Collinson FX market Commentary: July 18, 2014 Click here to find out how to get CollinsonFX's free iPhone app
Equity markets gave up yesterday’s record gains as Geo-Political events spiral out of control. The Middle East is on fire and now Europe has joined the pandemonium. In the US, St Louis Fed Chairman Bullard, cited improvements in the Labour market and the rising threat of inflation as reasons to exit monetary stimulus.
This aided recent gains in the Dollar which moved to EUR 1.3520 and GBP 1.7110. US Housing continued to deteriorate, with Housing Starts contracting 9.3% and Building Permits falling 4.2%. This surprised many pundits, but they are the rose-colored glass brigade who continues to believe in the US economic recovery. The AUD bucked the trend and moved up to 0.9370 after the long awaited repeal of the dreaded 'carbon tax'.
This will stimulate growth in the economy, reducing input costs and making the economy more competitive, while reducing cost of living pressures for the consumer. The NZD was trading around 0.8670 after recent CPI numbers revealed the extent RBNZ monetary policy was impacting on the economy.
Consumer Confidence fell from 3.4% last month, to just 0.6%, revealing the parlous state of the consumer in a tightening market which the RBNZ intend to exacerbate next week. Turmoil globally will not assist confidence in the markets. Collinson FX market Commentary: July 17, 2014
Equity markets continued to break new ground supported by corporate earnings, mergers and acquisitions and the Fed! Fed Chairman, Yellen, continued her testimony and stated that there 'were no alarming signals in asset values'.
She confirmed the loose monetary policy would continue to support the slack labour market. The labour market has been surprisingly bullish but growth has not! Fed minutes confirmed growth to be 'modest to moderate' and Consumer spending improved along with manufacturing.
Fox launched a takeover bid for Time Warner, which was hastily rejected. Apple signed a deal with IBM expanding growth prospects in the business sector. These all combined to bolster market sentiment. The Dollar continued to surge with the EUR back to 1.3520 and the GBP 1.7130.
China GDP growth improved to 7.5%, with slight improvements in Industrial Production, although Retail Sales were flat. This did little to support the commodity currencies with the AUD slipping back to 0.9350. The KIWI took a hammering as the tide of the USD and surprising local inflation data pushed the currency down towards 0.8700. The CPI was well below expectations and this will conflict the premature RBNZ. Collinson FX market Commentary: July 16, 2014
European markets dropped after the important ZEW reported a big fall in economic sentiment in the EU and Germany. ZEW is highly regarded and acts as a guide to the state of the European economy. The US was mixed with Fed Chairman, Yellen, appearing in front of the Senate Banking Committee. She was surprisingly hawkish in her comments and warned of the danger of overvaluation in equities.
This boosted the Dollar and Bond yields while Gold turned south. The EUR took a big hit, falling to 1.3565, while the GBP rose to 1.7150 despite the resurgent Dollar. UK CPI conitnues to threaten inflationary problems and thus the prospect of rising interest rates.
The AUD dipped to 0.9370 with the RBA minutes confirming low interest rates to support slack demand and economic challenges. The KIWI slipped back below 0.8800 but does not have the docile interest rate environment of its trading partners.
A resurgent economy has been met with Central Bank interest rate rises dampening economic activity and boosting the NZD. Seems Mr Wheeler is in his own world, which is independent of the Global economy, while looking completely different through the keyhole. Collinson FX market Commentary: July 15, 2014
A relief rally in equities spread across Europe and through to the US. ECB President, Draghi, re-assured markets that the Central Bank 'stands ready to take further action as needed'. This allayed fears, rising across the banking sector, of another Portuguese default triggering yet another banking crises. Markets will look at the Bank of Japan, expected to hold the status quo, and at the Fed later in the week.
Central Banks are most definitely in control of markets with unprecedented expansionary monetary policies. The US took comfort from the ECB and rallied on some stronger than expected corporate earnings lead by Citibank. The Dollar rallied, pushing the GBP back below 1.7100, while the EUR held 1.3600.
NZ House Prices and Sales contracted feeling the full brunt of the RBNZ new loans policy and the rising interest rate strategy. The Housing Sector has lead the recovery of the Consumer and has now hit the wall.
The trade sector will be impacted by rising costs of capital and higher exchange rates. The KIWI continued to trade around 0.8800 supported by the interest rate differentials while the AUD remained just below 0.9400.
Australian markets await the impending repeal of the much despised 'Carbon Tax' which will drive lower costs through the economy and cost of living for the consumer.This will have a positive impact across the economy on economic growth. For more on Collinson FX and market information see:
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