Forex News

Beware falling BRICs

wdetsinyi — Wed, 16 May 2012 09:46:35 +0000

With the dollar making all of the running over recent weeks, it has been interesting to observe just how much pressure the currencies of the BRIC economies have been under. Elsewhere, we have remarked upon the recent decline in the Chinese yuan, a function of domestic financial weakness and accelerated capital outflow. The Brazilian real has been hit hard as well, down 4.4% for the month to date, while the Russian ruble has dropped 5%.

RMB continues to lose ground

wdetsinyi — Wed, 16 May 2012 09:17:48 +0000

Overnight the Chinese currency has continued to lose ground against the dollar, with yuan forwards declining to a four-month low. The explanation for the continuing softness in the renminbi is twofold – the dollar is in high demand at a time of enormous uncertainty over Europe’s future, and domestic economic conditions in China have been much weaker than expected. Twelve month NDFs are trading at a 1% discount to the onshore spot rate, which implies that the forward market expects a depreciation of the yuan over the next year.

Italy back in intensive care

wdetsinyi — Wed, 16 May 2012 08:47:32 +0000

After a two-month respite from financial turmoil at the start of this year, Italy unfortunately is back in intensive care. The 10yr yield touched 6.0% this morning for the first time since early March; in the past two months the yield has risen by 130bp. Certainly, the very problematic situation in Greece is not helping – bond yields for all of Europe’s fiscal miscreants are climbing sharply at present.

Turbulent time for commodities

wdetsinyi — Tue, 15 May 2012 10:20:21 +0000

With the bulk of Europe in recession and China clearly slowing more rapidly than anticipated, it is no surprise to see commodity prices under sustained downward pressure.

The shifting eurozone growth debate

wdetsinyi — Tue, 15 May 2012 09:58:33 +0000

As Europe pushes back against austerity, and the new pro-growth French president Hollande is sworn in, never before has there been such a focus on the growth numbers across Europe. The good news is that there is something for everyone. The optimists (and headline writers) can rejoice at the fact that Germany grew five times faster than expected at 0.5% QoQ (it’s a good job the market was not expecting zero quarterly growth…). We have to wait until next week for the more detailed breakdown of the principle drivers.

More vengeance from Europe’s bond vigilantes

wdetsinyi — Mon, 14 May 2012 11:06:31 +0000

Europe’s bond vigilantes are wreaking further havoc in the markets today, with the weak and vulnerable sovereigns being castigated mercilessly at the expense of the fiscally responsible. In general terms, it is the bond markets of those electorates rebelling against austerity that are taking a beating. Spain is being singled out for particularly harsh punishment, the 10yr yield climbing 30bp to around 6.25% and 5yr CDS at a record high of 540bp. Italy is also being spanked, the 10yr yield 25bp higher at 5.75% with the spread to Bunds wider by 35bp.

Dollar benefits from global financial suffering

wdetsinyi — Mon, 14 May 2012 09:19:16 +0000

May has been very kind to the greenback, with a gain of nearly 2% in the dollar index. Indeed, given the rapid re-intensification of concerns regarding the eurozone and clear signs that China is experiencing a very bumpy landing, it could be argued that the dollar ought to be performing better than it has done. After all, Q1 growth in the eurozone (due to be released tomorrow) is expected to show a decline in comparison to the solid growth registered in the US in the quarter. For dollar bulls, they will be eyeing a sustained break of the mid-January high around 81.50.

Aussie bulls raise the white flag

wdetsinyi — Mon, 14 May 2012 08:06:34 +0000

Against the backdrop of a harsher landing for the Chinese economy and an equally bumpy ride for the local economy, it is not surprising to see the Aussie bulls raising the white flag. According to the CFTC, net longs in the AUD fell by over 27K to 25,104 in the week ended May 8th, the lowest for six months. When the CFTC releases Aussie positions for this latest week, we are likely to see another sharp reverse in net longs, judging by the price action over the period.

