Yen gains as BoJ holds fast – 12 June 2013
The markets are throwing their toys out of the cot at the thought of the Federal Reserve ending its market support. The bond markets are selling off in expectation that the Fed will stop spending $85 billion a month buying bonds to prop up prices, this has an inverse effect on yields (effectively the interest paid on bonds), i.e. higher yields which are normally read as an indication of future interest rates. I am slightly more cynical and am reading this as a threat to Central Banks that removal of support will be expensive. The markets like their free money and they want it to stick around longer. Equities fell out of bed; New York declined 1.02%, London 0.92 and Tokyo 1.45%. The hardest hit has been emerging markets as hot money is pulled out; South Africa fell 3.2%, Argentina lost 2% and Russia lost 2.7%. Industrial commodities also felt the pressure with Copper declining 2.3% and oil fell $1 a barrel.
The Bank of Japan’s policy board announced that it wouldn’t be expanding its Quantitative Easing programme in contrast to market expectations. This sent the Yen skywards and gained 3% against the US Dollar. The Pound remained fairly well supported and managed to hold on to its recent gains, despite a poor manufacturing data release showing the first contraction in the sector for three months. The Euro also treaded water as most traders preferred to concentrate on their Yen positions. The German constitutional court continues its rumblings about the legality of German involvement in bailouts but we view this is simply a distraction as we do not believe it would lead to any meaningful (additional) crisis for the Euro. The Aussie and Kiwi Dollars found some support after their recent poor performance. The South African Rand found no such support and fell to a four year low.
Overnight, the heavy currencies losers reversed some of yesterday’s declines. This morning UK employment data came in slightly better than forecast but UK personal earnings saw a big boost, up 1.3% on the previous quarter. There is little in the way of meaningful data releases this afternoon so we still expect the main driver to continue to be the question about the Federal Reserve market support. The Pound still enjoys support and is trading well against the EUR, CZK, SGD and JPY.
Pound gains in a volatile week – 10 June 2013
Friday rounded off a choppy week in markets with an increasingly rare piece of positive US data. The
Non-Farm Payrolls, arguably the most watched economic release, bucked the trend
and came in slightly ahead of expectations. This alleviated some of the fears
that the US economic recovery is running out of steam. However, the 175,000
jobs the US created last month isn’t strong enough to remove doubt as to
whether the Federal Reserve will remove its support for the markets, especially
as the unemployment rate nudged up to 7.6% from 7.5%. Apart from US employment
figures, the Bank of Japan failed to inspire markets with a lack of ambition on
the announcement of its latest plan to stoke inflation and growth in the land
of the rising sun. Chinese data gave cause for growth concerns and the Reserve
Bank of Australia held its interest rates steady but warned of future cuts. The
ray of light, something rare for this sceptred isle, was the UK with
manufacturing, industrial production and services data all beating
expectations. There is still life in old blighty it would seem.
Market reactions last week were volatile, with widespread equity gains on Friday failing to provide
anything to write home about over the week. The US climbed 0.8% on the week but
Europe struggled with a 1.8% loss. The big loser on the week, however, was
Japan who posted a bruising 6.5% decline. The currency markets seem to give a
more reasoned and sober performance. The Yen was well bought throughout
the week as the lack of fresh stimulus from the BoJ prompted traders to close
their short positions (bets that the Yen would decline in value). The
Australian Dollar continued its brutal slide as officials stated the currency
was still overvalued, despite losing 20 cents against the Pound since March.
The South African Rand accelerated its slide last week and hit the lowest level
against the Pound since 2008. Sterling also made some gains against the
Euro but it still remains settled in its recent trading range of 1.16-1.19.
The weekend press was getting excited about the German constitutional court ruling about the European
Bailouts being illegal. Uber-Eurosceptics were gleeful that it could cause the
end of the Eurozone. Markets have ignored them; we all know that a little issue
like a constitutional court won’t get in the way of this train. Overnight,
Japan revised its GDP up to 1% from 0.9% but China fell slightly short on its
industrial output data. This week’s data has kicked off with a bang, French
industrial production came in much better than forecasted whilst unfortunately,
Italian numbers underwhelmed. Lots more data and central bank statements
this week, so we expect volatility to continue. The Pound has started the
week reasonably sold, a very good move again against the ZAR and the INR.
Also good moves against the JPY, AUD, SGD and HUF.
