The big news shaking the market this morning, even as it is already trying to deal with the important Finnish election results from this weekend, is the S&P outlook downgrade on US debt to negative from stable. Is this significant or merely a confirmation of what has been obvious for months?
The tremors induced by the Finnish election results were all of the focus this morning until the S&P ratings agency put the US sovereign debt rating outlook on negative from stable. This kicked volatility into high gear and is providing a very interesting test for this market at the moment. The world is already very short the USD on the obviously shaky fiscal prognosis for the US and its feeble attempts to wrestle with its debt demons. The ratings agencies are often rather behind the curve on moving to adjust ratings on sovereign debt for fairly obvious reasons (not wanting to step on political toes, etc.), so while the announcement had a kneejerk weakening effect on the USD, the ironic thing could be that this serves to help strengthen the USD if the market decides to take some of its current chips off the table (which might have more to do with the European situation than this S&P announcement in the first place). We’re already seeing that reaction to some degree as we write this just before publishing, as most of the initial move in the USD to the weak side has been erased. Stay tuned, we’ll follow up on this later. EURGBP: End of uptrend?
Meanwhile, elsewhere, those trying to simply get their bearings on how the Euro is trading without the USD influence can have a look over at EURGBP, which has come well off its highs of last week on this latest tremors induced by the Finnish election result. Today’s action is a significant follow up on the rejection of last week’s new highs and looks like a game changer for the pair, suggesting that the pound will gain the upper hand for now. The next focus is the 0.8675 area.
Meanwhile, elsewhere, those trying to simply get their bearings on how the Euro is trading without the USD influence can have a look over at EURGBP, which has come well off its highs of last week on this latest tremors induced by the Finnish election result. Today’s action is a significant follow up on the rejection of last week’s new highs and looks like a game changer for the pair, suggesting that the pound will gain the upper hand for now. The next focus is the 0.8675 area.
China tightens again.
China raised its bank’s reserve requirement ratios yet again on further signs of a crackdown on lending. Meanwhile, we should also keep our eye on copper prices due to the parallel/unofficial credit system centered around the practice of using warehoused copper as collateral as we note copper prices are close to their lowest levels for the month. At some point to the downside, a trigger point awaits that could generated a rather disorderly market if significant physical supplies are suddenly in need of liquidation. As for the fallout in the Chinese banking system – it’s hard to gauge, but it wouldn’t be particularly helpful. It’s very interesting to note the
China raised its bank’s reserve requirement ratios yet again on further signs of a crackdown on lending. Meanwhile, we should also keep our eye on copper prices due to the parallel/unofficial credit system centered around the practice of using warehoused copper as collateral as we note copper prices are close to their lowest levels for the month. At some point to the downside, a trigger point awaits that could generated a rather disorderly market if significant physical supplies are suddenly in need of liquidation. As for the fallout in the Chinese banking system – it’s hard to gauge, but it wouldn’t be particularly helpful. It’s very interesting to note the
Looking ahead
It’s a short week in Europe this week with Easter holiday up on Friday (and earlier in some cases with some countries also taking Monday off). The uncertainty surrounding the shape the Finnish government will take and the pressure on European debt spreads will be the critical focus this week for the Euro.
It’s a short week in Europe this week with Easter holiday up on Friday (and earlier in some cases with some countries also taking Monday off). The uncertainty surrounding the shape the Finnish government will take and the pressure on European debt spreads will be the critical focus this week for the Euro.
Elsewhere, it is fascinating to watch the reaction across markets after the S&P US outlook downgrade as Bunds are absolutely screaming higher - as they seem to represent the only safety trade (besides the Swiss franc), which is squeezing higher again) when the US sovereign debt situation is in play.
The S&P announcement also has EURJPY under pressure. For all of the JPY crosses, one must be kept on the 82.50 area in USDJPY that we talked about late last week, as it is the confluence of the daily Ichimoku cloud and the 55-day moving average. The market hasn’t really been prepared for a rally in government bonds, and the JPY crosses, after the initial large adjustment to the ongoing post-earthquake/tsunami/nuclear crisis, are now firmly back to correlating tightly with bond markets. The question is, do US and European bond markets diverge here or will the market quickly get over this outlook downgrade?
On the event risk calendar for the next couple of days, watch for the European preliminary PMI surveys out tomorrow for possible signs of a slowdown beginning to finally rear its head and also watch out for the US housing starts and building permits tomorrow and Goldman Sachs earnings out tomorrow morning as well.
Economic Data Highlights
- New Zealand Mar. Performance of Services Index out at 50.8 vs. 50.8 in Feb.
- New Zealand Q1 Consumer Prices rose +0.8% QoQ and +4.5% YoY vs. +1.0%/+4.6% expected, respectively and vs. +4.0% YoY in Q4
- UK Apr. Rightmove House Prices rose +1.7% MoM and +0.1% YoY vs. +0.9% YoY in Mar.
- Canada Feb. International Securities Transactions were +2.5B vs. +10B expected and +13.4B in Jan.
- US Apr. NAHB Housing Market Index out at 16 vs. 17 expected and 17 in Mar.
Upcoming Economic Calendar Highlights (all times GMT)
- US Fed’s Bullard to Speak on Banking Rules (1600)
- US Fed’s Fisher to Speak on Economic Outlook (1630)
- UK BoE’s Weale to speak (1630)
- Australia RBA April Meeting Minutes (0130)
- China Apr. HSBC Flash China Manufacturing PMI (0230)
- Japan Mar. Consumer Confidence (0500)
No comments:
Post a Comment