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Tuesday, 9-Aug-2011 17:45 Email | Share | | Bookmark
Global Equity Selloff Accelerates on Continued Uncertainty

Market volatility remains at extreme levels as a lack of liquidity is creating large price swings in all asset classes. In times like these, risk aversion is the guiding factor and safe haven assets are making huge gains as a result. Adding to the uncertain climate was the Chinese CPI figure, which came in much higher than the consensus at +6.5% on a yearly basis. Essentially, this means that the PBoC must choose between stimulating growth and reigning in inflation and this put pressure on commodities and stock markets in New Zealand and Australia (as both countries are major trading partners).

Yesterday, the S & P closed 6.66% lower and similar moves were seen in Asian markets overnight. WTI crude oil futures hit new lows at $75.75 on the argument that a slowdown in global economic activity will lead to decreases in demand. Macro data today will come in the form of industrial production from the UK but most of the attention will center on the FOMC meeting as markets look for central bank reactions to the recent market turmoil.

Recent strength in the Swiss Franc (on safe haven buying) has led central bank officials to comment on potential policy moves to intervene in the markets and the latest statement suggested the SNB believes the economy will slow in the next few quarters if the Swiss Franc does not return to normal levels. The statement said the Franc is “massively overvalued,” which is leading many to believe that the SNB will follow the intervention moves that were previously seen in Japan.

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Thursday, 4-Aug-2011 12:11 Email | Share | | Bookmark
BoJ Intervenes in Currency Markets to Weaken Yen; Drop in US ISM

The Yen dropped sharply in Asian trading as markets received confirmation from the Japanese Finance Minister (Noda) that the Bank of Japan intervened in currency markets (selling Yen) for the second time this year. In addition to this, the BoJ ended its latest policy meeting saying that they plan to make monetary policy more accommodative by increasing domestic asset purchases.

The daily moves in the Yen were extreme but it remains to be seen if these activity will have any lasting effect on prices. The EUR/USD is trading lower at 1.4270-1.4370 on broad Dollar strength while the USD/JPY rose to 76.80-79.40. Macro data from the US included the ISM services figures, which came in lower than estimates on drops in the employment and new orders components.

This release does not suggest a positive outcome for the non farm payrolls data that will be released on tomorrow, which is likely to be a big market-mover. The S & P 500 closed slightly higher on the day (+0.5%) and the Nikkei 225 has edged into positive territory at +0.25% (helped by the BoJ intervention measures).

The next major event risk is the ECB policy announcement, with markets expecting no change to its base rate. Given this, most of the attention will focus on the accompanying statement, which is unlikely to reflect the same tightening bias that we have seen previously from the ECB. Growth data in the Eurozone has shown slowing momentum and inflation forecasts have dropped from the previous quarter.

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Thursday, 4-Aug-2011 12:11 Email | Share | | Bookmark
BoJ Intervenes in Currency Markets to Weaken Yen; Drop in US ISM

The Yen dropped sharply in Asian trading as markets received confirmation from the Japanese Finance Minister (Noda) that the Bank of Japan intervened in currency markets (selling Yen) for the second time this year. In addition to this, the BoJ ended its latest policy meeting saying that they plan to make monetary policy more accommodative by increasing domestic asset purchases.

The daily moves in the Yen were extreme but it remains to be seen if these activity will have any lasting effect on prices. The EUR/USD is trading lower at 1.4270-1.4370 on broad Dollar strength while the USD/JPY rose to 76.80-79.40. Macro data from the US included the ISM services figures, which came in lower than estimates on drops in the employment and new orders components.

This release does not suggest a positive outcome for the non farm payrolls data that will be released on tomorrow, which is likely to be a big market-mover. The S & P 500 closed slightly higher on the day (+0.5%) and the Nikkei 225 has edged into positive territory at +0.25% (helped by the BoJ intervention measures).

The next major event risk is the ECB policy announcement, with markets expecting no change to its base rate. Given this, most of the attention will focus on the accompanying statement, which is unlikely to reflect the same tightening bias that we have seen previously from the ECB. Growth data in the Eurozone has shown slowing momentum and inflation forecasts have dropped from the previous quarter.

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Thursday, 4-Aug-2011 12:11 Email | Share | | Bookmark
BoJ Intervenes in Currency Markets to Weaken Yen; Drop in US ISM

The Yen dropped sharply in Asian trading as markets received confirmation from the Japanese Finance Minister (Noda) that the Bank of Japan intervened in currency markets (selling Yen) for the second time this year. In addition to this, the BoJ ended its latest policy meeting saying that they plan to make monetary policy more accommodative by increasing domestic asset purchases.

The daily moves in the Yen were extreme but it remains to be seen if these activity will have any lasting effect on prices. The EUR/USD is trading lower at 1.4270-1.4370 on broad Dollar strength while the USD/JPY rose to 76.80-79.40. Macro data from the US included the ISM services figures, which came in lower than estimates on drops in the employment and new orders components.

This release does not suggest a positive outcome for the non farm payrolls data that will be released on tomorrow, which is likely to be a big market-mover. The S & P 500 closed slightly higher on the day (+0.5%) and the Nikkei 225 has edged into positive territory at +0.25% (helped by the BoJ intervention measures).

The next major event risk is the ECB policy announcement, with markets expecting no change to its base rate. Given this, most of the attention will focus on the accompanying statement, which is unlikely to reflect the same tightening bias that we have seen previously from the ECB. Growth data in the Eurozone has shown slowing momentum and inflation forecasts have dropped from the previous quarter.

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Wednesday, 3-Aug-2011 10:28 Email | Share | | Bookmark
Risk Aversion Keeps Markets Under Pressure

Risk aversion is still taking its hold on equity markets as investors sought safe haven assets during the Asian session and treasury spreads widened in the Eurozone. Asian and US stock markets closed lower in the day and the EUR/USD has moved down to 1.4160-1.4220 and the USD/JPY is starting to flatten out at 77.00-77.45. The S & P 500 dropped -2.55%.

Consumer spending for the month of June in the US dropped to the lowest level since the end of 2010, which is evidence that domestic demand is not seen as driving the economic recovery in the US. This report is also leading to downgrades to forecasts for the employment data that will be released on Friday. A slowdown in consumer confidence and corporate earnings has led many to conclude that we will see a negative surprise in the non farm payrolls.

Both the US Senate and President voted to approve the proposed debt ceiling increase, which will raise the available loan limits and cut $2.1 trillion from federal spending. Moody’s released a statement saying that there is no change to the US credit rating (currently at AAA) as the deal that was passed is long term in nature (Republicans were looking for a short term deal). S & P has released any statement to this effect but there are no significant changes expected. Today, ADP employment data and the ISM services report will be released.

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