Greece pulled in opposite directions

wdetsinyi — Fri, 11 May 2012 12:59:49 +0000

There were some more solid hopes for the formation of a government in Greece today, but indications so far are that it’s still proving to be tough going. The third party (Pasok) is pushing for a unity government, in the hope of a further election which would no doubt raise the prospect of more demands from international lenders.

China monetary easing becoming more urgent

wdetsinyi — Fri, 11 May 2012 12:37:52 +0000

Increasingly clear is that policy-makers in China will soon sanction a further easing of financial conditions in response to mounting evidence that the economy is struggling. Growth in industrial production fell back to high single digits in YoY terms last month, the weakest performance in three years. Retail sales were softer than expected and home sales fell 16% MoM in April. Earlier in the week the Customs Bureau reported that there was essentially zero growth in imports in the year ended April.

Germany prospers while the rest of Europe burns

wdetsinyi — Fri, 11 May 2012 12:02:59 +0000

These days Germany risks not just political isolation within Europe but also economical isolation.

Gold nearly flat

wdetsinyi — Fri, 11 May 2012 09:28:36 +0000

The price action on gold continues to catch the attention. The sustained move below the USD 1,600 level means that it’s now only just in positive territory for the year to date, with this likely to be the worst weekly performance of 2012. Furthermore, year to date performance has been the weakest for seven years. As we pointed out earlier this week (see The golden question), a fair bit of this weakness in gold can be put down to the firmer tone we are seeing to the dollar. But that’s not the whole story, with gold also still weaker in most other currencies over the past week.

The Bank of England's discomfort

wdetsinyi — Thu, 10 May 2012 11:47:20 +0000

The price action in sterling today reflects the fact that there were some prevailing expectations of an extension of the Bank’s QE program which were unfulfilled. Cable was modestly firmer on the release as shorts were covered, but only by around 20-30 pips or so. Today’s decision will have been guided by the quarterly Inflation Report due to be published next week. In this context, the Bank could well have a tough time explaining why once again it will be revising up its inflation projections and lowering growth.

How long can the euro defy the inevitable?

wdetsinyi — Thu, 10 May 2012 11:12:30 +0000

As we have been observing recently, it is remarkable that the single currency is not a lot lower. Consider – European leaders are now openly canvassing the possibility that Greece might be forced to leave the single currency; tumbling property prices in Spain represent a massive risk not just to the banking system and the sovereign but also threatens to absorb virtually all of the financial resources that Europe has set aside for such eventualities; and the head of China’s sovereign wealth fund has declared that they are not buying any more European bonds.

Beijing cannot afford to prevaricate any longer

wdetsinyi — Thu, 10 May 2012 08:17:54 +0000

Last night’s trade figures provide yet more evidence that the Chinese economy is softening. Import growth in April of just 0.3% YoY suggests that domestic demand has weakened considerably, while growth in overseas shipments of just 4.9% over the same period clearly reflects much slower external demand. According to the Customs Bureau, combined trade with Europe has completely stalled over the past year, while trade with Japan has fallen by 1.5%. In contrast, US trade has risen by 9.5%. These figures imply that the trade side will likely again weigh on GDP growth in the current quarter.

Moody’s bank downgrades looming large

wdetsinyi — Wed, 09 May 2012 12:17:45 +0000

Back in February, Moody’s intimated that it was reviewing the credit ratings of more than 100 banks, with the results expected to be announced in the near term. For many, a single notch downgrade looks unavoidable; moreover, it will raise funding costs and limit access to the wholesale market, reduce profitability and result in margin calls. This in turn will further constrain the availability of credit, at a time when the ECB has already provided bountiful liquidity to banks through the LTRO.

