11 March 2013: US-Dollar keeps the upper hand

The USD keeps the upper hand in the currencies markets and continue to gain both against a currency basket and major currencies as Euro, GBP and JPY. USD/JPY traded at 96,10 – a 3-and-a-half year high following surprisingly strong USD labor data on Friday. US employers added a more-than-expected 236 000 workers to their payrolls in February. The jobless rate fell to a four year low of 7,7%.

There is still a way to go before the unemployment numbers reach the 6,5% target set by the Federal Reserve (FED) and monetary easing is reconsidered. Before this target is obtained the US economy must produce more than 200 000 monthly jobs for the next three consecutive months. The strong February data has, however, created a momentum and new optimism that the US economy finally is turning and lying the financial crisis from the autumn 2008 behind.

Risk appetite was, however, curbed by a mixed bag of economic data from China painting a patchy recovery in the world’s second-largest economy. The data signaled a looming dilemma for policymakers, as inflation stood at a 10 month high in February. Factory output and consumer spending were weaker than forecast. The data caught commodity prices between growing optimism of increased consumption and a stronger dollar. Non-dollar holders are buying dollar-denominated commodities.

In Asia the MSCI-index for Asia-Pacific was up 0,1% while Shanghai fell 0,3%. The Dow Jones industrial average posted its fourth consecutive record high on Friday. European shares also jumped on the strong US labor data. The strength of the dollar is also a reflection of more fundamental money flows out of the yen and euro. These developments nudge the dollar higher. Currency speculators are boosting their bets in favor of USD and raised their short positions in most other currencies as yen, pound sterling GBP and Euro. Oil and precious metal prices keep steady.

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08 March 2013: USD/JPY rallies before US jobs

The dollar surged to its highest level against Japanese yen in 3-1/2-year before US job numbers for February are going to be presented later today. USD stands at 95,43 yen up 0,6% since yesterday. It is expected that that the US economy last month created net 160 000 new jobs. The unemployment rate still stands at 7,9% far from the 6,5% which the Federal Reserve (FED) has set as target for ending monetary easing.

Investors waiting for more dovish signals from the European Central Bank (ECB) at its press conference yesterday was disappointed. The single currency posted its biggest rally this year and jumped more than 100 points against the dollar and stands at 1.3092 after flirting with 1.29 figures earlier in the week. ECB President Mario Draghi plaid down the threat of contagion to other euro members following the Italian political stalemate. Draghi stressed growing market confidence in the Euro which had EURO bears quickly to cover short positions.

The Euro skyrocketed 2% to 124,57 against the JPY. It stood at 118,74 last week. The 34 month peak of 127,71 set last month is thereby brought back in play. The rally might, however, be short played with investor’s attention back on Chinese trade data and whether the US unemployment rate will stay at 7.9%.

Bank of England (BOE) kept its guns yesterday and held fire on the expected more economic stimulus. The downward pressure on British sterling (GBP) continues, however. USD/GBP trades again below 1.50 after seeing some recovery yesterday. There is no change in the choppy trading pattern in commodity related currencies. Oil prices are steady. Gold fell back from USD 1583 an ounce reached yesterday to 1567 this morning.

The stock rally in the United States continue. Dow Jones ended at record high for the third straight day boosted by expectations of a pick-up in the payrolls report. Growth oriented sectors led the gains with strong jumps in Bank of America (up 2,9%) and JP Morgan Chase (1,2%). Worries about the path of US fiscal policy and the Euro zone crisis loom, however, in the background. For the moment the Bulls are in advance.

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07 March 2013: GBP and Euro face strong pressure

A solid job report showing that US private employers added a larger-than-expected 198 000 jobs in February, gave the dollar a strong boost yesterday, trading at its highest level against a basket of currencies in 6-1/2 months. Both the Euro and Pound sterling (GBP)are under strong downward pressure. Euro/USD dipped below 1.30 and trades at 1.2990 prior to meeting in the ECB, European Central Bank, later today.  GBPUSD traded below the critical 1.50 level on rumours on monetary easing.

 While the job data fuelled hopes that the US economy is improving, the British pound fell to its lowest level in 2-1/2-year as market players positioned for more stimulus from the Bank of England (BOE). The strict austerity measures introduced by the British government over the last two years have  not been working,  and the UK economy is facing the threat of triple-dip recession. While BOE and other central banks are considering the same monetary easing policies as the US FED  has practised, US is debating whether to exit their bond buying program.

After the dollar index, DXY, hit, a bottom level of 78,918, in the beginning of February  it has rallied 4 % since. The stronger employment data along with better housing figures are likely to fuel speculation that FED  will end its bond buying program sooner than expected in spite of FED Chairman, Ben Bernanke’s strong statement to the contrary only weeks ago.

 Of the three major Western central banks;  ECB, BOE and FED,  BOE is the most likely to act in favour of more easing. Three of BOE’s members voted in favour of quantitative easing last month.  It is expected that a majority this week will opt for a moderate 25-billion-pound balance sheet expansion.  That would put sterling under further strong pressure.  ECB meets in Frankfurt today on the backdrop of a political deadlock in Italy and prospects for a further fall in the Euro. It is, however,  expected that ECB will keep its policies unchanged.