UK basks in both literal and economic sun – 6 Jun 2013
The intentions of Central Banks around the world continue to be the main driver in markets. The Bank of Japan
launched the “third arrow” of its plan to boost its economy and traders started
to look ahead to today’s Bank of England’s and European Central Banks interest
rate announcements. The poor run of US economic data continued with employment
figures failing to meet expectations, whilst poor European retail sales and
slower than expected GDP growth in Australia also dented confidence yesterday.
The amount of “misses”, where the data fails to match or exceed market
expectations does seem to be increasing and it starting to make markets
twitchy. Equities in New York closed down 1.38%, London lost 2.12% and Tokyo
led the way with a 3.83% loss as Japanese investors were underwhelmed by
Japanese growth plans.
The Pound had a grand old day out yesterday, boosted by good data from the services sector. This followed
hot on the heels of the decent construction and manufacturing data which is
leading some to believe that the UK is turning a corner. We are a strange
bunch, a few days of sunshine and all is good. The Pound chalked up a 0.5% gain
against the Euro and US Dollar, to get within shooting range of €1.18 and
$1.55. The Japanese Yen gained across the board as the BoJ didn’t outline further
stimulus plans, which would have weakened the Yen. The Aussie Dollar continued
its slump and hit the lowest level against the Pound since Oct 2011. The Pound
is also having a stellar run against the Indian Rupee and is very close to its
2013 high. Similarly, the Turkish Lira is suffering on the unrest and is at the
lowest level since January 2012.
Today saw rate announcements from the BoE and the ECB, which held headline interest rates
steady. German factory orders came in below expectations and US unemployment
claims can in very slightly up forecast. The Pound is consolidating yesterday’s
gains against most currencies, with particularly good moves against the TRY,
AUD, NZD, INR and MXN
Data drives markets ahead of Friday’s Non-farm release – 5 June 2013 Daily Comments
Continuing unease about the recent global economic data led to mixed moves in markets yesterday. Stocks in the US were aggressively sold to a session low of 1% before recovering slightly to close down just over 0.5%. Whilst in Europe equities nudged up gains of 0.3% and Japan managed to bounce 2.1% after Monday’s steep decline. The UK’s better than expected construction data did little to lift global spirits and traders appear to be waiting for stronger data, which will come on Friday in the form of the non-farm payrolls, probably the most watched economic indicator in the data calendar. Markets seem to simply be waiting for further clues of whether the Federal Reserve is going to reduce its market support and the Non Farm Payrolls will be a good indicator of whether the economy is robust enough for withdrawal.
Currency markets were much less exciting that the previous day and the US Dollar managed to regain 0.2% of Monday’s steep 1% loss. The Pound was sold off early morning but found a footing following the stronger construction data, however it didn’t prevent Sterling from losing 0.2% against the US Dollar and 0.1% against the Euro. The Japanese Yen resumed its declines and is trading back above the 100 Yen to the Dollar level. The big mover yesterday however was the Aussie Dollar, declining 1.3% against its US counterpart as the Reserve Bank of Australia held rates steady but made comments that the Aussie is still overvalued and indicated future rate cuts. Another big mover has been the South African Rand, which has shown some spectacular volatility as the ongoing mining disputes and poor economic data releases make markets twitchy. If you need to buy South African Rand, we can put market orders in for you to help you capitalize on any major spikes in your favour, just let us know if we can help.
Lots of data out today; the employment and manufacturing data from the US will be watched closely but we think most traders are likely to keep their powder dry until Friday. The Pound is having a good day so far against the euro and dollar as well as the aforementioned Aussie, with the pair crashing through AU $1.60 level this morning.
Poor data boosts stocks, go figure – 31 May 2013
Few lines in the press manage to encapsulate what is wrong in the markets as beautifully as something in the FT this morning; “A fresh sell-off for Japanese stocks failed to unsettle equity markets elsewhere as weak US economic data offered some reassurance to investors concerned that the Federal Reserve might soon start scaling back its support for the markets.”. This was the explanation for the rise in Equity markets yesterday, traders spurred on by the thought that the free money will continue to flow. Initial jobless claims in the US rose 354k, more than expected, and US GDP was revised down slightly. That data along with the OECD lowering global growth forecasts is causing a re-think of stimulus withdrawal. Oil continued its slide and gold climbed above the $1,400 level, possible in reaction to changing Fed expectations and the renewed chance of on-going US Dollar debasement.
