21.06.2013 The Big Picture How low is “low”? The carnage in the markets triggered by Bernanke’s statements that the Fed’s asset-buying stimulus programme may come to an end mid-2014 should the U.S. data, particularly with regard to employment, be positive has yet to come to an end. Moribund gold experienced yesterday its biggest one-day decline since the two-day April crash, losing 5.4% from yesterday morning; U.S. equities plummeted with the S&P 500 losing 2.5%, breaking its upward sloping trendline that held since November, moving below its 50-day MA and closing on its lows with the third highest volume in more than 3 months, whilst the futures saw the highest volume in 20 months; Crude plunged with WTI shedding 3.1% and Brent 3.3% since yesterday morning; emerging market currencies continued to take a beating with the Brazilian real, Mexican Peso, and South African Rand losing 3.48%, 3.17%, and 1.99% respectively; higher-yielding developed nation currencies also plunged, indicated by the Aussie’s 2.53% and Kiwi’s 2.27% decline versus the greenback, with China’s economic slowdown adding insult to injury, although China’s cash crunch woes seem to have subsided following the intervention by the People’s Bank of China. The euro managed to remain afloat, losing only [sic] 1.04% since yesterday morning, less than the dollar index’s gains of 1.18%. The generally better than expected preliminary PMIs for June in the Eurozone, with the greater than expected contraction in the German manufacturing PMI being somewhat offset by the surprise expansion in services, served to taper the pace of EURUSD’s decline. The common currency thereafter was able to capitalise on the larger-than-expected increase in U.S. jobless claims, which came in at 354K, 5K above the 5-week average. The simultaneous release of worse-than-expected Conference Board leading indicators, which showed a 0.1% rise, contrary to the 0.2% expected and much lower than April’s 0.8%, and the highest Eurozone consumer confidence reading in 22 months triggered a rebound from 1.3160 support. This occurred despite the concurrent announcement of the Philly Fed manufacturing survey for June that equalled the highest reading in 15 months, and the boost in existing home sales, which came in at 5.18M unit annual rate, the most in 28 months. However, with borrowing rates, including mortgages, soaring the past 6 weeks on anticipation the Fed will scale down its stimulus, the housing market is destined for a slowdown, indicated by the reduction in mortgage applications, placing a resistance on house price increases. Should the slowdown see a drop in house prices, then this in combination with the plunging equities and the payroll tax hikes is likely to severely impact consumer sentiment, with people consequently spending less following the decrease in their perceived wealth as theorised by the wealth effect of consumers; this would go contrary to what the Fed’s accommodative policies have aimed to do. Therefore, should this bleak scenario starts acting out it will likely set the stage for intervention of some sort, either material or verbal. The day is surprisingly light in terms of economic data with no figures reported from the U.S. In the early hours, BoJ Governor Kuroda will be giving a speech at the annual meeting of the National Association of Shinkin (Cooperative) Banks held in Tokyo, with the event serving as a first chance opportunity to calm the markets from the recent volatility. Canada will be releasing its CPI figures for May, with the YoY headline inflation rate set to show an increase from 0.4% to 0.9%, with core CPI also increasing from 1.1% to 1.2%. The MoM CPI is set to rebound from the deflationary 0.2% figure reported last month, showing a 0.4% increase in prices. In the U.K. the public sector net borrowings for May are set to come in at the highest level since November, with the £13.750B being more than 50% higher than April’s £8.035B. In the Eurozone the seasonally adjusted current account is reported for April with no forecast available. The Ecofin summit is also taking place with the finance ministers set to discuss the establishment of a framework for the recovery and resolution of credit institutions and investment firms. Greece is set to return to the forefront, with a re-emergence of periphery risk, as the country is likely facing a funding shortfall of €3Bn – €4Bn, coupled with an increased possibility of snap elections following disagreements between the coalition parties on the closure of the state broadcaster.
Posted on: Fri, 21 Jun 2013 09:09:13 +0000
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