Fundamental Report for the Week of August, 22, 2010

Monday, August 23, 2010

Germany’s positive Purchasing Manager Index (PMI) for Services couldn’t save the Euro as the other PMI reports out of the EuroZone showed a strong decrease.  In times, like these, when deflationary pressures are high the market reacted to the decrease as an overall sign that growth for the area is slowing down more than hoped.

U.S. equities dropped to a five-week low, bringing risk aversion into the equation and dropping the Euro even further during the NY trading session.

The Cable and the Loonie also saw strength to the USD side of the majors on risk aversion, but not enough to force either of them to pick a direction and go.

The Aussie and the Kiwi seem to have lost some strength on political risk as the Australian election is re-tallying its result.  The lack of a clear majority in their Parliament has equated to some fear induced selling and will most likely remain that way until there are clear results.

Tuesday, August 24, 2010

Germany posted some positive news in the form of Gross Domestic Product (GDP) which increased by 2.4% as well as growth in both the Capital and Construction Investment numbers.  Germany’s news wasn’t enough to float the Euro, however market turns attention away from the economic calendar to focus on a bigger issue facing the European Union.  Greece’s banks posted terrible second quarter earnings and have run out of lenders.  Greek banks now rely mainly on the strapped and limited European Central Bank for money supply.  Spain and Portugal aren’t as dire, but are still in a similar situation as their own growth is stifled by low employment and inflationary pressures.

The Euro, Cable and Loonie took the brunt of the sentiment shift led by overall risk aversion.

The Yen also wears the battle scars of the market’s fear as it plummets to 84 against the USD.  Last time the Yen was this strong was in April and May of 1995.  1995!!! With very few intervention options available to Japan at the moment it is possible it could continue to strengthen.

Early New York session brought some relief to the beleaguered Euro and Yen with the U.S. posting dismal housing numbers.  With the home buying tax credit expired, home sales dropped by 1.54M in July.  That is significant because the consumers’ willingness to spend (on both big and small ticket items alike) is essential as the last leg out of a recession.  With the U.S. appearing to be unable to deliver that last push the currency sold off for a short time before risk aversion settled back in.

With the Japanese left somewhat helpless to weaken their currency and the U.S. somewhat helpless to keep the reputation of theirs it seems risk aversion may well be in place for the remainder of August.

Wednesday, August 25, 2010

Markets seem to be eyeing an oversold equities market as a good buying opportunity as U.S. stocks gain today in early N.Y. trading.  That goes far toward negating worries over Ireland’s downgrade by the S&P over the course of yesterday’s Asian session that looked to drive more risk aversion into the market place.

The EuroZone had its own reason to celebrate in Germany’s IFO report which increased by .5 margin but beat the market expectations by over a full point.  Germany has posted an almost 11 point gain on its IFO since the January signaling that although growth is slow, the EZ’s best chance for recovery is still growing.  The Euro didn’t really move on the news, however it did seem to stall any further selloff.

It was a no-news day for the GBP, but it still managed to nudge near the highs of yesterday’s momentary fear based USD selloff on more bad home sales news out of the U.S. (new Home sales dipped from 330K in June to 276K).

Thursday, August 26, 2010

A slow news day kept most of the majors near the consolidation areas started after yesterday’s cool down.

The one exception is the Swissie which strengthened well past the long held 1.0375 level established in July.  The CHF had good reason to strengthen on its own merit with strong employment levels (3.968M in 2Q) but also as a an alternate safe have to the USD as the U.S. posted further job losses and continuing claims in August.

Bigger news than that, however, is considering what Japan will do about its poor muscle-bound Yen.  Prime Minister Kan is putting a lot of pressure on the Bank of Japan (BoJ) to stimulate growth in the form of their own stimulus package proposed by the ruling party.  The options are unclear for the BoJ right now, but all eyes are on the Pacific Island as they haggle their next steps with the Bank and their constituency (remember there is an election coming soon for the PM spot).`

Friday, August 27, 2010

The Euro failed to surge after incredibly positive German Retail Sales numbers (an increase of 6.8%) indicating that the market may be holding out on a direction until many of the bigger issues facing the market are addressed.  How slow is “slow growth” in the U.S.?  What will the BoJ do to weaken its currency?  How long will the ECB really extended its quantitative easing program to aid Greece, Spain and Portugal?

Similarly, the Pound posted good preliminary GDP numbers (up by .1% in QoQ data) as well as positive exports (an increase of 2.8%).  Even private consumption is up by .8%.  Yet the Sterling fell from yesterday’s highs, retracing to the top of the previous consolidation area at 1.5480.  That retracement may be deceptively creating bullish sentiment for the pair now that the price has been driven back to affordable levels.  If the positive news out of Britain can find some positive news out of the U.S. then it may be time to buy this pair all over again.

Is there positive news out of the U.S.?  Personal consumption rose from 1.6% to 2%.  GDP Index rose by .1% and Annualized GDP was .2% better than expected.  Arguably, yes, but next week’s equities market is likely to lead the way in terms of overall market sentiment.

The “wait and see” sentiment in regard to Fed Chairman Ben Bernanke’s next steps as well as Prime Minister Kan’s promise of “bold” action is likely to hold throughout the NY Session today.  More reason for the market to wait:  Bernanke and Trichet are meeting today in Wyoming to discuss their QE plans for their respective countries.  With the two countries having such varying results there should be a lot to discuss and a lot more to consider before investors move forward today.

Market seemed to focus on a very positive outlook from Bernanke’s Jackson’s Hole report citing the better than expected growth rate for the U.S., the oversold conditions of the equities markets as well as the willingness by the Federal Reserve to do everything it can to continue this last leg of recovery.  The USD selloff proved his words to be effective for closing traders.

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