The US Dollar continued its slide in response to the poor news. The Euro gained 0.8% to close over $1.305 for the first time in three weeks. Similarly, the Swiss Franc also closed at its highest level in two weeks whilst the Yen hit also hit a multi-week high. The Pound managed to join in and hit a 9 day high to close at $1.5219. As the US Dollar is the global reserve currency, its movement will always attract most of the attention. However, we think the more impressive moves over the last few days are the South African Rand which appears in to be in free fall in response to instability in the mining sector with the continuing threats of wildcat labour strikes and a worsening GDP growth outlook. The Australian Dollar also appears to be firmly out of favour, with another day of aggressive selling in the market. It is down nearly 15 cents against the Pound since the beginning of April.
Overnight, the UK released consumer confidence numbers, showing the highest level since November. Japan announced stronger than expected industrial output and manufacturing data. Otherwise it was fairly quiet. A slow day for data today, so we expect little in the way of excitement this afternoon. The Pound is having a good day with good moves against the NZD, MXN, ZAR, AUD, SEK and EUR.
I hope the sun is shining where you are, have a good weekend.
Profit taking shifts currency markets – Daily Comments – 30 May 2013
It’s becoming a familiar, not to mention dull, theme in markets at the moment. The question of whether the Federal Reserve is going end its money printing, or in terms that make analysts feel they are worth their salary “taper its asset purchase scheme”, continues to dominate price action in the markets. The recent run of decent economic data from the US and comments from officials has led some in the market to believe that the US is going to rein in its $85bn a month worth of conjured funny money which has helped stoke the equity markets to hit record highs.
However, the thought of the taps being turned off has made for tricky trading. Nervousness crept into markets a couple of weeks ago and moves have been volatile ever since. Yesterday, equities in London were down 1.99%, European shares lost 1.84% whilst stocks in New York were down a more modest 0.7%. Overnight, Tokyo took a drubbing and closed 5.2% down. Oil was down with the Brent measure losing $1.80 a barrel to close at $102.43 whilst gold managed gains to approach the $1,400 level.
The US Dollar suffered a broad sell off which looks very much to be a move triggered by investors cashing profits in after the recent moves. The most popular speculative currency trades have been to sell the Japenese Yen and Swiss Franc to buy the US Dollar, traders closing these trades would go some way to explaining why the Yen and Franc made the strongest gains yesterday. The Pound also managed a 0.4% gain and the Euro chalked up a 0.8% gain, shrugging off OECD comments that the Eurozone economy was “dire” and could benefit from US/UK style quantitative easing. As reported yesterday, even the poor German unemployment figures didn’t limit the euro. The bloodied Aussie Dollar received some respite and gained 0.1%.
This afternoon sees US GDP and employment data which will no doubt add fuel to the fire on the “will they, wont they turn off the free money” debate. We could see some significant volatility around the release of these figures. The Pound has managed to gain further against the US Dollar this morning despite virtually every piece of analysis we receive screaming “sell”, it might be an opportune time to buy dollars if you need them. Elsewhere this morning GBPEUR is still pretty range bound and GBP ZAR continues its ascent to the 15 mark.
ZAR Tumbles – Daily Comments – 29 May 2013
Yesterday saw some increased activity across the board as US consumer confidence reached its post recession high. The dollar rallied as a result and pegged GBPUSD back towards the $1.50 level. US house prices were also shown to be ahead of forecasts boosting the greenback further. US equity markets also took the data releases positively, closing the day 0.7% up.
Elsewhere sentiment has been less impressive as the IMF cut its growth forecast for China this year, citing a weak global economy and worsening exports as contributing factors. Weak factory activity in April and May won’t have done them any favours either. With news like this, the already weak Aussie dollar was only going to get weaker, and to highlight this it gave away another cent against the pound and nearly two cents against the buck.
European news is no less volatile. So far today the OECD has cast doubt on any EZ recovery in a statement forecasting the EZ economy to grow slower than expected when compared to both the US and Japanese economies. With the world’s largest economy predicted to drag the global economy up with it next year. Despite this and additional economic data from Germany showing a rise in unemployment this month, the single currency has been remarkably buoyant. In this morning’s trading the euro made up some ground against sterling and is currently sitting in the mid €1.16’s. EURUSD has also moved up over a cent to regain its position in the $1.29’s.
Arguably the biggest currency move this week features the South African rand as it has hit a four-year low. A faltering economy and falling commodity prices, combined with unrest caused by ongoing mining strikes have put the economy and currency in a rather unattractive position. GBPZAR is currently trading around the 14.75 area and looks very good if you need to buy rand. Elsewhere most sterling based pairs have been range bound, with a slight rise for GBPTHB probably the next best thing to report sterling wise. The Bank of Thailand reacted to slowing economic growth by cutting interest rates for the first time this year by a quarter of percentage point, leading the baht slightly lower. The smaller reduction does leave the door open for further action if economic activity doesn’t improve as a result so watch this space.