Bond vigilantes revolt against the fiscal intransigents

wdetsinyi — Wed, 09 May 2012 11:24:04 +0000

As expected, the bond vigilantes are punishing those sovereign markets in which the political will to implement fiscal austerity is in doubt. In Italy, where Silvio Berlusconi’s People of Liberty Party is backsliding on the ratification of the fiscal treaty and in the north where there was a surge in support for anti-euro candidates in last weekend’s elections, the 10yr yield is up 10bp today at 5.54%. In France, the 10yr yield climbed a further 5bp today to 2.85% and the spread to Bunds is now 131bp.

The golden question

wdetsinyi — Wed, 09 May 2012 10:20:28 +0000

Yesterday was a pretty key day in the gold market. Spot fell over 2% and, as well as moving below the USD 1,600 level, it also fell through key trendline support just above that level, drawn from the late 2008 lows. Technically, this puts the gold bulls in a more difficult position, arguing that what we are seeing is just a temporary pull-back from a longer-term uptrend. As always, some of this recent activity can be put down to the movements in the dollar, with the dollar index rising against the backdrop of greater political uncertainty within Europe.

Greece again

ssmith — Tue, 08 May 2012 12:18:12 +0000

It had almost reached the stage where the markets could go several days without thinking about Greece, which is in marked contrast to a couple of months ago. After the weekend’s election, that seems to be changing as the various parties struggle (so far unsuccessfully) to form a government. This task is currently being undertaken by the second biggest party (Syriza), after the New Democracy group failed to get anywhere. The reason for concern is that the negotiations currently taking place are between parties far more keen on renegotiating current bailout deals.

Fiscal austerity journeys down under

wdetsinyi — Tue, 08 May 2012 11:24:31 +0000

Facing an electoral whitewash when it next goes to the polls, Australia’s Labour Government has opted for aggressive fiscal austerity in its latest budget in an attempt to gain back the mantle of financial responsibility and competence. Treasurer Swan threw around some very impressive-sounding fiscal figures in his budget speech – AUD 33.6bn of spending cuts over five years, a first annual decline in government spending for 42 years in fiscal 2012/13 and a return to a budget surplus next year after a AUD 44bn deficit in 2011/12.

Aussie bulls worried by trade trends

wdetsinyi — Tue, 08 May 2012 09:35:27 +0000

For so long a major driver of currency strength, it now appears that the performance of the trade sector is contributing to the Aussie’s demise. March’s AUD 1.59bn trade deficit was the second worst in the past five years, with the shortfall for the previous month also being revised lower. In the first quarter, the goods and services trade deficit was almost AUD 3.2bn, this following a trade surplus of AUD 3.1bn in the previous quarter.

Sterling’s ongoing resilience

wdetsinyi — Tue, 08 May 2012 08:17:26 +0000

We’ve remarked before on the resilience of sterling and has again been in evidence over the past week; of the majors it was only the yen outperforming the pound. This comes despite the weakness seen in the PMI data and also the earlier confirmation of the recession in the UK in light of the negative growth outturn in the first quarter. The latest data overnight have again confirmed the fragility of the domestic sector. It’s not a great surprise to see weaker indicators from the housing market, with the RICS house price balance weakening from -11 to -19.

Spain’s financial misery

wdetsinyi — Tue, 08 May 2012 07:44:12 +0000

Evidence continues to mount regarding Spain’s economic and financial misery. According to the largest home appraisals company in the country, Tasaciones Inmobiliarias SA, house prices plunged 12.5% in the year ended April. Also, industrial production dropped by 7.5% YoY in March, the biggest drop in two years and much worse than expected. The government’s forecast that the economy will decline by 1.7% this calendar year will almost certainly need to be revised down quite significantly.

France's new road

wdetsinyi — Mon, 07 May 2012 08:23:51 +0000

Increasingly over recent weeks, markets have been digesting the political direction being expounded by Francois Hollande, who has now been confirmed as the new French President. Initially, they were scared by his rhetoric, focusing on his “war on finance”, but have since softened, in part as Hollande himself toned down his message. His victory makes Sarkozy the 11th eurozone leader to lose office since the sovereign credit crisis started. The old adage that elections are there to be lost by the incumbent, rather than won by the opposition, has never been truer.

