Articles from February 2007



Financial markets take massive hits

The Dollar hit a 1 year low against the Japanese Yen and a two month low against the Euro yesterday. Durable goods orders dropped 7.8 percent in the month of January, which was the largest decline in 3 years due mainly to civilian airline orders helping to push orders for non-defense goods.

Orders which are heavily skewed by aircraft fell by 3.1% in January following a downwardly revised 2.8% gain in December. Even though consumer confidence hit a 5 year high and existing home sales increased by the largest amount in 2 years, the drop in durable goods orders was what mattered.

The combination of low inflation, softer growth and problems in the sub-prime lending market will make it difficult for the Federal Reserve to raise interest rates again this year

Many eyes will turn to data out today to judge short term dollar moves that may have a longer term bearing. Today we have the USD GDP Annualized q/q at 1.30 followed by the Chicargo PMI at 2.45.

Also today we have Fed Chairman Bernanke Speaking at 3pm and his comments will be closely watched for any indication on future direction.

World stock Markets crashed yesterday sparked by a massive 9% slide on the Shanghai.

Chinese wobbles fed through to Europes markets and by 3pm Germany’s main Dax shedded 2.4% with Frances sliding by 2.8% with the FTSE down by 2.4%. Many feel the growing tension with Iran led investors to take some risk off their table.

German CPI accelerated in the month of February even though the rise was slightly softer than expected to 0.4% from an anticipated 0.5%. Also German retail manufacturing activity jumped slightly in the month of January to 45.0 compared to last month’s 43.9.

All eyes today will be on Trichet’s comments at 2pm.

There was no major data released from the UK yesterday which means that we will have to look ahead to today’s data, including the consumer confidence survey at 10.30am. Earlier this morning we saw the Nationwide Housing price report come in slightly higher than anticipated at 0.7%.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Currency markets Look ahead to US Data

The US Dollar dipped yesterday as analysts’ estimates were not expecting the US data releases to be particularly dollar friendly this week. We start off with today’s durable goods orders and could see a drop from 2.9% to -2.4% as Boeing orders are expected to drag the total level lower.

US Existing home sales this afternoon and unless we see a meaningful pickup in the housing market, we believe that the Federal Reserve will continue to keep rates on hold. January’s Recent comments from Ben Bernanke suggests that unemployment may be able to remain as low as 4.5 percent and still not induce inflation.

If this is true, then the Federal Reserve may not be tempted to raise interest rates pre-emptively.

We saw the Euro as one of the main benefactors of yesterday’s analyst estimates along with optimistic comments from ECB member Quaden who reaffirmed the central bank’s hawkish stance by saying that the “ECB has a posture of strong vigilance” adding also that the current level of interest rates does not hamper growth or investment.

Bank of England member Blanchflower mentioned yesterday that he expects inflation to fall over the next few months and even dip below the central bank’s 2 percent target in the next one or two years.

House prices according to the Hometrack index grew by 0.7 percent, which was the fastest pace of growth since May 2004. Sterling remained unchanged against the USD and slightly weaker against the Euro.

In other markets the New Zealand dollar rose to a 14-month high against the dollar after robust business confidence data led to increased expectations that the Reserve Bank of New Zealand would raise interest rates at its policy-setting meeting next week.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

BoJ decision sends Yen tumbling

The Yen hit fresh record lows against the euro and near a four year low against the dollar after the bank of Japan voted 8-1 in favour of raising interest rates by 0.25 basis points to 0.5%. Toshihiko Fukui, BoJ governor, mentioned future rate rises would be very gradual and that they would be keeping monetary policy extremely accommodative.

Over the week, the yen fell 1.7 per cent to Y159.50 against the Euro, lost 1.5 per cent to Y121.05 against the dollar and fell 2.1 per cent to Y237.50 against sterling.

The dollar moved to just over 1.9640 supported by a strong US CPI figure. In the Eurozone Friday’s slightly lower than expected German IFO figure came in at 107.5 from an anticipated 107.5.

