Now we wait and see what policy makers deliver us. Fear of the unknown has made many begin to lose some of this weeks risk appetite. Capital markets continue to wait for the transparent transcript from EU policy makers on whatÃ¢â‚¬â„¢s to be done in Ã¢â‚¬Ëœtimes like theseÃ¢â‚¬â„¢. There is no precedent. Until then, despite the status quo, the dollar is a safer bet.
The US$ is stronger in the O/N trading session. Currently it is higher against 14 of the 16 most actively traded currencies in a Ã¢â‚¬ËœwhippyÃ¢â‚¬â„¢ trading range.
The script remains the same. We wait for the fall out of Greece, we heed the Ã¢â‚¬Ëœnot one EUROÃ¢â‚¬â„¢ rhetoric from Germany and all the while global fundamentals continue to trend in the right direction for equities. Yesterday, we saw US housing starts and industrial production increase more than expected last month, adding to the pile of evidence that the worldÃ¢â‚¬â„¢s largest economyÃ¢â‚¬â„¢s growth is accelerating. Excelling corporate profits continue to surprise analystÃ¢â‚¬â„¢s expectations, thus providing speculators reasons to drag global bourses ever higher. Is it too far too soon? Currently, itÃ¢â‚¬â„¢s very painful to bet as a contrarian in these markets when an unprecedented worldwide recovery is going on.
The Fed minutes fallout yesterday afternoon has given investors something to think about in these range bound forex markets. We witnessed a split in ideology amongst voting members, where several members want to begin selling securities sooner rather than later so as to reduce the FedÃ¢â‚¬â„¢s helping of the financial system. Their belief, with the economy finding traction, itÃ¢â‚¬â„¢s time to eliminate some of the dependency. Immediate reaction saw US yields tentatively back up. The minutes showed that officials Ã¢â‚¬Ëœremain positive about the economy’s prospectsÃ¢â‚¬â„¢, despite the worrying elevated unemployment rate, which is expected to hold steadfast at or near +9.7% for the remainder of the year. Finally, the market is getting a glimpse of the FedÃ¢â‚¬â„¢s thinking Ã¢â‚¬Ëœon how best to withdraw the extraordinary stimulus it has providedÃ¢â‚¬â„¢. The meeting revealed substantial disagreement amongst officials on Ã¢â‚¬Ëœthe timing and sequencing of exit stepsÃ¢â‚¬â„¢. The two camps of thought, one leaning towards the sale of assets to ensure that their Ã¢â‚¬Ëœbalance sheet shrinks more quicklyÃ¢â‚¬â„¢ and the other Ã¢â‚¬Ëœnervous that these mortgage sales will drive yield higherÃ¢â‚¬â„¢ indicates that consensus remains somewhat questionable. For us lay individuals to interpret, we are still several meetings away from a rate change.
The USD$ is currently is higher against the EUR -0.35%, GBP -0.40%, CHF -0.26% and lower against JPY +0.32%. Yesterday, the loonie backed off from this monthÃ¢â‚¬â„¢s highs but remains well contained in a tight trading range. Little volume and no momentum allowed the currency to shy away from the monthÃ¢â‚¬â„¢s strongest print despite equities and commodities crawling into positive territory. It seems that the Forex asset class does not exude the same optimism as commodities and equities. Yesterday, in early morning trading, the CAD strengthened on the back of US data showing that work had began on +591k houses at an annualized rate of +2.8% in Dec. Strength by association. On a cross related basis, the currency has outperformed all of its major trading partners. Whether itÃ¢â‚¬â„¢s an increased risk appetite or acting as a surety currency, the loonie by default has remained well sought after year-to-date. Other data yesterday showed that CanadaÃ¢â‚¬â„¢s wholesale sales rose +0.7% in Dec. after a revised gain of +2.7% the previous month. Technical analysts expect to see consolidation at these elevated prices until capital markets get to witness a strong transparent message from the EU on the woes of sovereign debt. For speculators, the Ã¢â‚¬Ëœtrend remains your friendÃ¢â‚¬â„¢. The old adage of Ã¢â‚¬Ëœbuy the rumor sell the factÃ¢â‚¬â„¢ tends to be a good percentage bet.