Aussie fast losing friends

wdetsinyi — Mon, 07 May 2012 08:17:02 +0000

For the Aussie bulls, the past week or so have been very tough. After threatening 1.05 late last month, the AUD dropped to near 1.01 overnight, its lowest level for the year thus far. As we have been highlighting, it has been a combination of local and international forces that have sunk the currency. Last week the RBA surprised with a 50bp rate cut, and there looks to be more to come from the central bank – on Friday it published forecasts for both inflation and growth which were lower than previous estimates.

Europe’s slowdown weighs on commodities

wdetsinyi — Fri, 04 May 2012 14:26:38 +0000

The accumulation of evidence over the past week that large swathes of Europe are in a deeper recession than expected has weighed heavily on commodity prices.

US jobs despondency

wdetsinyi — Fri, 04 May 2012 13:11:46 +0000

The latest US jobs numbers underline the feeling of despondency in the labour market, despite the drop in the unemployment rate to a three-year low (to 8.1%). The smaller than expected gain in headline payrolls of 115k was tempered by the upward revisions to previous two months of 53k. The household data, from which the unemployment is calculated, showed a relatively sharp fall in the labour force of 342k. Furthermore, the participation rate (those in work or looking for work as proportion of working age population) fell once again to a new multi-year low of 63.6%.

UK property picture still cloudy

wdetsinyi — Fri, 04 May 2012 12:29:14 +0000

Obtaining a clear picture of the UK property scene has been even more tricky than usual this year.

More soggy eurozone data

wdetsinyi — Fri, 04 May 2012 09:19:48 +0000

It is probably no great surprise to see the services PMI data also softer in the eurozone vs. the preliminary release, following on from the pattern that was seen in the manufacturing series. The eurozone aggregate number was revised one point lower to 46.9. Naturally, the weakness was concentrated in those peripheral nations under most scrutiny at this point in time, namely Spain and Italy. But the real story this week has been the extent to which that weaker data has been seen from core nations, which these days pretty much means Germany.

The shifting ECB

wdetsinyi — Thu, 03 May 2012 14:20:43 +0000

Even though on the face of it, the market was positioned for no change from the European Central Bank meeting today, there were some residual hopes of a surprise cut given the recent run of disappointing real sector data. There were some subtle changes to the opening statement which suggest that the ECB’s stance could well be softening. It still fears that inflation will remain above 2% this year but removed the reference to near-term upside risks to prices’ stability that was present in last month’s opening statement.

Central bank introspection

wdetsinyi — Thu, 03 May 2012 09:14:30 +0000

Central bankers are going through something of a personality crisis at the moment and last night’s speech from Bank of England Governor, Mervyn King, was a good example of this. There are many interpretations of what he said, whether he was admitting his part in fuelling the crisis. There’s a general admission that inflation-targeting, as adopted by many countries over the past twenty years or so, is not a sufficient approach, but there’s no real unanimity around what combination of targets and policy levers should be adopted.

Aussie insecurity

wdetsinyi — Thu, 03 May 2012 08:29:52 +0000

Sentiment towards the Aussie has taken a turn for the worse over the past week, in a manner which suggests that further weakness may be in store. Tuesday’s surprise 50bp rate cut from the RBA has certainly unsettled the currency, but other forces have contributed to the recent softness.

Gold’s limited allure

wdetsinyi — Wed, 02 May 2012 14:08:10 +0000

April proved to be a fairly poor month for many asset classes, especially risk assets. Gold proved to be no exception, with April the third consecutive down month. You have to go back over ten years or so to see a similar period of down months, although not in percentage terms. Gold is still only 5% lower over this period. Nevertheless, the subdued price action, after the fall at the end of end February, has been fairly lackluster.