UK Bank Holiday – 27 May 2013
Please note that Monday the 27th is a UK bank holiday and our offices will be closed. We return to work as normal on Tuesday the 28th.
The FX Firm Team.
Record highs for equities – 20 May 2013
Markets showed signs of life on Friday as equities staged a late-week rally to put fresh record highs in the US. The weekly gain of 2% in New York was impressive but still overshadowed by Tokyo’s 3.6% rally, leaving Japanese stocks at their highest level since December 2007. Despite the exuberant mood in the stock markets, the news on the global economy is losing its shine. The US remains the bright hope but even on the other side of the pond, data is now mixed. Whilst in Europe the data is gathering speed in its decline with unemployment numbers rising and growth slowing. The economic effects from European austerity were thrown into contrast from the Japanese route of inflation when Japan reported a 0.9% GDP growth, the highest in the G7.
The big theme last week was whether the Federal Reserve was going to end its money-printing sooner rather than later. This had led the US Dollar to a week of strong gains and a continued sell off in Gold (the potential end of money printing and the debasement of FIAT currency led to less demand for the shiny stuff which is a traditional save haven). The mixed economic signals lead us to believe that we are unlikely to see the Fed curtail its printing anytime soon and wouldn’t be surprised for a sharp reversal in the US Dollar soon. However, back to last week, the Dollar continued its gains on Friday to hit its highest level since July 2010.
The Euro continued to struggle as markets digested the data that shows the Eurozone struggling to return to growth and traded at its weakest level in 6 weeks. The Pound also struggled on Friday against the US Dollar, despite upgraded growth forecasts from the Bank of England. The Aussie and Kiwi Dollars had a torrid week, with the Aussie trading at its lowest level in nearly year. The Kiwi also traded near a 6 month low as both currencies were hit by recent intervention from their Central Banks and lower expectations of Chinese growth, the voracious consumer of Australian commodities which has kept the Aussie Dollar in such demand.
The week ahead sees data which measures confidence in Europe. These will be monitored closely as an early indicator of whether the situation in the Eurozone is getting better. Tomorrow sees inflation data from the UK which could move the Pound but we do not expect fireworks. Wednesday could see choppy trading with the Federal Reserve Chairman speaks, which should shed light on whether they plan to withdraw stimulus any time soon. The Pound is having a good start to the week with good moves against the CZK, INR, TRY and USD.
Aussie and Kiwi continue to tumble – The FX Firm Daily Comments – 17 May 2013
Markets took a breather yesterday from the impressive string of daily gains. Poor data from the US gave reason for traders to take profits as slight concerns surfaced about the robustness of the US recovery. A closely watched manufacturing survey showed an unexpected contraction and initial jobless claims came in far worse than anticipated. Hopes for the US economy have been a key driver of markets recently and equity markets reacted poorly. New York declined 0.5% and Tokyo fell 0.39% despite releasing data showing a 0.9% GDP growth last quarter. London ended slightly down, bringing to an end a 10 day run of gains. Gold also continued its slide to close below $1400 an ounce.
The weak US data hurt the dollar and brought to an end its recent rally. The weak data lessens the chance of the Federal Reserve ending its money printing, which will help keep the Dollar strength in check. The Pound held relatively firm as it continued to bask in the glow of Mervyn King’s upbeat assessment of the UK economy. The Aussie and Kiwi Dollars both continue to fall as markets remain wary in the wake of their central banks intervening in markets to weaken their currencies. The Aussie in particular has had an impressive move down over the last week or so and we expect some consolidation soon.
Overnight, New Zealand released data showing the fastest rate of inflation in 2 years to highlight the conundrum that faces their central bank. Raising rates to control inflation would normally strengthen a currency, leaving officials in an awkward place. Otherwise not much else happened, currencies traded in a tight range and there is little data today to excite markets. A nice little wind-down for the weekend perhaps?
So far this morning the big currency moves have been largely related to the Aussie and Kiwi news above and sterling is currently up nicely against both. GBPNZD is sitting in the NZ $1.88’s and GBPAUD in the AU $1.56’s. It has been a rare role reversal for these pairs and they look attractive from a sterling perspective. GBP ZAR is another big mover as the pair are marching North.
Enjoy the weekend.