Q1 May start friendly, but beware in March
22/12/08 08:45
FX markets have entered the holiday season on a
quieter note as majors traded in tighter ranges
relative to last week's record swings. Risk appetite
is largely subdued and most indices in the
Asia-Pacific region are in negative territory, with
the notable exception of the Nikkei which is positive
despite more disappointing data out of Japan. The
announcement by the White House last week regarding
the provision of an emergency US$17.4bln loan to the
US car industry has certainly helped steady sentiment
around the world and removes a key short-term event
risk heading into year-end. This could see
significant fallout at the end of the first quarter
when the markets begin to realize how massive this
global financial restructuring is and will be, which
will knock heads and rattle cages and drain accounts
as the tsunami wave 2 hits. This global crisis will
not end overnight and we've much more excitment to
keep is getting out of bed in the morning.
Forturnately, if you know what you're doing, FX is
one of the only sectors to make money in this market.
That is, of course, you can manage risk like the
professionals... ahem, prudent professionals... not
like the former wall streeters.
The dollar was steady in a range of 1.3911-1.4048 against the euro and 89.10-90.24 against the yen. Crude prices are also slightly firmer on the back of recent developments.
The dollar was steady in a range of 1.3911-1.4048 against the euro and 89.10-90.24 against the yen. Crude prices are also slightly firmer on the back of recent developments.
The rescue plan for the US car industry marks another
significant foray by the US government into industry
and TARP funds originally earmarked for the banking
sector will be allocated to two out of the big three
carmakers. Regardless, governments globally have now
acknowledged the need for further intervention into
their respective economies in the form of targeted
aid or a national stimulus to contain the effects of
the global recession. For example, the UK government
is now also said to be contemplating state aid to
domestic carmakers and the Japanese government
announced over the weekend another spending package
to boost the economy. Meanwhile, central banks will
be forced to grapple with shut credit markets and
with several nations having seen policy rates cut to
nearly zero, unconventional methods to stimulate the
economy and boost lending will be one of the key
focus points for next year. However, this does mean
that yield plays will continue to weaken in
significance as interest rate convergence gathers
pace, helping the major funding currencies such as
the dollar and yen retain the bulk of gains realised
in 2008. You can learn about interest rate
convergence and spreads in my 6hr webinar titled
"Inside the Banks", coming soon to a site near you.
Don't be decieved, all the QE, ZIRP, TARP or CRAP in the world is not going to support what is coming. Our job is to sit back and watch and wait for the right opportunities. Gold will be one.
Why does the FED believe that what did not work for Japan in thier crisis is going to work for the US? It's not! We will not see equities to 2007 levels for a long time, and on that realization assets will be witheld and redistributed to unforseen safeguards and it won't be houses or cars. Hint hint.
Last week's violent moves were probably a product of liquidity shortages and may yet prove anomalous, but the swings also demonstrated the need to be on guard for sharp jumps in volatility and other market phenomena which merit ongoing vigilance against risk-a stance which also continues to help the dollar. We anticipate light trading during Christmas week and the data calendar is light.
JPY
The yen was stable overnight as markets were digested mixed data and news. On Saturday the Japanese government announced a JPY4.8tln supplementary budget, the second of fiscal 2008, in financial assistance for households and small businesses, to be financed by a bond sale and accessing special accounts. The stimulus plan is another shot in the arm for the economy but the outlook remains weak. In data released overnight, exports dropped a record 26.7% annualised, far worse than the 22.3% expected. The decline was led by a 34% drop in shipments to the US while exports to China also dropped, in a sign that no market is managing to hold up amid the current global recession. The worrying numbers may prompt more speculation of intervention and recent commentary out of the Ministry of Finance suggests vigilance is rising. The government also cut its economic assessment overnight, noting that the situation is "worsening" for the first time since 2002. However, markets were buoyed by speculation that the BoJ will buy corporate debt through commercial paper purchases to ease credit risk. With rates now at 0.1%, unconventional methods may be necessary and the move to provide unsecured lending to corporates is an aggressive step in uncharted territory. The Fed's similar program has accounted for the overwhelming majority of new CP issuance, as deflation fears and worries over further strains in credit markets have outweighed arguments against central bank balance sheet expansion in this form.