The bar for more Fed QE just gets higher

wdetsinyi — Wed, 02 May 2012 13:46:36 +0000

In sharp contrast to the deteriorating situation in Europe, the recent signals coming out of the US generally have been encouraging. Buoyed by strengthening demand for autos and decent growth in export orders, the American manufacturing sector is remarkably robust. The consumer is spending (albeit cautiously), the economy has recorded positive growth in each quarter since mid-2009 and monthly payrolls growth has averaged nearly 150K over the past two years. It may not be exciting growth, but it certainly looks much steadier than many other advanced economies.

The dismal eurozone outlook

wdetsinyi — Wed, 02 May 2012 08:56:51 +0000

A swathe of bad economic news has cast a shadow across Europe this morning, beating the single currency lower by around half a cent, knocking EUR/USD back below the 1.32 level. The manufacturing PMIs were shockingly weak in the periphery, Spain down to 43.6 and Italy to 43.8, from 47.9 in March. For the latter, the new order balance saw the biggest single drop for three years, from 45.7 to 39.2, suggesting that there’s not much on the horizon to turn around the fortunes of the manufacturing sector anytime soon.

Chinese home prices continue to decline

wdetsinyi — Wed, 02 May 2012 08:10:20 +0000

Chinese policy-makers will no doubt be fully conscious of the continuing decline in home prices. According to SouFun Holdings, the largest real-estate website in the country, residential property prices dropped another 0.3% last month, the eighth consecutive MoM decline. Of the 100 major cities tracked, 71 recorded a fall in prices last month.

Sterling continues to sag

wdetsinyi — Tue, 01 May 2012 09:40:57 +0000

Now that the UK has officially entered recession once again, the focus is on just when the economy is likely to crawl out of it again. As we mentioned last week, the recession label misses the point, namely that the economy has been very weak regardless over the past two years, with growth contracting in four of the past eight quarters and the economy still more than 4% smaller (in real terms) than the peak in output reached in March 2008. That there have been two consecutive quarters of contraction is not of great significance economically.

Tokyo annoyed by new yen strength

wdetsinyi — Tue, 01 May 2012 09:19:45 +0000

Despite some aggressive easing measures undertaken over the past couple of months, Japanese policy-makers will no doubt be annoyed by the consistent strengthening of the currency. Overnight, USD/JPY fell to 79.64, a two-month low and just above the 100d moving average; back in mid-March, it was trading above 84.0.

Aussie holds no RBA fears

wdetsinyi — Mon, 30 Apr 2012 11:59:19 +0000

Not even the possibility of a 50bp rate cut at tonight’s RBA meeting has intimidated the Aussie over recent trading sessions. Overnight, the AUD climbed to a one-month high of 1.0470, helped by a marginal improvement in risk appetite and a slightly weaker dollar; three weeks ago, a decline below 1.02 looked in prospect.

Brussels responds to Hollande’s growth demands

wdetsinyi — Mon, 30 Apr 2012 11:50:59 +0000

Stung into action by mounting criticism that Europe needs a growth plan alongside the current unflinching commitment to perpetual fiscal austerity, Brussels appears to be mounting a counter-offensive.

Eurozone credit gets crunchy

ssmith — Mon, 30 Apr 2012 11:05:20 +0000

The latest M3 data releases by the ECB has further confirmed that we are seeing a fairly steady contraction in lending within the household sector, a trend which is only likely to get worse over the coming months. Overall lending to eurozone households fell to 0.6% YoY (from 1.2%), with much of this decline coming on the back of falling lending for house purchase. It’s no surprise to see this, especially with loan delinquencies increasing, particularly in Spain.