In spite of that strong Eurozone growth data could provide the ECB with the necessary arguments to defend further interest rate hikes. After a solid economic week Sterling rose to 1.4903 against the Euro.

Iran, meanwhile, remained defiant on its pursuit of its nuclear programme by admitting it had fired a rocket into the atmosphere. President Mahmoud Ahmadi-Nejad was quoted saying Iran has obtained the technology to produce nuclear fuel and Iran’s move is like a train that has no brakes and no reverse gear.

Mr Ahmadi-Nejad’s comments were quickly picked up by Condoleezza Rice, US secretary of state. “They don’t need a reverse gear,” she responded on Fox News. “They need a stop button.”

This week is light on the data front but Trichet is speaking on Wednesday at 2pm which will be monitored to see if there will any indication on future rate rises.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Euro bulls await German IFO Report

Sterling was stronger across the board as the central bank injected more uncertainty about the outlook for monetary policy. Just after the market sent the currency tumbling on the back of less hawkish MPC minutes from the latest monetary policy meeting, BoE’s Chief Economist Bean reminded everyone that the central bank cannot afford to relax about inflationary pressures.

GBP edged slightly higher against the Euro as data showed that UK business investment grew at its fastest pace in more than a decade in the fourth quarter. Today we are expecting the 2nd release of fourth quarter GDP, no changes are predicted which should leave the market’s focus on the German IFO report.

USD hit a one-week high against the Euro, gathering support from the minutes of the January policy meeting of the Federal Reserve, which showed the open market committee remained hawkish on inflation.

Yesterday in the US the jobless claims data was released, which dropped less than expected. This suggests that the labour market may not have been as healthy this month as it was back in January. There is no US data scheduled for release today but Fed Presidents Fisher and Yellen will both be speaking about the US economic outlook.

Eurozone data released yesterday indicated strength in exports but weakness in government and private consumption. French, Italian and Belgium business confidence were all stronger than expected, which suggests that we could see strength in today’s much awaited German IFO report.

The Belgium business outlook survey tends to have a strong correlation with the German IFO report. Having hit a record high back in December, even if we see a small pullback in German business confidence it may not be entirely bearish for the Euro.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

US Dollar strenthens as Yen hits record lows against EuroYesterday the GBP lost ground against the USD and Euro after the minutes from

Yesterday the Pound lost ground against the US Dollar and Euro after the minutes from the Bank of England’s February Monetary Policy Committee meeting revealed a 7 to 2 vote in favour of keeping UK interest rates on hold at 5.25 per cent.

The seven members that voted for a rate hold felt concerned about delivering rate hikes that were too closely spaced together. They wanted to give the economy time to absorb the latest rate hikes and also wanted to avoid over tightening.

The minutes gave no clues on the timing of the next UK interest rate rise. However, the tone of the discussion was significantly more hawkish than that of the December MPC minutes, which preceded January’s surprise rate rise.

In the US consumer prices were slightly better than expected yesterday which helped to contribute to the overall strength of the USD. Having rallied going into the release of the CPI report, the true impact on the dollar was limited.

The minutes from the January FOMC meeting were relatively upbeat about growth and agreed that inflation risks still remain. Even though another rate hike was not justified at the time, they decided against dropping the tightening bias.

The tone of the statement contained the same degree of hawkishness as the comments made by Fed Chairman Bernanke last week, which should keep the prospects of a rate hike later this year in play.

The Yen tumbled to a record low against the Euro yesterday and lost ground against other major currencies as the Bank of Japan’s decision to raise interest rates failed to boost the currency. The BoJ voted 8-to-1 in favour of raising increasing interest rates by 25 basis points to 0.5 %.

Comments from the BoJ reinforced the market’s belief that despite the increase, interest rates will remain low and any further rate hikes will be delivered gradually.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

All eyes on the BoE minutes

Sterling was stronger yesterday thanks to firm money supply and public finance data. M4 money supply grew by a healthy 13% in the month of January while net monthly lending hit a fresh record high.

Today’s release of the MPC minutes from the monetary policy meeting held earlier this month is the main data out this week. The question being is whether there is room for another interest rate hike after the surprise rate hike in January.