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05 March 2013: Wall Street higher in closing rally

In a late-day rally Wall Street pushed major stock indexes near all-time highs despite concerns about growth and China’s housing market. Any slowdown in China could affect US growth. Commodities and US-materials have a big exposure towards China. This goes especially for giants as Caterpillar and Alcoa which lost respectively 1,8% and 1,1% and were the big losers in yesterday’s trade.

Asian shares followed suit and rebounded strongly on Tuesday after a sharp sell-off triggered by slumping Chinese stocks the previous session. The MSCI-index for Asia-Pacific shares won back 1.1% of the 1.3% lost on Monday. In a prepared statement for the opening of China’s annual parliament meetings, outgoing Premier Wen Jiabao, stressed that China would boost fiscal spending in 2013 in a bid to deliver on the promised 7,5% economic growth for 2013.

This boosted the Australian stock market which rose 1,5% outperforming its Asian peers. Japan’s Nikkei stock average rose 0,8% to 53 month high. At least for now markets continue to be bullish in spite of spending cuts in the US, lack of any kind of political resolution in Italy and weaker data from China including an overheated property market. Markets are flush with capital due to monetary easing and continuous low interest rates. For the time being this seems to trump every other concern.

There are no big movements in the currencies. Euro/USD is steady on 1.3015. EU Finance Ministers met yesterday to discuss bail-out terms for Cyprus (see separate article). USD/JPY is at the same 93,50 levels as seen at the start of the week. British pound, GBP, has avoided to slump below 1.50 and trades above 1.51. Oil prices have recovered from yesterday’s low. New York crude, NYMEX, is above USD 90 a barrel. Brent crude trades at 110,25. Gold and silver are marginally higher than at the start of the week. Gold at USD 1580 an ounce.

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01 March 2013: Euro fall steadies in Asian trade

The Euro steadied in Asian trade Friday morning after steep losses yesterday and after notching its biggest monthly fall – 4% - against the dollar in nine months. This as investors digested slightly disappointing Chinese data, political uncertainty in Italy and impending US government spending cuts. These combined factors sapped investor’s risk appetite and put the Euro under increased pressure.

China’s official purchasing managers’ index for February showed manufacturing activity at its slowest pace in four months at 50.1 against the predicted consensus poll of 50,2 slightly lower than expected. The data is not dramatic. Risk-off sentiment doesn't usually help the Euro, but the Chinese data is not a major factor. The unclear situation in Italy is the basic worry. Euro/USD is trading at 1.3073 well above the 1.3018 hit earlier in the week. The European Central Bank (ECB) will consider interest rates today. A further cut will put the Euro under new pressure.

The Japanese yen was relatively steady against both Euro and USD. USD/JPY trades at 92.64. The yen which usually is regarded as a safe haven in times of heightened market stress, continue to under perform after Prime Minister Shinzo Abe nominated an advocate of aggressive growth and stimulus policy to head the Bank of Japan.

The big worry in global markets is nevertheless how the sweeping US budget cuts worth USD 85 billion starting from this month, will hit growth in the world’s biggest and the global economy. The International Monetary Fund (IMF) has warned that the cuts would hit US biggest trading partners especially hard. In Washington the blame game between Republicans and Democrats are in full swing with both parties accusing each other for failure to prevent the fiscal crisis.

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28 February 2013: Bernanke and data lift Wall Street

Stocks rose on Wednesday with major indexes posting their best daily gains since early January, as Federal Reserve Chairman, Ben Bernanke, gave robust support for continued stimulus policy and data pointed to modest economic improvement. In his second day before a Congressional committee, Bernanke defended FED’s buying of bonds to keep interest rates low to boost growth. Bernanke’s comments helped market rebound from its worst decline since November. Dow Jones Industrial closed at a level not seen since 2007.

A relatively smooth auction of Italian government bonds further helped temper concerns about the country’s political deadlock. The Euro held its ground against both dollar and Japanese yen on Thursday. The common currency edged up 0,1% to USD 1.3147 after steep losses following the Italian elections. The Euro hit an eight-week low on 1.3018 on Tuesday. Solid sales of Italian government bonds yesterday helped soothe the jitters that the political deadlock could destabilize Europe’s second biggest sovereign debt market.

Strong US business spending data also boosted investors’ sentiment easing worries about looming US fiscal spending cuts and prompting the yen to resume its decent after a brief spell of sharp gains earlier in the week. In Washington positions between President Barack Obama and congressional leaders over the budget crisis hardened yesterday as last ditch talks to prevent harsh automatic spending cuts beginning March 1st, failed to make substantial progress.

British sterling (GBP) is still weak trading at 1.5169 against the dollar. The Australian dollar is stronger and oil has regained some ground. Brent crude is trading above USD 112 a barrel. Also gold is somewhat stronger trading close to the critical USD 1600 level an ounce.

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Bernanke keeps stimulus hopes alive

US Federal Reserve if necessary is prepared to take further steps to strengthen the economy. Bernanke’s speech gave commodity and precious  metals prices a strong lift.  US equity markets rose, MSCI is up in spite of Chinese manufacturing low level. Gold jumped USD 40 an ounce , silver also rose 3 % , oil prices  are  strong. Soft commodities continue to raise.  EURO/USD is trading at the highest levels seen in weeks. Japanese yen is strengthened since last week. This week markets are going to be concentrated on the ECB meeting.

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