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The US dollar received a mild boost against the Japanese yen yesterday, after the US ADP Non-Farm Employment Change came in higher than analysts had forecasted. Against the euro, the dollar was relatively unchanged throughout the European session, as investors remained hesitant of opening fresh positions ahead of policy decisions out of the US and euro-zone. Today, an ECB policy meeting followed by a press conference is likely to be the highlight of the trading day. If the ECB announces any fresh initiatives to boost euro-zone growth, risk taking could return to the marketplace which may result in gains for the euro.
The US dollar was able to advance close to 30 pips against the Japanese yen yesterday, as a better than expected US ADP Non-Farm Employment Change figure boosted investor confidence in the US economic recovery. That being said, the greenback saw relatively little movement against its other main currency rivals throughout the European session, as investors remained cautious about opening new positions ahead of policy statements out of the US and euro-zone. Against the Canadian dollar, the USD moved up close to 20 pips before correcting itself later in the day, virtually erasing its earlier gains.
Today, a batch of potentially significant euro-zone news is set to create market volatility. Traders will want to note the results of a Spanish ten-year bond auction, as well as any new initiatives from the ECB to boost euro-zone growth. In addition, the US weekly Unemployment Claims figure could result in dollar losses if it comes in above the forecasted 375K. Finally, traders will not want to forget that the all-important US Non-Farm Payrolls figure will be announced on Friday. Any signs that the US economy is still struggling to add jobs could weigh down on the greenback before markets close for the week.
The euro saw a relatively light trading day yesterday, as investors were fearful that the ECB could decide to refrain from announcing new initiatives to lower Spanish and Italian borrowing costs when they meet today. Still, the common currency was able to advance more than 40 pips against the British pound during European trading to eventually peak at 0.7893. The EUR/JPY was up over 50 pips during early morning trading to trade as high as 96.43. That being said, the gains proved to be short lived, as the pair dropped down to 96.10 by the afternoon session.
Today, traders will want to pay close attention to the ECB Press Conference, scheduled to take place at 12:30 GMT. Analysts are warning that if the ECB refrains from announcing any new measures to lower borrowing costs in the region, risk aversion could return to the marketplace which may result in broad losses for the euro during afternoon trading. In addition, a Spanish ten-year bond auction, scheduled to take place before the press conference, will likely shed some light on the current state of the Spanish economy. Should demand for Spanish bonds come in lower than expected, the euro may turn bearish as a result.
The price of gold tumbled more than $20 an ounce during mid-day trading yesterday, after a better than expected US ADP Non-Farm Employment Change figure gave a boost to the US dollar. Typically, a strengthened dollar dampens investor demand for gold, as it becomes more expensive for international buyers. The precious metal traded as low as $1594.38 before staging a mild upward correction and stabilizing at the $1600 level.
Today, gold traders should pay attention to the outcome of the ECB Policy Meeting. If the ECB does announce new measures to combat the euro-zone debt crisis, investors could shift their funds to higher-yielding assets, which may give gold a boost as a result.
The price of crude oil saw upward movement during afternoon trading yesterday, after the US Crude Oil Inventories figure came in well below expectations, signaling increased demand in the world’s leading oil consuming country. Overall, the price of oil advanced well over $1 a barrel during European trading and eventually peaked at $89.14.
Today, the direction crude oil takes will likely be determined by the ECB Press Conference scheduled to take place at 12:30 GMT. If the ECB does announce new measures to boost growth in the euro-zone, risk taking could return to the marketplace which may lead to oil gains during mid-day trading.
The weekly chart’s Slow Stochastic has formed a bullish cross, signaling that this pair could see upward movement in the coming days. This theory is supported by the Williams Percent Range on the same chart, which has crossed over into oversold territory. Going long may be a wise choice.
While it appears that the MACD/OsMA on the daily chart is close to forming a bearish cross, most other long-term technical indicators place this pair in neutral territory, meaning that no defined trend can be predicted at this time. Traders may want to take a wait and see approach for this pair, as a clearer picture may present itself in the near future.
The Williams Percent Range on the weekly chart has crossed into oversold territory, indicating that this pair could see upward movement in the near future. Furthermore, the MACD/OsMA on the daily chart has formed a bullish cross. Going long may be the wise strategy for this pair.
The Bollinger Bands on the weekly chart have begun to narrow, indicating that this pair could see a price shift in the near future. Furthermore, the Slow Stochastic on the same chart has formed a bearish cross. Opening short positions may be the smart move at this time.