If the decision to leave rates unchanged was unanimous, then the odds for a rate hike in March will be very low. If at least 2 members voted in favour of a rate hike, then market expectations will quickly adjust to reflect the possibility of 5.50 % rates next month.

The lack of US data this week aside from the CPI number and leading indicators is helping the dollar recover some of its losses from the prior week. The recently reported drop in producer prices suggests that we could see a similar decline in consumer prices, especially as inflation growth slows globally.

After the CPI report, we have the release of the minutes from the Federal Reserve’s monetary policy meeting in January. This will most likely prove to be a non-event since the minutes should contain a similar the message as the one that Bernanke delivered at his semi-testimony on the economy and monetary policy, which is that they have adopted a wait and see approach.

The Euro was weaker yesterday after softer producer price figures from Germany and less hawkish comments from European officials. Comments from Spanish politician Solbes and EU’s Alumnia suggest that interest rates will not go much higher while Alumnia said that inflation pressures are not excessive. Neither of these people are members of the ECB, but the shift is still worth noting.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Are inflationary pressures in the UK beginning to diminish?

With the US markets closed for Presidents’ Day and many Asian markets closed for the Lunar New Year, trading has been extremely quiet in the foreign exchange market.

News from Japan, the UK and the Eurozone have been driving the dollar’s fluctuations and this is expected to continue for the remainder of the week since consumer prices is the only piece of notable US economic data on the calendar. The global trend of inflation has been lower and because of that, consumer price growth in the US may slow in the month of January.

Yesterday in the UK a written testimony by the Bank of England to the Treasury Select Committee reported that the trade weighted pound is overvalued and is expected to move lower to close the current account deficit. The BoE also noted that inflationary pressures has ebbed and have become unusually stable.

This follows last week’s report from the National Statistics Office that revealed a 0.8% drop in prices in the month of January. However the weakness in GBP did not last long as the market tries to figure whether the BoE will still raise interest rates in March.

Given the recent weakness in UK economic data, the odds for a rate hike are diminishing. All eyes will be on tomorrows BoE’s minutes to see if the decision to leave rates unchanged was unanimous.

The Euro has started the new trading week on a firmer footing as technical traders continue to drive the currency pair higher after last week’s upside breakout.

The Eurozone economy has been exhibiting impressive strength for the past month and the currency’s latest movements reflect that. In the week ahead, the Eurozone economic calendar is far busier than the US calendar.

The majority of the market is expecting backward looking data such as French and German GDP to confirm the region’s improving growth and validate the central bank’s plans to raise interest rates.

The most important release of the week is the German IFO business sentiment report. Most of the growth that we have seen thus far has been driven by a rush of year end consumer spending ahead of the value added tax increase in Germany last month.

However now that the tax increase is in place, we might begin to see a moderate slowdown in growth that could take a toll on business sentiment.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Relatively quiet week on the forex data front

A week of choppy trading after a slew of important economic releases left GBP/USD modestly higher by the end of the week.

Overwhelming evidence that inflation pressures have eased in the UK economy kept Cable grounded, with PPI showing that input prices plunged 2.0 percent on petroleum product costs, while output prices jumped 0.3 percent as producers worked to boost profit margins.

Meanwhile, CPI fell materially lower at a rate of -0.8 percent, dragging the annual rate down to 2.7 percent – well below the critical threshold of 3.1 percent that would have prompted a warning action to UK parliament from BOE chief Merve ‘the Swerve’ King.

With interest rates in the UK and US at parity at 5.25 percent, Cable trade may remain turbulent as economic data from both countries gives neither bank the impetus to adjust monetary policy in the near-term.

The minutes of the February BOE MPC meeting will likely earn most of the attention for the week, as the market will look to the voting record for the committee’s bias on policy. Mild wage growth is likely to keep hawkish impulses in check.

After a quiet start to the month last week’s blitz of data finally created some action in the currency market. Unfortunately for greenback bulls, the majority of data was dollar negative.

