Collinson FX Market Commentary- August 5, 2014 - Equity markets jump

TP52's V5 and Mayhem (AON) - RNZYS Winter Series, August 2, 2014
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Equity markets rebounded from the worst falls in two years in the previous week. Buffeted by Geo-Political issues and ambushed by the default in Argentina and the European Banking crises relapsing.

The Portuguese Central bank announced a EUR$4.9 Billion bailout of Banco Espirito Santo, but it is hard to understand the state of the European Banking system, with this occurring six years after the GFC. The ECB has flooded the Banks with cheap money which can be reinvested, virtually risk free for years in high yielding bonds, giving the recipients a free kick!? Geo-Political issues subsided with the Israelis calling a temporary ceasefire and the Ukrainians asserting increasing control over the Eastern rebels.

The EUR remains weak, trading 1.3420, while the GBP rebounded to 1.6850 with further signs of economic recovery. The Fed may now be under pressure to raise rates after QE infinity is completed. It is this that has spooked equity markets with a threat to the endless avalanche of liquidity.

It seems unlikely, with the GDP number being an annualized number of 4%, while in reality is little better than the first quarter contraction.

Australian Retail Sales increased 0.6% and Job Ads rose 0.3%, supporting a consolidation of the currency, which traded just above .9300. The KIWI creeps slowly back above 0.8500 supported by attractive interest rate differentials.

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