The Slow Stochastic on the daily chart has formed a bearish cross, meaning that downward movement could occur in the near future. Additionally, the Williams Percent Range on the same chart has crossed into overbought territory, while the Relative Strength Index is approaching the 70 level. Forex traders may want to open short positions for this pair.
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.
Source: ForexYard
Shares in Nokia turned significantly bullish in recent days following rumors that Chinese computer maker Lenovo was interested in purchasing the company. That being said, Lenovo has outright denied the rumors, leading most analysts to believe that Nokia’s current upward trend may be temporary.
As can be seen in the chart below, technical analysis supports the theory that Nokia could soon turn bearish. The Relative Strength Index on the 8-hour chart is approaching overbought territory, signaling that downward movement could occur in the near future. Furthermore, the Slow Stochastic on the same chart has formed a bearish cross. Nokia traders may want to open short positions ahead of possible downward movement.
Read more forex news on our forex blog
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.
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Source: ForexYard
At FOREXYARD, we believe in keeping our clients prepared for potentially significant news events. As such, traders will want to pay careful attention to the ECB Press Conference, set to take place today, August 2nd at 12:30 GMT. The press conference is typically the platform where the ECB indicates any change in policy or euro-zone interest rates. As can be seen in the chart below, the DAX 30 saw significant volatility following the June 6th press conference.
Don’t miss out on another opportunity to capitalize on market volatility!
Analysts are predicting that the ECB will unveil new plans to boost the euro-zone economic recovery at Thursday’s press conference. Any mention of a new initiative to lower borrowing costs in Spain or Italy could lead to major gains for the euro. This is an excellent opportunity for forex traders to take advantage of potentially significant news, so don’t miss out!
Read more forex news on our forex blog
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.
Source: ForexYard
The dollar largely maintained its gains from yesterday afternoon during the overnight session. The greenback was able to benefit from risk aversion in the marketplace after the Fed refrained from announcing new measures to stimulate the US economic recovery. The FOMC Statement also resulted in crude oil and gold turning bearish during the evening session, neither of which were able to stage an upward correction during Asian trading.
Main News for Today
Spanish 10-Year Bond Auction
• If the bond auction shows that Spanish borrowing costs have gone up further, the euro could extend last night’s bearish trend
ECB Press Conference- 12:30 GMT
• The press conference is expected to be the highlight of the trading day, and could generate significant market volatility
• Investors are anxiously waiting to see if the ECB will initiate a new round of bond-buying to lower borrowing costs in Spain and Italy
• If new measures are announced today, the euro could see substantial gains for the rest of the day
• If no new measures are announced, the euro could see bearish movement during afternoon/evening trading
Read more forex news on our forex blog
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.
Overnight, the Badminton World Federation (BWF) threw out eight athletes from the London Olympic Games.
The reason?
The players had tried to lose their respective doubles matches.
The pair of Chinese players knew that if they lost they wouldn’t meet the South Koreans again until the final (it was a round-robin format). And the other pair from South Korea, and an Indonesian pair, also tried to lose because they wanted to avoid playing against the Chinese before the final.
With everyone trying to lose and no-one trying to win, the result was a farce.
You could say these shuttlecock shenanigans are an allegory against socialism. When there’s no incentive to win, everyone loses…none more so than the spectators.
In the case of a socialist economy, when no-one tries to win, it’s the consumers and investors who lose the most…
You may have noticed that stock markets worldwide have treaded water for most of this year:
The US S&P 500 is up 7.69%. The UK FTSE 100 is up 0.23%. And the Aussie S&P/ASX 200 is up 3.81%.
It’s not what you’d call exciting gains.
But that happens when no-one is trying to win. And by winning, we mean businesses, investors, and consumers getting on with things. For instance, businesses and entrepreneurs investing in a new product or service, and consumers buying things or investing in things to meet their wants and needs.
Yes, in many respects, life goes on regardless of a crappy economy. That’s one of the positive things we’re always looking out for when selecting stocks for Australian Small-Cap Investigator.
Trouble is, with so many roadblocks in the way of Aussie businesses, most firms don’t know which way to turn. Should they invest now, or wait on the off-chance the lobbying by their industry group does or doesn’t work?
Should they employ an extra person now or wait until the passing of the next bunch of industrial relations? Or if they read the front page of today’s Australian Financial Review, they’ll probably not bother hiring at all: ‘IR review gives unions upper hand’.
This news comes on the back of an amazing chart we saw in the AFR yesterday:
Aussie manufacturing has higher labour costs than Germany. It’s no wonder Aussie firms are closing down left, right and centre. It’s no wonder that Ford Australia seems certain to close its local car-making plant by 2020.