EUR,GBP
There are no major data out of Europe this festive week. The only notable release is Germany's GfK consumer confidence survey for January and we expect an increase to 2.5 from 2.2. Other data releases are likely to trend downwards. ECB's Trichet speaks on Tuesday and should be widely watched by markets to judge ECB's stance in not reducing rates when policymakers across the globe are slashing their policy rates. The EUR may remain firm in the short term amid ECB's current hawkish stance and generally falling risk aversion, but we continue to stress that last week's moves may be due to abnormal trading conditions. In the UK, Q3 GDP will be due on Tuesday and consensus is looking for a 0.5% contraction. Sterling remains under pressure as the BoE seeks to continue moving aggressively on rates but we caution against chasing .
Don't forget to download "Face the Trader Within" by Chris Lori - the free download is in the free members area. Are we giving all that for free? There's more?? You better check it out!
You may also want to check out the latest video from Jim Rogers here
Ref: UBS
Don't be decieved, all the QE, ZIRP, TARP or CRAP in the world is not going to support what is coming. Our job is to sit back and watch and wait for the right opportunities. Gold will be one.
Why does the FED believe that what did not work for Japan in thier crisis is going to work for the US? It's not! We will not see equities to 2007 levels for a long time, and on that realization assets will be witheld and redistributed to unforseen safeguards and it won't be houses or cars. Hint hint.
Last week's violent moves were probably a product of liquidity shortages and may yet prove anomalous, but the swings also demonstrated the need to be on guard for sharp jumps in volatility and other market phenomena which merit ongoing vigilance against risk-a stance which also continues to help the dollar. We anticipate light trading during Christmas week and the data calendar is light.
JPY
The yen was stable overnight as markets were digested mixed data and news. On Saturday the Japanese government announced a JPY4.8tln supplementary budget, the second of fiscal 2008, in financial assistance for households and small businesses, to be financed by a bond sale and accessing special accounts. The stimulus plan is another shot in the arm for the economy but the outlook remains weak. In data released overnight, exports dropped a record 26.7% annualised, far worse than the 22.3% expected. The decline was led by a 34% drop in shipments to the US while exports to China also dropped, in a sign that no market is managing to hold up amid the current global recession. The worrying numbers may prompt more speculation of intervention and recent commentary out of the Ministry of Finance suggests vigilance is rising. The government also cut its economic assessment overnight, noting that the situation is "worsening" for the first time since 2002. However, markets were buoyed by speculation that the BoJ will buy corporate debt through commercial paper purchases to ease credit risk. With rates now at 0.1%, unconventional methods may be necessary and the move to provide unsecured lending to corporates is an aggressive step in uncharted territory. The Fed's similar program has accounted for the overwhelming majority of new CP issuance, as deflation fears and worries over further strains in credit markets have outweighed arguments against central bank balance sheet expansion in this form.
EUR,GBP
There are no major data out of Europe this festive week. The only notable release is Germany's GfK consumer confidence survey for January and we expect an increase to 2.5 from 2.2. Other data releases are likely to trend downwards. ECB's Trichet speaks on Tuesday and should be widely watched by markets to judge ECB's stance in not reducing rates when policymakers across the globe are slashing their policy rates. The EUR may remain firm in the short term amid ECB's current hawkish stance and generally falling risk aversion, but we continue to stress that last week's moves may be due to abnormal trading conditions. In the UK, Q3 GDP will be due on Tuesday and consensus is looking for a 0.5% contraction. Sterling remains under pressure as the BoE seeks to continue moving aggressively on rates but we caution against chasing .
Don't forget to download "Face the Trader Within" by Chris Lori - the free download is in the free members area. Are we giving all that for free? There's more?? You better check it out!
You may also want to check out the latest video from Jim Rogers here
Ref: UBS