The dollar’s downward drift

wdetsinyi — Fri, 27 Apr 2012 14:44:23 +0000

It has been exceedingly gradual, but the dollar has been drifting downwards over the past two weeks. Not that we are talking about a big move mind you – the dollar index is down by roughly 1.5% over that time. That said, some of the major dollar crosses are at levels not witnessed for a while. Cable, for instance, reached a 7mth high above 1.6250 earlier today. Indeed, the pound has been something of a revelation so far this year, despite the fact that the economy is apparently back in recession. Clearly sterling is attracting flows from a number of different sources.

Jordan defends franc ceiling

wdetsinyi — Fri, 27 Apr 2012 11:55:15 +0000

In a detailed defence of its continuing commitment to prevent EUR/CHF from trading through 1.20, new SNB President Thomas Jordan proclaimed that the central bank’s determination was unwavering and that the strength of the currency remained a “major challenge” for the economy. Jordan described the currency ceiling as an extreme measure and vowed that the SNB would take further measures should the economic outlook worsen or the threat of deflation intensify.

Should Spain be spared?

wdetsinyi — Fri, 27 Apr 2012 09:43:29 +0000

Like it or not, it’s Spain that is the focus this Friday. One has to wonder about the efficiency of markets when we see both currencies and bonds react to S&P’s announcement that it has cut the rating by two notches, to BBB+. The single currency was some 60 cents lower on the announcement, albeit in thin overnight trade, with bonds once again testing the 6% level on the 10yr. Of course, some investors may be tied to ratings in their investment mandate, so the reaction is understandable from some angles.

Ignorance can be bliss

wdetsinyi — Thu, 26 Apr 2012 10:35:59 +0000

It has been remarkable how little asset prices have responded to consistently negative growth news over the past couple of days. Just this morning we have learned that both eurozone industrial confidence and Italian business confidence fell markedly this month, while UK mortgage approvals dropped to an 11mth low in March. Yesterday was no better - US durable goods’ orders declined significantly in March and the UK economy is apparently back in recession.

China loosens the reins on housing

wdetsinyi — Thu, 26 Apr 2012 10:02:24 +0000

Aware that the property market has slowed rather more rapidly than expected, Beijing is now implementing measures designed to selectively ease financial conditions. In the first quarter of 2012, home sales in China declined by 18%, while the inventory of unsold new homes in the ten major cities jumped by almost 50% in the year ended March.

Loonie love

wdetsinyi — Thu, 26 Apr 2012 08:38:01 +0000

One major currency that has attracted some steady interest this year has been the loonie. Indeed, for the year to date, the Canadian dollar is the top performer amongst the majors after the pound. Over the past three months the CAD has consistently traded under parity; this morning, it almost touched 0.98, a seven-month low.

Hollande throws down the gauntlet to Merkel

ssmith — Wed, 25 Apr 2012 10:02:38 +0000

Germany’s austerity doctrine has been under renewed assault this week in a clear sign that political opposition In Europe to perpetual financial discipline is wearing thin. On Monday, Dutch Prime Minister Mark Rutte resigned after Geert Wilders pulled his Freedom Party out of the ruling coalition because of disagreements over the extent of fiscal consolidation. In France, Socialist Presidential candidate Francois Hollande has vowed to challenge Angela Merkel’s crisis strategy, by re-negotiating the fiscal compact and demanding that the ECB do more.

UK recession is not the issue‏

ssmith — Wed, 25 Apr 2012 09:57:51 +0000

The headline writers will be having a field day in tomorrow’s UK papers, now that the country has officially entered recession once again, the economy contracting 0.2% in Q1, after the -0.3% decline in Q4 of last year. But it’s a fairly arbitrary distinction, not least given that the anticipated 0.1% quarterly increase would still have left output lower vs. six months ago. One of the factors dragging the economy down was the construction sector, which contracted a further 3.0% on the quarter.

A missing link in the US recovery

wdetsinyi — Tue, 24 Apr 2012 14:13:59 +0000

Notwithstanding the justifiable optimism regarding the US recovery these days, one critical missing link remains, namely house prices.