Few seem convinced about the Euro-zone escaping further repercussions. Even leaders and policy makers disagree on Ã¢â‚¬Ëœthe positive actionsÃ¢â‚¬â„¢ to be taken. Greece, technically, could be the smallest of all of the European economies problems, as other members begin to impose their own self-austerity plans. Ã¢â‚¬ËœLoose lipsÃ¢â‚¬â„¢ yesterday by the GreekÃ¢â‚¬â„¢s PM has investors questioning the value of the EUR. The market needs a distraction, and seems to be shifting towards the Yuan Ã¢â‚¬ËœpotentialÃ¢â‚¬â„¢ revalue. The Governor of the PBOC has indicated that the days of the Ã¢â‚¬Ëœspecial YuanÃ¢â‚¬â„¢ policy were numbered. He described the dollar peg as a Ã¢â‚¬ËœtemporaryÃ¢â‚¬â„¢ response to the global financial crisis, but gave no timescale for any change in policy. Expect a lot of analysis to be written about this topic over the coming days. What ever happens, the Ã¢â‚¬Ëœreval, non-pegÃ¢â‚¬â„¢ will be a gradual move. No policy maker will want to expose their economy to a sudden shock. Let the speculation begin.
The US$ is stronger in the O/N trading session. Currently it is higher against 13 of the 16 most actively traded currencies in another Ã¢â‚¬ËœsubduedÃ¢â‚¬â„¢ trading range.
Even with the lack of North American data yesterday there was a subtle undertone that leant towards risk-off again. ECBÃ¢â‚¬â„¢s StarkÃ¢â‚¬â„¢s comments that the talk of a European Monetary Fund should be rejected and Merkel indicating a Ã¢â‚¬Ëœno-goÃ¢â‚¬â„¢ light for Greece in the form of financial aid has had traders booking profits. SarkozyÃ¢â‚¬â„¢s rhetoric at the weekend temporarily provided a leg-up for the EUR. However, the Greek Prime Minister loose comments that his countryÃ¢â‚¬â„¢s fiscal crisis could spread beyond Europe certainly did no favors for the EUR. When there are so many cracks appearing itÃ¢â‚¬â„¢s difficult to just use a temporary fill. The market continues to remain on edge about a contagion scenario occurring within the Euro-zone. .
The USD$ is stronger against the EUR -0.25%, GBP -0.50%, CHF -0.22% and weaker against the JPY +0.49%. The commodity currencies are little changed this morning, CAD -0.10% and AUD -0.01%. With crude and equities reversing earlier gains yesterday, managed to weigh heavily on the loonie. Any currency tied with growth always finds it difficult to maintain its strength on weaker global bourses. Monthly correlation stands at +0.6, a reading of 1-equals a hand-in-hand move. Stronger Canadian housing starts data (+197k vs. +185k) did little to aid the domestic currency. Analysts believe that the stronger activity was brought forward into the spring market to avoid any new-additional taxes that will be implemented next month. Last week, the loonie managed to appreciate to its highest level in 2-months. This Friday we get to see the Canadian employment report. Last week, the BOC did what was expected of them, by keeping rates on hold. It seems that they are potentially Ã¢â‚¬Ëœbehind the curveÃ¢â‚¬â„¢. Their following communiquÃƒÂ© was hawkish in nature, leading to somewhat predictable rate increases for the second-half of this year. The trend remains your friend. expect better buying of the domestic currency on USD rallies in the medium term.
The AUD managed, at one point, in the O/N session to print a seven-week high, on demand for the higher yielding asset, after ads for job vacancies jumped by the most in more than a decade. This prompted speculation that the RBA will raise interest rates again next month. With global bourses again in the Ã¢â‚¬ËœredÃ¢â‚¬â„¢ this morning, is pressurizing growth and commodity based currencies. It seems that risk is off-again. Last week the RBA hiked rates by +25bp to +4%. Governor Stevens said Ã¢â‚¬Ëœrates should be closer to averageÃ¢â‚¬â„¢, which policy makers have indicated may be 75bp higher than the current +4%. Analysts believe that the Ã¢â‚¬Ëœthe biggest jobs boom in more than 3-years and a surge in business confidence suggest AustraliaÃ¢â‚¬â„¢s economy is already growing at or close to trend, after escaping recession during the global crisisÃ¢â‚¬â„¢. Reading between the lines, we should expect the RBA to hike with a Ã¢â‚¬Ëœgradual approachÃ¢â‚¬â„¢. Continue to expect better buying on deeper pull backs (0.9077).