The AUD rallied to its strongest point earlier this week after the RBA said that further Ã¢â‚¬Ëœincreases to the benchmark interest rate are likely if the economy improvesÃ¢â‚¬â„¢ (3.75%). The currency happened to gain for a third consecutive day after Governor Stevens said in their last meeting Ã¢â‚¬Ëœthat their decision to keep borrowing costs on hold was finely balanced as they needed time to monitor events overseasÃ¢â‚¬â„¢. The rhetoric looks like its giving the green light to Capital Markets to expect another hike as early as next month. So far, the futures market is pricing in a 40% chance of a hike during the Mar. meeting. The currency has managed to pare some of this weeks gains as the USD increased after reports showed the worldÃ¢â‚¬â„¢s biggest economy is improving and that Fed is somewhat debating the unwinding stimulus measures. On pull backs, expect better buying of the currency (0.8980).
Crude is lower in the O/N session ($76.64 up -67c). Crude was little changed yesterday despite the dollar climbing vs. the EUR, equities advancing on higher than expected earnings and US economic data signaling that the global recovery is gaining momentum. Similar to other asset classes, capital markets remain Ã¢â‚¬Ëœin a wait see trading rangeÃ¢â‚¬â„¢, with no strong conviction either way. Already this week, we witnessed, in one trading session, crude advancing the most in more than 4-months when the greenback struggled. Now that the dollar seems to have found its Ã¢â‚¬ËœheadÃ¢â‚¬â„¢, wanting a retracement does not seem to be on any ones lips. This morning we will take our cue from the weekly inventory reports. Last weekÃ¢â‚¬â„¢s bearish EIA headline print, coupled with reports that China is taking further steps to cool its economy, did little to impede the black-stuffÃ¢â‚¬â„¢s rise. The delayed weekly EIA report, finally introduced last Friday, showed that crude supplies climbed +2.42m barrels to +331.4m (the highest level in 2-months) vs. an anticipated inventory rise of +1.6m barrels. The gas sub-category increased +2.32m barrels to +230.4m, w/w. In contrast, distillate stockpiles (heating oil and diesel fuel) lost -356k barrels to +156.2m vs. an expected drop of -1.55m barrels that was forecasted. Depending on equities and investors on again off again risk appetite, todayÃ¢â‚¬â„¢s expected inventory build up should technically put pressure on the black-stuff.
Lack of conviction, enthusiasm and volume had speculators locking in hard earned profits accumulated during this weeks gold rally. In the grand scheme of things, concerns about deepening EU deficits becoming contagious should continue to support the yellow metal on deeper pull backs. Already this week, the commodity managed to rally to a 3-month high on speculation that concern over GreeceÃ¢â‚¬â„¢s sovereign debt will spur demand for the Ã¢â‚¬Ëœprecious metalÃ¢â‚¬â„¢ as an alternative to holding a currency. Investors believe that with so many sovereign-debt problems and too many Cbanks printing money, gold is the only hard asset they want. As long as investors fear a Greek default that could spark a wider European debt crisis, the commodity remains coveted. However, the IMF said yesterday that they will shortly begin on-market sales of 192 tonnes of Gold. This could dampen the bullÃ¢â‚¬â„¢s mood ($1,106).
The Nikkei closed at 10,335 up +29. The DAX index in Europe was at 5,669 up +21; the FTSE (UK) currently is 5,302 up +26. The early call for the open of key US indices is lower. The US 10-year note backed up 3bp yesterday (3.71) and are little changed in the O/N session. Ok, letÃ¢â‚¬â„¢s take GoldmanÃ¢â‚¬â„¢s out the equation for now. US treasuries attempted to back up yesterday after US reports showed that industrial production and housing starts rose last month. With global equities clawing their way higher on weak renewed optimism forced treasuries to retrace some of yesterdayÃ¢â‚¬â„¢s late gains. Technically, we are in a Ã¢â‚¬Ëœwait-and-seeÃ¢â‚¬â„¢ mode, with all of our attention on Europe and the developments with Greece. Again, Goldman may be pulling the strings.