For the week the EUR/USD gained 104 basis points as US economic condition clearly deteriorated. Specifically US Trade deficit widened to -$61B while the TICS inflows shrank to a miniscule $15B. No matter how you sliced it the balance sheet news was horrid.

The rest of the data was hardly inspiring as well with Retail Sales printing weaker than expected and weekly jobless claims jumping a very hefty 43k more than forecast.

In short the news suggests that US economy is slowing rapidly and if that trend persists dollars woes may only be beginning.

Next week the action once again slows to a crawl with only the CPI and Fed minutes to occupy the markets. We may again begin to trade in a narrow range but for now the bias in the greenback is to the downside and the onus is on the dollar longs to prove the market wrong.

Last week’s calendar in the Euro-zone was relatively subdued and EURO strength came from USD weakness rather than its own data. Both the Trade Balance and the ZEW missed estimates, but not by much. More importantly the EZ GDP was revised to 3.3% from 3.0% original estimate.

Next week the Euro-Zone calendar is also barren with one exception. The German IFO survey is due to be released on Friday night and is likely to be the marquee event of the week.

The market is looking for a small drop to 107.5 from 107.9 which if accurate, should not dent the unit much; IFO has hovered near record reading for most of the past year and has been one of the primary foundations for EURO strength. If it does not change much the unit is likely to remain well supported.

However, if the survey registers a massive drop due to the concerns over VAT, the EUR/USD could tumble hard.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Currencies boosted by Bernanke

The US government bond prices hit one-month highs as investors took heart after Ben Bernanke, chairman of the Federal Reserve, said inflation is easing.

Weaker-than-expected data encouraged the bond bulls who felt Mr Bernanke’s comments heralded interest rate cuts in the face of slowing US economic growth

Testifying before Congress, Mr Bernanke offered a balanced assessment that contrasted with that of other recent Fed members who had emphasised the risks of further rate increases.

While inflation remained the primary concern, he indicated that “the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing of core inflation”.

However, investors focused on a perceived change of tone, as Mr Bernanke listed reasons to expect inflation would slow, including falling energy prices and the potential for accelerating incomes to be offset by higher productivity or lower corporate profit margins.

Investor concerns about the housing market were fuelled as starts data fell 14.3 per cent in January to a 10-year low.

US producer prices were also released, shrinking slightly more than expected in January, as energy prices declined sharply. On Thursday, a weak reading of business conditions in the mid-Atlantic region followed reports showing a surprise fall in industrial output and a surge in jobless claims.

The yield on the 10-year benchmark US Treasury was 1.6 basis points lower on the day at 4.694 per cent, down from 4.815 per cent on Monday. The two-year note yield was 0.9bp lower at 4.835 per cent, down from 4.929 per cent on the week.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

UK retail sales expected to increase for fourth consecutive month as house prices slow

Retail sales in the UK are expected to have risen for a fourth consecutive month as figures are released this morning. The survey is expected to show that shoppers took advantage of after-Christmas discounts in January.

Sales in stores and supermarkets are forecast to have climbed 0.2 percent from December. Shoppers have helped power the fastest economic growth for two years in the fourth quarter, prompting the Bank of England to raise its benchmark interest rates to a five-year high.

The Pound may decline following an industrial survey showed house prices gained at the slowest rate in seven months in January. The pound fought back from nearly its lowest in a month yesterday after the Bank of England policy makers hinted that they may need to increase interest rates to bring inflation back to the 2 percent target.

Federal Reserve chairman Ben Bernanke told the banking committee yesterday that his preferred gauge of inflation will fall to or below 2 percent next year, mainly because of lower prices of oil, commodities and rent.

Industrial production is released in the US this afternoon with expectations that it was steady in January as companies held off on new orders while continuing to pare inventories.

Gold steadied this morning after reaching a near seven month high yesterday as a drop in the dollar boosted appeal for precious metal as an alternative investment. Gold generally moves in an opposite direction to the dollar, which fell to its lowest in almost six weeks against the euro yesterday.

Crude oil was little changed after falling on forecasts for warmer weather in the eastern U.S. and a smaller than expected decline in the country’s distillate supplies last week.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.