Crude is lower in the O/N session ($81.00 down -87c). Crude was little changed yesterday, in fact a dull day of trading for the black-stuff, especially after last weekÃ¢â‚¬â„¢s late surge on the back of stronger than expected employment data. It was the optimism that fuel demand will climb in the worldÃ¢â‚¬â„¢s biggest energy consuming country that pushed the commodity to encroach on its recent highs. Now that we have firmly broken the psychological $80 a barrel, some technical analysts believe this opens the way for a $90 print. However, the market will want to witness a few elevated closes before buying into their theory, especially ahead of the OPEC meeting on Mar. 17th. With global bourses under pressure this morning, expect some bulls to second guess their positions. Already the Saudi ArabiaÃ¢â‚¬â„¢s King Abdullah has targeted $75 as a fair price for consumers and producers. Last weekÃ¢â‚¬â„¢s EIA report showed that refinery utilization rates are at their highest since Oct., a sign that gave the bulls the green light to keep the commodityÃ¢â‚¬â„¢s prices somewhat elevated. Utilization rates increased +0.7% to +81.9% last week. The headline print for crude climbed +4.03m barrel (more than three-timeÃ¢â‚¬â„¢s estimates). The market is now expecting the higher utilization rate to quickly Ã¢â‚¬Ëœmop up excess suppliesÃ¢â‚¬â„¢. The total US fuel demand averaged over the month was +19.3m barrels (+3% y/y). Digging deeper, other fuel stockpiles came in close to expectations, with gas up +800k barrels and distillate inventories (heating oil and diesel), down -800k. It seems that this market may be supported Ã¢â‚¬Ëœon airÃ¢â‚¬â„¢ rather than the fundamentals. Technical traders love this. With momentum and an investor attitude that the economic situation will not get much worse, will support commodities on pull back, for now at least.
It seems that some of the risk premium that the Ã¢â‚¬Ëœyellow metalÃ¢â‚¬â„¢ managed to accumulate last week on GreeceÃ¢â‚¬â„¢s woes was exited yesterday. Investors were happy to cash in on their profits that were booked using other G7 currencies, despite the dollar finding it difficult to discover consistent traction vs. the EUR. Basically, it seems that if the Greek situation does eventually calm down, investors may not be as interested in owning hard assets. Last month the commodity managed to print its first monthly gain since Nov. European sovereign debt issues and a ballooning UK deficit with the potential of Ã¢â‚¬ËœhungÃ¢â‚¬â„¢ parliament after the next general election has had investors seeking some sort of portfolio surety. Bears should be wary of Cbanks wanting to add the commodity to their reserves ($1,121).
The Nikkei closed at 10,567 down -18. The DAX index in Europe was at 5,849 down -25; the FTSE (UK) currently is 5,575 down -32. The early call for the open of key US indices is lower. The US 10-year backed up 2bp yesterday (3.70%) and is little changed in the O/N session. 10-year notes fell, pushing the yield to its highest level this month on concerns that the US government will struggle to find buyers for its product this week. Sarkozy stating that the Euro-Zone will help Greece had investors temporarily reducing their demand for surety assets. Better than expected employment report makes one ponder the thought that the FedÃ¢â‚¬â„¢s exit path may be shortening. With the world a safer place, supposedly, has given dealers an excuse to liquidate more of their positions to allow them to take down supply this week (3Ã¢â‚¬â„¢s $30b, 10Ã¢â‚¬â„¢s $21b and 30-years $13b).
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