, May 4, 2012

U.S. Non-farm payrolls report

U.S. Non farm payroll came out at 115.000 Vs. 160.000 expected and unemployment showed a decrease at 8.1% Vs. 8.2% expected. A mixed picture here that perfectly reflects on market reaction. Take a look at the 15 minutes chart of  USD/CAD for example (above): a big spike down followed by a jump up.

Same thing on the USD/JPY showed on the second chart: dollar depreciate first to run back up.
A similar reaction was recorded on the U.S. equities futures with a 5 point drop followed by a sudden recover.

This is to remember that trading the news is extremely difficult specially when you get mixed data, markets not always have a clear idea of how interpret the readings and volatility spikes up hitting stops and limits levels pre-set on trading platforms around the world.

To notice the Oil depreciation that took place during the Asian and European sessions showed here on a Daily time frame; Oil stands now just above 100 $ and seems to want a test of the 200 Simple Moving Average (one of the most watched by traders) witch stands now at 96.39 $. Operators are anxious on the  Wall Street open ; what the reaction will be to this weak economic data from the U.S.? This next November will take place presidential elections and a slow recovery certainly doesn't help Obama, many people still remember what happened last year (and the previous) when we had a second part of the year characterized by bad economic data and drops in stocks despite a beginning of it that was showing improvements and stocks appreciations.

Thursday, May 3, 2012

Australian dollar Vs New Zealand dollar

The Aussie nicely broke a triangle congestion pattern against the Kiwi dollar and after a long spike up retraced half of the movement.
NZD dollar was weakening due to relatively weak data from the labor market; unemployment rate came out at 6.7 % Vs 6.2 % expected, confirming what Central Bank and politicians affirmed last week.
A strong Kiwi dollar is perceived as the major cause of problems for the southern pacific country witch heavily relies on soft commodities and dairies exports, few days ago trading balance also showed a strong contraction for March and for 2012 on the overall.
RBNZ also stated that could intervene to weaken the currency if the situation will require it.


Tuesday, May 1, 2012

British Pound Rally

British Pound rallied for 10 consecutive days breaking previous resistance levels before pausing at the 1.63 figure despite bad economic data from the U.K.like low GDP (-0.2) that brought Great Britain to a double dip recession.
Unemployment is also raising at record levels, so what is pushing the GBP so high? Is it just a weak dollar ? Or  international investors from around the world perhaps are dropping the European Bond and buying Guilts?
Here is a chart of GBP-USD (above) and EUR-GBP showing a decline of  700 pips from the October 27th high