No offence to Aussie manufacturers, but let’s be honest, if you took a straw poll of people, and asked who they’d rather have manufacture goods, Aussies or Germans, we’re pretty sure we know the answer.
So how can Germany get away with higher labour costs? Simply because Germany’s comparative advantage is the perception (and reality) of precision engineering and high quality, finished goods.
It’s why Germany has a thriving luxury car industry — Porsche, BMW, Mercedes, Audi, and Volkswagen. And why its engineering firms such as Siemens and Bosch are world class.
But we’ve strayed from the point. The point is, rather than actually getting on and doing things, businesses and investors are doing what they’re used to doing — hanging on every word that comes from US Federal Reserve chairman, Dr. Ben S. Bernanke.
So it wasn’t a surprise to see the following headline from Bloomberg News this morning: ‘U.S. Stocks Decline As Fed Fails To Bolster Confidence’.
The market has become addicted to the Fed and to money printing. So much so that the market is upset if the economy shows signs of improvement. Because if it improves businesses and investors will actually have to work for their money rather than getting a free dose of freshly printed cash.
Without stimulus, businesses need to come up with new products, new services, and new advertising campaigns. That takes time and capital.
But with stimulus, businesses have learned the impact is short-lived. There’s no time to invest for the long-term. It’s important to just flog what they’ve got as quick as they can.
But that short-term fix doesn’t only hurt businesses, it hurts investors too. If no-one innovates, where’s the incentive for investors to invest? If no-one develops a breakthrough technology to outwit the competition, why bother investing at all?
So investors don’t invest. They sit on the sidelines and wait. They wait for the next stimulus signal and rather than investing in individual stocks, or individual ideas, they throw their money into futures contracts and other derivatives to give them the broadest exposure to the whole market.
After all, they’ve learnt too. They’ve learned that with Fed stimulus, the whole market goes up…so they leverage as much as they can into the whole market, and then take it out again before the effect wears off.
In short, central bank stimulus and government interference stops innovation. And that stops progress.
But that’s what you get when central planners poison the market with artificial stimulus. That’s not to say individual stocks can’t and won’t go up, because they will. It’s just a whole lot harder to find them.
The fact is the economy needs winners. And it needs businesses and investors who have the urge to win.
Unfortunately, the socialisation of profits (taxes) and losses (bailouts) by central planners leaves little incentive for anyone to try and win. And thanks to the bailout culture, there’s almost an incentive to lose.
We often hear the phrase that you shouldn’t put profits before people. But that’s nonsense. Without profits, people would starve and the world population would be one-twentieth its current size.
It’s thanks to profits, innovation and the Industrial Revolution that the world is so prosperous and populous today.
If central planners, not individuals, run the economy instead of individuals, it’s a sure-fire way of stopping progress, and seeing a return to the poverty of the world before the Industrial Revolution.
And believe us, that won’t be good for investors, and it certainly wouldn’t be good news for the continued progress of the human race.
Bottom line: central planners out, entrepreneurs in.
Cheers,
Kris
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It’s been clear for a while now that China’s economy is slowing down quite sharply.
China’s manufacturing sector barely grew last month. The results from the latest manufacturing survey were also worse than analysts had expected.
The authorities are clearly getting worried. They have cut interest rates and are encouraging the banks to start lending more once again. So far, the only impact seems to be in the Chinese property market, which is the one area the government really doesn’t want to reflate.
But while the economic data is looking fragile, for the really grim news you have to look at Chinese companies.
The giant state-owned enterprises have posted their worst figures since the grim days of 2008. First-half profits were down 11.6% on the year. The main casualties so far have been commodity-related companies. Chinese steelmakers have seen profits dive by 96% – it’s been described as a ‘disaster zone’ by the China Securities Journal.
But the big hope for China’s economy – its consumer sector – is also suffering. As the FT notes, everything from electronics retailers to airlines to sportswear companies are running into trouble.
There are two key issues, according to Société Générale economist Wei Yao. The first is that, because of China’s economic slowdown, inventories have been building up. That’s bad news for profits: it means companies have to cut prices to shift stock. It also makes life harder for product producers, because companies won’t order as much stock in future.
The second problem is tax. While profit growth has been slowing, tax bills are higher than they were in the first quarter. This squeeze on private companies is ‘pushing China into a state of profitless growth’, argues Yao.
The authorities are trying to turn things around. Indeed, many analysts are placing their bets on a second-half recovery. Ambrose Evans-Pritchard, writing in The Telegraph, suggests that China has plans to ‘ditch its reform strategy and prepare a vast stimulus package as the country’s soft landing turns uncomfortably hard’.
It’s certainly possible. We always say that politicians take the path of least resistance. And while the central government might be talking a big game, the regional governments are keen to boost their growth again.
But any big stimulus measures will just boost inflation and increase the bad debt load across the Chinese economy. That would set up China’s economy for an even harder landing in the future. And if there’s conflict between the central government and regional ones over this, I’m not convinced that a lending boost would have the same impact as it did in 2008.
We’ve been suggesting that you avoid industrial metals miners and ‘base’ commodities in general. The good times also seem to be ending for luxury goods companies. And we’re certainly not ready to buy Chinese equities yet.
And it’s why we’re staying bearish on China’s economy.
John Stepek
Contributing Editor, Money Morning
Publisher’s Note: This article originally appeared in MoneyWeek (UK)
From the Archives…
Get Ready to Pin Back Your Ears With Gold Stocks
27-07-2012 – Dr. Alex Cowie
The Upcoming Interest Rates Shock You Should Prepare For
26-07-2012 – Kris Sayce
Don’t Believe ‘the Bull’ on Australian House Prices
25-07-2012 – Kris Sayce
Why the Melbourne Property Market Could Be Set For Two Years of Pain
24-07-2012 – Dr. Alex Cowie
The End of Growth Through Currency Wars
23-07-2012 – Dan Denning
The best way to profit from China’s decline, the most obvious play to us is a speculative one – to go short the Australian dollar.
The Australian economy is highly geared towards China’s success. Australia sells commodities, China buys them. If China’s demand for commodities falls – which it has – then Australia’s economy loses one of its key drivers.
Throw in a bursting house price bubble, and you have a recipe for falling interest rates and a weakening currency.
The Australian dollar has taken a few knocks in recent months, but it has rebounded somewhat from recent lows. It fell below parity with the US dollar at one point, but is now well above it again.
This resilience is partly due to hopes for more monetary easing from central banks in general. But it’s also got quite a lot to do with the Swiss central bank.
The Swiss are artificially suppressing the Swiss franc against the euro. They don’t want their currency to be forced higher by people fleeing the carnage in Europe. That means they have been forced to buy euros. They don’t want to end up sitting on loads of euros in their reserves, so they have to swap them for something else. That ‘something else’ includes currencies such as the Swedish krona, the Canadian dollar, and the Aussie dollar.
This can’t last forever. Either the Swiss will be overwhelmed and have to break the peg, or Mario Draghi will actually do something effective this week and the flight from the eurozone will ease off.
John Stepek
Contributing Editor, Money Morning
Publisher’s Note: This article originally appeared in MoneyWeek (UK)
From the Archives…
Get Ready to Pin Back Your Ears With Gold Stocks
27-07-2012 – Dr. Alex Cowie
The Upcoming Interest Rates Shock You Should Prepare For
26-07-2012 – Kris Sayce
Don’t Believe ‘the Bull’ on Australian House Prices
25-07-2012 – Kris Sayce
Why the Melbourne Property Market Could Be Set For Two Years of Pain
24-07-2012 – Dr. Alex Cowie
The End of Growth Through Currency Wars
23-07-2012 – Dan Denning
Of all the pyramid schemes that governments and banks have perpetrated in the last decade, the Eurozone debt crisis is the most damaging.
No amount of posturing by European Central Bank President Mario Draghi can change that fact.
The massive amount of money Draghi will need to print is far too great for the German taxpayer or the ECB’s balance sheet.
Eventually, the Eurozone will break up and drag the global economy right down with it.
In the long run, that will mark the beginning of the recovery, but in the short run it will precipitate a banking and economic crisis that will make 2008 look like child’s play.
As investors, we had better be prepared.
The Euro was a reasonably sensible idea, although without political integration it was always likely to cause trouble.
What’s more, the technical side of it was for the first ten years handled very well by Otmar Issing at the European Central Bank. Issing spent his career in the Deutsche Bundesbank and knew what a decent currency looked like.
However, two decisions taken by politicians doomed the currency.
One was to admit Greece into the union, which to any competent observer was a hopelessly corrupt and uncompetitive economy propped up by giant EU subsidies.
More important, though, was the design of the TARGET (Trans-European Automated Real-time Gross Settlement Express Transfer System) payments system which was replaced in November 2007 by TARGET 2.
As I wrote in an earlier article, it is the secret system that blew another hole in the euro.
Target 2 requires all payments between banks in different countries to go through the national central banks (thus giving those otherwise redundant entities something to do).
Theoretically that’s the same system as in the U.S., where many payments are made through the regional Federal Reserve Banks.
However, in the U.S. the larger banks deal direct, and outstanding payments in the regional Fed banks are cleared regularly. What that means is that if Alabama runs a payments deficit with New York, no large balances are allowed to build up.
Conversely, there has been no automatic clearing between the central banks in Europe. This may sound arcane and boring, but I promise you it is not.
These payment imbalances have two nasty side effects.
First, in the boom years of 2005-06 money should have drained from countries like Spain that had real estate booms. That would have raised Spanish interest rates and calmed the real estate boom.
Needless to say, that didn’t happen – instead interest rates between different countries converged, intensifying the bubbles in southern Europe.
Second, because payments are never cleared between the central banks, the Deutsche Bundesbank and other surplus central banks in places like Finland and the Netherlands have huge holdings of dodgy southern European paper. In the Bundesbank’s case alone it is 729 billion euros ($900 billion) as of June 30.
Now guess who is on the hook for all of this mess? Add it to the backs of German taxpayers.
And it was all completely unnecessary. Too bad someday it will help sink the euro.
The Eurozone crisis is now showing signs of becoming self-perpetuating.
Greece has passed modest austerity measures, but nowhere near enough to satisfy the tough conditions the Eurozone imposed in its latest bailout package.
Currently, the IMF and the EU both have monitors there, and it’s likely that when their results are released, Greece will finally exit the euro. The “grexit” will be complete.
That would not matter too much, though- it has already been discounted by the market.
However, here’s what would get the market’s attention: signs that matters have deteriorated significantly in Spain, Italy and France.
Given the Eurozone economy has descended into recession again, everything has become that much more difficult.
On a country by country basis here’s a rundown of the house of cards as I see it:
In Spain, while the national government finances are in relatively good shape, the regional governments’ are not. One of them, Valencia, has now threatened to default on its debt unless it gets a bailout from the national government.
With Valencia adding to its burdens, Spain itself will need another bailout from the EU. In response, Spanish bonds are now yielding well over 7%, thought to be the tipping point at which finance becomes effectively unavailable.
In Italy, the Monti government has failed to pass the labor law reforms Italy needs to become competitive. The Monti regime has now become very unpopular – not surprising since it was imposed on Italy by the EU bureaucrats in Brussels.
Italy must hold elections next March and two populist movements are running well in opinion polls. One is a leftist, headed by comedian Beppe Grillo. The other is on the right, headed by former Prime Minister Silvio Berlusconi, who is showing signs of running for election on an anti-euro platform. Meanwhile, Italian debt yields are following Spanish yields–ever upwards.
In France, the most alarming developments have occurred. The new Socialist government has imposed a 75% income tax on the wealthy, plus a substantial wealth tax (almost nowhere but France has tried this form of extortion).
They also reversed the previous government’s sensible– if modest– pension reforms. This should cause a substantial exodus of the rich to London and (if they can get visas) New York. It will certainly make the French economy even more uncompetitive.
French bond yields have not yet moved up to join Spanish and Italian yields, but I can’t believe bond dealers will prop up France much longer. For lovers of the euro this could be the big one.
Whether Draghi wants to believe it or not, there are now simply too many things going wrong in Europe for the current system to survive.
Each attempt to solve the problem provides respite for only a few weeks or even days.
The more dangerous possibility, becoming more likely with Draghi’s recent statements and the support for it from national leaders, is that the EU will devote yet more money from the solvent parts of Europe to prop up the losers.
That won’t prevent the eventual crash, but will make it much worse when it finally arrives. And arrive it will.
At some point, when you’re in a big hole, you simply have to stop digging.
Martin Hutchinson
Contributing Editor, Money Morning
Publisher’s Note: This article originally appeared in Money Morning (USA)
From the Archives…
Get Ready to Pin Back Your Ears With Gold Stocks
27-07-2012 – Dr. Alex Cowie
The Upcoming Interest Rates Shock You Should Prepare For
26-07-2012 – Kris Sayce
Don’t Believe ‘the Bull’ on Australian House Prices
25-07-2012 – Kris Sayce
Why the Melbourne Property Market Could Be Set For Two Years of Pain
24-07-2012 – Dr. Alex Cowie
The End of Growth Through Currency Wars
23-07-2012 – Dan Denning
