BY Judith Waker:
Back in the RSFSR: Aka the Russian Federation.
Rumours spread yesterday of soldiers crossing the border into the Ukraine.
NATO issued warnings but Russia’s defence minister denied reports.
Just when we were beginning to get a grip on monetary policy and what effect it might have on market direction the geopolitical arena starts to boil up again.
It cannot ever be ignored and in the world we live there are daily news events.This one is potentially serious.
Germany weighed in commenting confrontation now hurts everyone.
That really is stating the obvious.
Russia has its problems with falling oil prices when its GDP is so heavily weighted on this commodity, and it is clearly suffering as the effects of sanctions are biting. But we traders have to be multi-taskers so this is only one piece of news we need to watch.
And there is plenty else with two central bank chairmen speaking yesterday and some very important data to come from the US later today and tomorrow.
This Week’s Trio Performance
Starting in the Eurozone which is fast becoming the global whipping boy! There is now a growing awareness that stagnation in Europe will take its toll elsewhere.
Here is what the US Treasury Secretary had to say:
“Resolute action by national authorities and other European bodies is needed to reduce the risk that the region could fall into a deeper slump. The world cannot afford a European lost decade. “
Depressing words for Euro ears and cautionary ones for the US as one of the few regions that can claim some sort of recovery.
They have much at stake as they unravel their own QE. The reference to national action is of course a call to member states to adjust their fiscal policies which is still not happening.
Germany is stubbornly holding on to austerity,and Draghi whilst buying more bonds to bring liquidity to the market seems unable to launch QE. Yesterday he promised again to use ‘unconventional policy actions’.
Disappointments already this week from Italy with Industrial production numbers and even from Germany with wholesale prices. Enough said. Selling opportunities only!
In the UK, Marc Carney is also worried and was decidedly dovish on UK recovery.
His Euro remark was thus; ‘a spectre is haunting Europe, the spectre of economic stagnation’
He was upbeat on the positive wage growth numbers, but unemployment missed . Still encouraging signs are there and acknowledged by the BOE chief.
The GBP slipped further against the USD probably on the warning that inflation could dip below 0.1% with six months and rates will stay the same at least until Autumn next year. GDP was cut citing the EZ as the culprit.
The USD having had a pullback on friday on the soft jobs numbers has consolidated in the first few days of the week.Bear in mind the NFP is a big number that moves markets and whilst it missed expectations, it was another addition of jobs in a 49 month run. Not so shabby and certainly nothing to derail the USD. The jury is still out on the short term so keep an eye on the Index.
Commodities and Their Currencies
The Aussie , Cad and Kiwi have all had some welcome relief so far this week in their recent downtrends. Nothing has fundamentally changed. Oil sank a little further this week and the prospects are not good. Opec may resist cutting production to attempt a supply/demand rebalance but even if they do the imbalance is such that the experts believe oil has further to fall. Such is the level of supply with Libyan recovery and US expansion in growth coinciding with Saudi refusal to slow their production. Commodities index is on its lows attempting a consolidation. Gold attempted a rally but the weekly chart shows a similar picture of consolidation.
More To Come
Big day today and again tomorrow for the USD. Unemployment claims and Jolts, a favourite of Ms. Yellen so one to watch and a market mover. Retail sales and consumer confidence tomorrow. On the other side of the pond, watch for GDP’s and french non-farm.
These are extraordinary times and call for extraordinary measures. If you want more depth on the underlying fundamentals go take a look at what Fotis, Marc & myself are doing on their pro course site.
See you next week and happy trading!
Judith Waker
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