20 JUNE 2013: FED STRENGTHENS USD WHILE STOCKS PLUNGE

FEDspace

 

 

The US Federal Reserve (FED) will start to taper its monetary easing program in the second half of 2013 ,and terminate the bond buying completely in the first half of 2014. That was Chairman Ben Bernanke’s message after FED’s meeting yesterday. A termination depends, however, on continued growth, controlled inflation and achievement of FED’s 6.5 % unemployment target. The US economy is moderately growing, but FED see increased downturn risks due to budget cuts, which have weakened growth. The low interest rate policies will continue.

Markets reacted by sending stocks down. Dow Jones Industrial fell 1.35 %. Nasdaq lost 1.12 %. The Asian indexes plunged on the news. The bond buying program has been the main driver behind this year’s stock rally. A termination invites uncertainty. The Asian-Pacific MSCI-index fell more than 3 %. The Japanese Nikkei was equally hard hit as were Australia, New Zealand and other Asian markets. The downturn in equity markets is most probably going to continue in Europe today.

FED’s conclusion and Bernanke’s comments don’t come as a big surprise. Over the last few weeks there has been continuous speculation as to when tapering would start. FED seems to be convinced that the US economy is on the right track, but keeps the door open for continued stimulus policies in the worst case scenario. This “exit” from monetary easing shall hardly calm nervous markets which usually overreact to news regarded as negative.

FED’s decision has strengthened the Dollar in relation to all currencies. EUR/USD has fallen from the 1.34 level to 1.326. Yen has also lost ground and trades at 96.28 Yen to a Dollar.GBP/USD, which lately has traded at around 1.57, plunged to 1.5448. The USD/AUD continues to fall, 0.9250, on new data confirming a slower Chinese growth. Oil prices are down. Brent crude trades at USD 104.69 a barrel, down one-and-a-half Dollars. Gold and commodity prices continue to lose ground.

Follow up with or daily market reviews on http://www.MAYZUS.com/en/market-reviews.html

31 MAY 2013: NEW RALLY IN CURRENCY MARKET – EURO PREVAILS OVER DOLLAR

eurodollar

 

 

All conditions were created for a rally of EUR/USD: reports from the Eurozone were better than forecast, and at the same time for the USA – worse than predicted. The result didn’t keep itself waiting for long, the pair could go above the strong resistance level at 1.30, although it reached a maximum on 1.3061 and finished the trading session around 1.3040. It is quite interesting actually, that the data from the USA were not as dire as predicted, and the Eurozone in general was not presenting something really satisfying or exceptional. The conclusion comes by itself – the overbought USD gives power to the Euro.

So, GDP (Gross Domestic Product) of the USA in 1 quarter was reconsidered to fall from 2,5% to 2,4%, and the number of the unemployed who have submitted an application for receiving a grant, grew to 354 thousand. It is absolutely not enough to frighten Bernanke, but it is quite enough to provoke investors to close long positions on USD on tops. This also gave support to the British Pound and GBP/USD from the level of opening at 1.5129 pair reached a maximum of 1.5219, having finished the trading session around 1.52.

After disappointments with the labor market in Germany, today it is worth looking at the data on retails in the country. Usually there is direct correlation: there is no income – there are no expenses, however analysts predict the indicator’s growth, so tension in the market increases. If sales volumes will really increase, it will give additional support for further strengthening of EUR/USD to the next resistance levels on 1.3070 and 1.3110.

In relation to Japan today, it is worth acknowledging the statement of IMF (International Monetary Fund), in which it completely supported the current monetary policy of the country, and stated extensive prospects of its further realization. Furthermore, the problem with growth of profitability of state bonds is considered to be completely controllable. Asian stock markets started the day positively, however, by this time, buyers confidence had already evaporated. Japanese Nikkei slightly restores yesterday’s losses, while the Hong Kong’s Hang Seng again looks worse than its”colleagues”.

Prices for precious metals are stable, with Gold on 1417.08$ and Silver on 22.74$. Prices for oil are slightly down, with Brent on 102.07$ per barrel and WTI on 93.47$. Today the next meeting of representatives of member countries of OPEC becomes a key event of the day in the oil market. Questions on the current quotas of production, and also the increase in production of oil in the USA will be discussed. America now produces record volumes of oil, thereby reducing the dependence from former exporters.
Follow up with or daily market reviews on http://www.MAYZUS.com/en/market-reviews.html

24 MAY 2013: SERIOUS MELTDOWN IN GLOBAL EQUITIES

stock-meltdown-

 

 

Dubious signals from the US Federal Reserve, FED, on continued monetary easing, and disappointing Chinese PMI numbers (a barometer on business leaders optimism), led to a serious meltdown in global equity markets yesterday. The Japanese Nikkei plunged 7,32 % with more modest losses in Europe, where London and Frankfurt indexes lost 2 %.

While FED’s Ben Bernanke testimony to Congress, warned against a premature end to the bond buying program, FED’s April minutes pointed to a split between those who want a quick termination of the program and those siding with Bernanke. Monetary easing has been the driving force behind the last months steep increases in equities.

It is natural to see the steep plunge in Japan as a result of a doubling in stock prices over the last half year and the latest aggressive stimulus policies. Globally, there have been increased worries among investors as to whether equity markets, running ahead of fundamentals, are creating a dangerous bubble. With news of an end to monetary easing and problems in China this created risk aversion and a sell off.

The fall in the US-indexes were modest following the onslaught in other markets. The last published jobless claims at 340,000, are 5000 fewer than expected. There is still a long shot to the 6,5 % unemployment target set by FED, but fewer jobless claims would give the proponents of an early end to the bond buying programs new arguments.

Oil prices which have kept surprisingly steady over the last month, decreased more than two dollars a barrel.

EUR/USD got support from higher than expected PMI indexes. As a result, EUR/USD from level of opening – 1,2855 was rolled away to a maximum of 1,2956 and this morning we can see pair traded on a level of 1.2932. GBP/USD behaved more frostily against volatility of both currency pairs and share indexes. Having reached quite strong support on 1,50 the previous trading day, pair showed moderate correction. The most important question of today is- whether the Yen finished it’s decline? Taking into consideration all the factors, pair can quite roll down to the area of 100.00.
Follow up with or daily market reviews on http://www.MAYZUS.com/en/market-reviews.html