Despite the dramatic events unfolding around the world, the markets are exuding remarkable calm. But can that remain the case on possible economic disruption from these events and as we head toward the first big PIGS hurdle in a long time – Irish elections this Friday?
G20 – Early warning system? (Yeah, right.)
The G20 meeting resulted in an agreement in principle on certain measures that are to define when a country is not exercising acceptable flexibility in its currency regime. China managed to strike one of the most important measures, from the agreement, however – namely, measures of a country’s FX reserves. It was almost humorous to see this awkward group of nations calling the new measures an “early warning system” since the measures are extremely basic and are things that we have all known about and discussed for years (budget deficit, savings rates, . Real change in the international scene on FX issues will only happen, it seems, when one country gets fed up or desperate and makes a dramatic unilateral step – an announcement by the US of unilateral punitive measures or the like or China finally moving more quickly on the yuan when it perceives it is in the country’s own interest.
The G20 meeting resulted in an agreement in principle on certain measures that are to define when a country is not exercising acceptable flexibility in its currency regime. China managed to strike one of the most important measures, from the agreement, however – namely, measures of a country’s FX reserves. It was almost humorous to see this awkward group of nations calling the new measures an “early warning system” since the measures are extremely basic and are things that we have all known about and discussed for years (budget deficit, savings rates, . Real change in the international scene on FX issues will only happen, it seems, when one country gets fed up or desperate and makes a dramatic unilateral step – an announcement by the US of unilateral punitive measures or the like or China finally moving more quickly on the yuan when it perceives it is in the country’s own interest.
Chart: GBPUSD
Sterling longs in the US futures exchange vaulted last week (as of Tuesday) to the highest level since the last week of 2007 as expectations for the Bank of England have vaulted higher recently and with GBPUSD pushing at interest levels in the charts. If we look at a weekly chart, we see the upside down head and shoulders formation in play (with a bit of a false break a couple of weeks ago) and we also see the critical flat-line resistance level at 1.6300. The chart looks compelling, but the pair could yet be toppish if risk appetite ever begins to pay attention to events going on around the world (more on this below).
Sterling longs in the US futures exchange vaulted last week (as of Tuesday) to the highest level since the last week of 2007 as expectations for the Bank of England have vaulted higher recently and with GBPUSD pushing at interest levels in the charts. If we look at a weekly chart, we see the upside down head and shoulders formation in play (with a bit of a false break a couple of weeks ago) and we also see the critical flat-line resistance level at 1.6300. The chart looks compelling, but the pair could yet be toppish if risk appetite ever begins to pay attention to events going on around the world (more on this below).
Germany
The German data today showed the German export juggernaut continuing to gain speed, with the preliminary February manufacturing PMI registering a new all time high since measurement began back in 2006. The IFO somehow managed to post yet another all-time as well. Over the weekend, local elections held in the “city-state” of Hamburg saw Merkel’s CDU administered a thorough drubbing, with many seeing this result as an expression of extreme dissatisfaction with the Merkel governments’ support of a PIGS rescue. Three further regional elections will take place in March before and after the key March 24-25 summit. It will be very interesting to see how Merkel walks the tightrope of trying to save the EuroZone project while at the same time appearing not to offer up too much from the pockets of Germany taxpayers and trying to maintain credibility on the domestic popular front.
The German data today showed the German export juggernaut continuing to gain speed, with the preliminary February manufacturing PMI registering a new all time high since measurement began back in 2006. The IFO somehow managed to post yet another all-time as well. Over the weekend, local elections held in the “city-state” of Hamburg saw Merkel’s CDU administered a thorough drubbing, with many seeing this result as an expression of extreme dissatisfaction with the Merkel governments’ support of a PIGS rescue. Three further regional elections will take place in March before and after the key March 24-25 summit. It will be very interesting to see how Merkel walks the tightrope of trying to save the EuroZone project while at the same time appearing not to offer up too much from the pockets of Germany taxpayers and trying to maintain credibility on the domestic popular front.
Looking ahead: Wheels coming off?
A look at the headlines around the world these days is truly remarkable, but perhaps even more remarkable is the market’s lack of reaction to the dramatic events unfolding around the world. Only in precious metals market and to a small extent in oil markets are we seeing any inkling of the market paying attention to anything other than the latest US equity-market pumping POMO or the latest nudge higher and lower in central bank expectations – all of which are driven by cost push inflation rather than the various economies’ strength. In the US, we have hugely important confrontations on the state level between public sector unions and Republican state governments.
A look at the headlines around the world these days is truly remarkable, but perhaps even more remarkable is the market’s lack of reaction to the dramatic events unfolding around the world. Only in precious metals market and to a small extent in oil markets are we seeing any inkling of the market paying attention to anything other than the latest US equity-market pumping POMO or the latest nudge higher and lower in central bank expectations – all of which are driven by cost push inflation rather than the various economies’ strength. In the US, we have hugely important confrontations on the state level between public sector unions and Republican state governments.
In the Middle East, the most important focus at the moment is on Libya, where the situation has become very violent. Libya is significant for oil markets because it exports some 1.6 million barrels of oil per day. There has even been talk of a “Jasmine Revolution” encouraged in China, though this is only noise at present.
Despite all of the uncertainties that such political and geopolitical tensions create, the German equity market was only off a little over a half-percent today. Let’s see how the events around the world unfold in the coming days as we head toward the next big event risk for the EuroZone: the Irish election this Friday.
Economic Data Highlights
- New Zealand Jan. Performance of Services Index out at 50.8 vs. 52.1 in Dec.
- UK Feb. Rightmove House Prices out at +3.1% MoM and +0.3% YoY vs. +0.4% YoY in Jan.
- New Zealand Jan. Credit Card Spending out at +3.8% MoM and +5.6% YoY vs. +2.1% YoY in Dec.
- Germany Feb. preliminary Manufacturing PMI out at 62.6 vs. 60.3 expected and 60.5 in Jan.
- Germany Feb. preliminary Services PMI out at 59.5 vs. 60.2 expected and 60.3 in Jan.
- EuroZone Feb. preliminary Manufacturing PMI out at 59.0 vs. 57.2 expected and 57.3 in Jan.
- EuroZone Feb. preliminary Services PMI out at 57.2 vs. 55.9 expected and 55.9 in Jan.
- Germany Feb. IFO Survey out at 111.2 vs. 110.3 expected and 110.3 in Jan.
Upcoming Economic Calendar Highlights (all times GMT)
- UK BoE’s Bailey to Speak (1930)
- Japan Bank of Japan Meeting Minutes (2350)
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