Markets Force Action
In the wake of the S&P downgrades of European debt, pressure is being applied to Germany in a call to action, politics be damned. The Euro is in real danger of structural collapse, as exploding debt and rising yields are encouraging defaults every day this continues without resolution.
In the meantime, unemployment figures came in better than expected in Germany which may ease the political tension over the bailouts which may allow the government to take action more swiftly. European stocks are higher as income and earnings have been improving. So what we are seeing is an improving economic picture, with this debt situation looming as the fly in the ointment. While having a lower Euro is good for growth, there needs to be a debt resolution to prevent it from falling beyond the point of no return.
In other news, UK home prices were higher; New Zealand maintained interest rates, and US initial jobless claims were better than the previous month. So this all adds up to a resumption of moderate risk-taking, with all eyes and ears on the EU and its debt crisis.
In the forex market:
Aussie (AUD): The Aussie is higher on risk-taking and on a report that home prices growth is slowing showing signs that the previous five rate hikes have been helping to allow growth to proceed moderately.
Loonie (CAD): The Loonie is higher this morning on risk-taking as oil is higher to just above $84. The BOC Governor Carney will be testifying today and the market may be concerned that he may attempt to further squash hopes of a rate hike in a follow up to yesterday’s quote about nothing being “pre-ordained”.The Loonie is getting an added boost from the New Zealand decision to keep rates stable.
Kiwi (NZD): The Kiwi is higher on risk-taking as well despite the fact that the RBNZ maintained rates at a record low 2.5% citing “elevated risks” in the marketplace. Future rate hikes will be forthcoming down the road provided a broad-based recovery continues. In addition, trade balance figures came in better than expected, showing signs that indeed recovery is taking place.
Euro (EUR): Unemployment figures came in much better than expected, and Euro zone confidence figures came in better than expected despite all of the problems related to the Greek debt crisis. I wrote a while back that the term “Chermany” was going to be important in the global economy in the near future. China is to the US what Germany is to the rest of the EU. They export goods and encourage debt. China has prospered due to its currency peg; and Germany due to its EU participation. If Germany continues to drag out this bailout process, they may ultimately be responsible for the Euro’s demise.
Pound (GBP): The Pound is higher this morning as UK home prices advanced the most since 2007, halting a two-day decline as risk appetite returned to the market. Expect the Pound to continue to trade sideways until after the outcome of the next week’s elections.
Dollar (USD): The Dollar is lower this morning as the Fed left rates unchanged yesterday and continued with the “extended period” language. They also signaled that sustained job gains would be necessary to consider moving on rates. Initial jobless claims figures dropped 11K to 448K, but don’t let the “Lamestream” Media fool you into believing that the jobs picture is getting better. This is most certainly a case of “less bad” and at this pace the Fed will be keeping rates low for a very LONG “extended period”.
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