Greenspan Hawking Real Estate!

Author and ex-Fed chair Alan Greenspan believes the US housing is on the verge of recovery despite the NAR reporting yesterday that seized properties and foreclosures continue to dominate sales (see below). If anything his comments provide ‘copy’ at least! Companies have entered the race of survival, the one to obtain funds. It’s important to be leading the pack as resources ‘could be limited’. Their actions will dilute future earnings, it’s no wonder analysts have been dragging their feet on earnings revisions!

The US$ is weaker in the O/N trading session. Currently it is lower against 15 of the 16 most actively traded currencies in a ‘volatile’ trading range.

Forex heatmap

The USD has been the subject de jour; various pieces appearing in both the FT and on BBC have been capable of pushing the currency to new lows. Firstly, an opinion article in the FT once again questions the US’s ability to retain its Triple A rating and the second piece claims that Japanese government is no longer interested in buying USD denominated treasuries in favor of JPY denominated bonds. Will certainly throw the cat amongst the pigeons when North American opens!

Other data yesterday showed that the US trade gap grew +5.5% to a smaller-than- forecasted $-27.6b vs. -26.1%. This is the first time in 8-months that the gap widened as exports slumped to a 2-year low, overshadowing the demand for imports. There were some positive spins in the report, US shipments to China in the last 2-months of the 1stQ has climbed the most in 3-years! The sub-categories revealed that exports declined -2.4% to $123.6b, while demand in imports decreased -1% to $151.2b, the fewest in 5-years. The IMF expects the world economy to contract -1.3% this year, the first time since WWII, despite the sketchy improvement in some geographical regions to global growth.

The NAR reveled yesterday that US Home prices fell the most on record in the 1stQ, y/y, (-14%) as banks ramped up the sales of seized properties and foreclosures dominating these sales. Dominated by distress selling (normally sold for -20% less) has reduced the inventory of previously owned homes on the market (+3.7m vs. +3.8m, m/m). Sales are down -3.2% from the 4th Q and -6.8%, y/y.

Nonconformity amongst ECB policy makers remains. Council member Weber said yesterday that there was ‘no need’ for the Cbank to buy further private assets to support lending. He believes that there is ‘no credit crunch in the euro area and therefore, there is no reason why we should surpass the banking system with our monetary-policy instruments’. It was only last week that the ECB cut its interest rate to 1% (a record low) and announced it will also buy $80b of covered bonds, a quantitative easing approach, similar to printing money. He said that ‘history shows that a too-generous liquidity provision of global financial markets associated with very low interest rates supported the emergence of asset-price bubbles’. Dissension can only weigh on the EUR!

The USD$ currently is lower against the EUR +0.45%, GBP +0.00%, CHF +0.38% and higher against JPY -0.08%. The commodity currencies are higher this morning, CAD +0.40% and AUD +0.59%. Despite a stronger than anticipated Canadian trade number yesterday (+1.1b vs. +0.5), where imports fell faster than exports, the loonie managed to remain close to home. The retreat in Canadian equities outweighed commodities plight and ended up close to a zero-sum game for the currency yesterday afternoon. But, this morning once again the currency has continued on its merry way as both equities and commodities advance combined with the general malaise of the USD. After last weeks violent move on the back of ‘eye-popping and questionable’ employment numbers, it came as no surprise that there was a bias towards more advantageous levels to own the currency. Earlier this week when the greenback clawed back some of its multi-month lows and commodities struggled, it was only natural to see some of last weeks CAD gains to be given up and hence the opportunity to own the currency. The country’s fundamentals are strong when compared to other G7 partners, but it exports 70%+ of its goods and services down south and 50% of that revenue is commodity based. With the aggressive run up over the past 5-trading sessions, speculators would be happier to once again revisit the 1.1800-1900 handle.

The AUD advanced as investors speculated that this global equity market rally since Mar. continues to have legs, thus boosting demand for the higher-yielding commodity assets (AUD, NZD and CAD). Despite looking attractive, all high yielder’s moves are aggressively overdone and it’s only natural that the market will want to consolidate sometime soon. Fundamentals look good, the currency managed to print another 7-month high in the O/N session as deep recession fears subside (0.7670).

Crude is higher in the O/N session ($59.53 up +68c). Oil prices stayed close to home yesterday as the market digested last weeks +10% rally and underperforming equity markets convinced some investors that fuel consumption may not recover anytime soon. The Chinese announcing (the world’s 2nd-biggest energy consumer) that they increased their crude imports by +14% last month did manage to temporarily push prices to their highest print in 6-months. The commodity market certainly has got ahead of its fundamentals and profit taking is probably warranted. Dealers anticipate that US inventory levels will continue its record climb, resulting in further demand destruction. Fundamentals show that supplies are high and rising and demand is low and falling. Last weeks EIA crude reports revealed that inventory numbers climbed less than forecasted, but once again managed to print a new 19-year record high. This morning we anticipate the upward trend to be maintained. Crude supplies rose +605k barrels to +375.3m, but less than the forecasted +2.5m gain. Meanwhile gas supplies fell -167k to +212.4m vs. a +500k gain and distillate fuel (heating oil and diesel), rose +2.43m barrels to +146.5m, the highest print in 32-months. One should expect OPEC rhetoric to intensify ahead of this months meeting. Gold rose as a weaker dollar and higher oil prices boosted demand for the ‘yellow metal’ as a hedge against inflation ($927).

The Nikkei closed 9,340 up +40. The DAX index in Europe was at 4,873 up +19; the FTSE (UK) currently is 4,424 down -1. The early call for the open of key US indices is higher. The 10-year Treasury’s eased 2bp yesterday (3.18%) and are little changed in the O/N session. Treasury prices remain range bound as the Fed executed the 2nd of its buy-back program yesterday. By week’s end we will have witnessed a total of 3-buy-backs of varying maturities (it will be the 17-19 occasion since conception in Mar.). With stocks struggling to duplicate last weeks moves and the government taking a 2-week pause in its record sale of debt has provided a small bid for the FI class. Dealers continue to speculate that the Fed must increase its purchase program as higher yields have sent mortgage rates above the 5% mark. Rising long term yields will inhibit economic growth. We are witnessing the clash of their buy-back program and the US governments borrowing requirements.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell