{"id":8803,"date":"2010-04-26T08:39:02","date_gmt":"2010-04-26T12:39:02","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=8803"},"modified":"2010-04-26T08:39:02","modified_gmt":"2010-04-26T12:39:02","slug":"forex-weekly-market-review-april-26-2010","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2010\/04\/26\/forex-weekly-market-review-april-26-2010\/","title":{"rendered":"Forex Weekly Market Review April 26, 2010"},"content":{"rendered":"

By eToro<\/strong> – The equity markets rebounded this week as strong earnings and economic data convinced investors that equities were a robust place to invest.\u00a0 Despite the shadow of the SEC charge against Goldman Sachs and the trepidation in Europe, the S&P 500 index was able to notch up a 25-point rally.\u00a0 The index closed the week at 1217 up 2.1%.<\/p>\n

<\/strong><\/p>\n

Is Europe Out of the Woods?<\/strong><\/p>\n

Greece is on the verge of delivering some calm to markets that have been on a bumpy ride during the past 3 months.\u00a0 On Friday, PM Panpadremos formerly announced that it is seeking to activate the Eur45 billion-aid package.\u00a0 In televised comments, Panpadremos said, \u201cthe time has come\u201d for Greece to request aid. \u201cIt is a necessity. It is a national and pressing necessity for us to officially request from our partners the activation of the support mechanism.\u201d On Thursday, Eurostat said that Greece\u2019s deficit last year is at least 13.6% and not the 12.9% the government estimated on April 9. The deficit may be 0.3-0.5% higher if the over the counter swaps, classification of some public entities, and social security funds are added.\u00a0 Eurostat also noted that the Irish deficit was 14.3%, giving it the honor of the largest deficit in the euro zone.\u00a0 Additionally, Moody\u2019s downgraded the debt of Greece by notch to A3.\u00a0 Moody\u2019s kept Greek debt rating on negative watch.<\/p>\n

There are a number of issues that Europe still faces, and activating a backstop is just the first.\u00a0 Whether the size of the facility is sufficient to cover this year, and part of next year\u2019s debt, is a question that will only be answered with time.\u00a0 There is a good chance that Greece may still try to raise funds when market conditions allow for it.\u00a0 Greece will probably need a multi-year program and European officials seem to have ignored this reality.\u00a0 Additionally, officials seem to be stuck in a reactive mode and have not been able to get ahead of the curve.\u00a0 Specifically, as recently as Thursday, IMF head Strauss-Kahn ruled out a preemptive package for Portugal and\/or Spain, arguing there was no need.\u00a0 The thought that a contagion could develop is not even on the minds of the IMF or ECB.\u00a0 Another issue, which is not being addressed, is the issue of competitiveness in the periphery of Europe.\u00a0 The focus is largely on Greece\u2019s ability to service its debt.\u00a0 One of the consequences of the fiscal austerity that is being mandated is that it will keep aggregate demand\u00a0 suppressed\u00a0 and\u00a0 could\u00a0 then\u00a0 still\u00a0 produce\u00a0 a\u00a0 widening\u00a0 of the output gap in Europe.\u00a0 An example is reflected in Germany.\u00a0 On Thursday, Germany\u2019s flash manufacturing PMI rose to an all-time high of 61.3, while services edged fractionally higher.\u00a0 On Friday, German released a stronger than expected IFO survey.\u00a0\u00a0\u00a0 The business climate reading came in at 101.6 (98.2 last), the highest since May 2008.\u00a0 The assessment of current conditions and expectations also rose.\u00a0 This reinforces ideas that domestic demand remains weak but exports, as traditionally the case, are leading the economy.\u00a0 As Germany has become more competitive as export nations, Greece has suffered in its shadow.<\/p>\n

Despite apparent approval of an aid package, Greek yields moved higher even on Friday.\u00a0 Greek 2-year yields had fallen below 10% on the aid news, but finished the trading week at 10.23% Ominously, Portugal 2-year is doing worse, with its yield up losing 10 basis points on Friday, closing the week at 2.94%.<\/p>\n

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The Data does not help Labour<\/strong><\/p>\n

The UK is the first G7 country to report preliminary first GDP figures.\u00a0 The numbers were rather disappointing.\u00a0 The consensus expected a 0.4% expansion and instead ONS said the economy expanded half as much.\u00a0\u00a0 The 0.2% rise was also half the pace reported in the fourth quarter 009.\u00a0 Because of the base effect, the year-over-year retraction eased to -0.3% from -3.1% in fourth quarter 09.\u00a0 The economic trough was hit in the second quarter at almost -6.0%.\u00a0 The preliminary report indicated that services expanded 0.2%, while industry expanded by 0.7%.\u00a0 During the week, the UK reported higher than expected inflation, which forces BOE Governor King to write another letter to Darling to explain the overshoot.\u00a0 The headline CPI rose 0.6%, twice what the consensus had expected.\u00a0 The year-over-year rate rose to 3.4% from 3.0%.\u00a0 The consensus had expected a 3.1% increase.\u00a0 Some questions have been raised over whether the BOE\u2019s assessment of inflation is really just a transitory issue. \u00a0\u00a0Although energy was a strong component of the increase in the headline CPI, prices for fuel have not declined, which can create a problem for the central bank.\u00a0 Although unemployment claims shrank by 33 thousand, which can be spun in a positive light, Labour is facing lower than expected growth and higher than expected inflation at a time when the budget deficit and government spending are the core focus of the upcoming election.<\/p>\n

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Petroleum\u2019s Bearish Fundamental Could Be Overlooked<\/strong><\/p>\n

The opening of numerous Airports in Europe during the week, after volcanic ash kept them closed for more than 5 days, counteracted the relatively bearish inventory report.\u00a0 Crude oil was able to rally $2.17 per barrel during the week.\u00a0 According to the Department of Energy, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.9 million barrels from the previous week. At 355.9 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 3.6 million barrels last week, and are above the upper limit of the average range.\u00a0 Distillate fuel inventories increased by 2.1 million barrels, and are above the upper boundary of the average range for this time of year.\u00a0 As the US moves into driving season, which is usually the time of year, that demand for gasoline and diesel increases, supplies have continued to increased at a time when inventory is increasing.\u00a0 Not only is the trajectory of supplied continuing to increase, but the days supply (the amount of gasoline held in inventory that can be used without producing any new gasoline) of gasoline stocks have increased relative to last year.\u00a0 Petroleum has been trading in a highly correlated fashion with the dollar and the US equity markets.\u00a0 Any down turn in equities (or an upturn in the dollar) could be detrimental for the oil markets.<\/p>\n

\"\"<\/strong><\/p>\n

Is Inflation Hitting the US?<\/strong><\/p>\n

The US Producer Price Index for finished goods rose 0.7% in March.\u00a0 This was greater than expected and shows that input costs are rising at a faster pace than the Federal Reserve might want.\u00a0 An example of increasing intermediate prices is the skyrocketing cost of rubber, a major tire component, which has climbed nearly 74% this year after rising 92% in 2009. Another rapidly rising raw materials Palladium, which goes into car exhaust systems, is up nearly 39% this year, potentially boosting costs for U.S. carmakers as they try to recover from the recession.\u00a0 Lumber, a major cost for homebuilders, is up nearly 59%. \u00a0This could hurt the underlying profits for homebuilders.\u00a0 Iron-ore prices also are rising, while oil and copper prices have tacked on to last year\u2019s huge gains.\u00a0 Data on producer prices released by the Bureau of Labor Statistics on Thursday shows how rapidly the pressure on corporate America is mounting. The producer-price index showed that crude goods such as iron ore, construction sand and pulp shot up 44.5% year-over-year the fastest rate since 1974. Including energy and food costs, crude goods prices rose 33.4%.\u00a0 So far, input prices at the producer level have not spilled over into the consumer sectors.\u00a0 Consumer prices were up only 2.3% in March on a year over year basis.\u00a0 At the core level, CPI was flat and flat for the first quarter.\u00a0 Although the producer prices at face value are somewhat alarming, until they filter their way into the CPI, PPI will take a back seat.<\/p>\n

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Japanese Debt<\/strong><\/p>\n

The same day that Moody\u2019s cut Greece\u2019s sovereign rating to A3 from A2, Fitch warned that Japan\u2019s credit rating was threatened by its mounting debt.\u00a0 Yet, ironically, the latter may be a source of funds for the former.\u00a0 Although Greece will be drawing on the European\/IMF funds, it may also seek to raise funds from the market, when conditions permit.\u00a0\u00a0 The Japanese government is actively engaged in deepening the samurai bond market.\u00a0 Samurai bonds are yen-denominated bonds issued by non-Japanese corporate or sovereign entities.\u00a0 The state-backed Japan Bank for International Cooperation (JBIC) is providing guarantees to support the sale of samurai bonds by a wide range of developing countries, from Mexico to Vietnam, from Turkey to Uruguay.\u00a0\u00a0 The specific purpose of JBIC is to boost the usage of the yen as an international currency.\u00a0\u00a0 With JBIC guarantees, these samurai bonds take on partial function of Japanese government credit worthiness.<\/p>\n

This weekend\u2019s G7\/G20\/IMF\/EU meeting will supply the markets with interesting fodder for trading.\u00a0 On Tuesday, US Consumer Confidence will headline the economic releases.\u00a0 Since confidence and retail sales have opposed each other (confidence continuing to come in weaker), this number will be watched carefully.\u00a0 Wednesday, the FOMC will make their interest rate decision.\u00a0 No change is expected.\u00a0 On Thursday, EMU consumer confidence and US Jobless claims will be watched carefully.\u00a0 On Friday, the BOJ will release its interest rate decision.\u00a0 This will be followed later in the day, by US GDP and the Chicago PMI.<\/p>\n

Market Analysis provided by eToro<\/a><\/strong><\/p>\n

Disclaimer: Trading in the Foreign Exchange market might carry potential rewards, but also potential risks. You must be aware of the risks and are willing to accept them in order to trade in the foreign exchange market. Don\u2019t trade with money you can\u2019t afford to lose.<\/p>\n

\u00a9 2009 eToro Blog.<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

By eToro – The equity markets rebounded this week as strong earnings and economic data convinced investors that equities were a robust place to invest.\u00a0 Despite the shadow of the SEC charge against Goldman Sachs and the trepidation in Europe, the S&P 500 index was able to notch up a 25-point rally.\u00a0 The index closed … <\/p>\n

Continue reading “Forex Weekly Market Review April 26, 2010”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-8803","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/8803","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=8803"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/8803\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=8803"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=8803"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=8803"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}