VENSTAR MARKET OUTLOOK – February 02, 2010

North American Highlights | USD Outlook (CAD, AUD, EUR, CHF, JPY, GBP)

USA Data (USD): The Treasury market has continued to out-perform given the positive data that came out last week. Friday's Non-Farm Payrolls report will be one to watch; as many are looking for a reasonable 60k increase in jobs for January. The USD index breach of the 200-day moving average continues to dominate.

Canada Data (USD/CAD): Canada: USD/CAD: The Bank of Canada left policy rates at 0.25% and reiterated that current policy rates wouldn't be raised in H1:10.

Europe Data (EUR/USD): Euro area manufacturing PMI, Jan was revised up to 52.4 from the flash estimate of 52. The reading is the highest in 2 years. The final manufacturing new orders were also revised up to 53.8 from the flash reading of 53.2. Relative CPI performance and PPP points to 1.20, while long-term valuation model’s has 1.30. It appears there is plenty of downside if Greece worries continue to escalate, with an extreme change in sentiment required for this trend to reverse in the short term. Wednesday, the EC releases its official recommendation on the Greece’s fiscal outlook. The ECB is unlikely to change its stance on bailing out Greece at Thursday's post policy meeting press conference. .

UK Data (GBP/USD): GBP (Sterling / Pounds) has moved down into the 1.50s, however, many feel there is perhaps another 5% in this move. The MPC will likely stop rate cuts this Thursday, but this is largely expected. Many expect a rather dovish accompanying statement. UK newspaper opinion polls show both political parties are focused on the need to correct the fiscal deficit, however increased uncertainty could dominate as a GBP negative.

Asia Data (USD/JPY , USD/SGD , USD/HKD): China PMI, Jan continued to point to solid growth, ranging between 56 and 57, although this was slightly under market expectations. Korea exports, Jan printed growth of 47% yoy, which fell short of expectations.

Australia and New Zealand Data (AUD/USD, USD/NZD): RBA cash rate decision shocked by keeping rates on hold, warning that policy "will need to be adjusted further". A hike was expected by many today, but expect the possibility of more to come given inflation rising and unemployment is now falling.

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VENSTAR MARKET OUTLOOK – January 19, 2010

North American Highlights | USD Outlook (CAD, AUD, EUR, CHF, JPY, GBP)

USA Data (USD): M&A: Kraft (US) raised its offer 9% to about GBP12bn for Cadbury (UK). 840 pence per share, including 500 pence cash. UK press reports the Cadbury board will accept the bid.

Canada Data (USD/CAD): Canada: USD/CAD: The statement from the Bank of Canada disappointed many people that look for monetary policy in Canada to be tightened earlier than the USA. The BoC reiterated that current policy rates wouldn't be raised in Q1 2010. They did hint that global growth outlook was 'somewhat stronger' than projected in the October Monetary Policy Report. The 'persistent strength' of the CAD and the low level of US demand were seen as the most significant drains on economic activity. The reference to the CAD was stronger than in the December statement when it was thought that the CAD 'could' act as a drag on growth. Canadian exports (relative to US demand) have held strong and natural gas prices have been rising.

Europe Data (EUR/USD): German ZEW, Jan: expectations index declined to 47.2 from 50.4 in Dec, weaker than market expectations of 50. This is the fourth consecutive monthly decline, increasingly suggesting expectations have peaked for now. As expected, the current conditions index continues to trend modestly higher, to -56.6 from -60.6 in Dec.

Eurogroup head Juncker on Greece: some supportive words saying that "the measures were one step in the right direction. We believe the Greek government will do what is necessary and we have to support them in their efforts."

UK Data (GBP/USD): UK CPI, Dec: Prices rising 2.9% yoy against an expected 2.6% and 1.9% in Nov. The overshoot was far more dramatic on the core data which shot up to 2.8% from 1.9% in Nov.

Asia Data (USD/JPY , USD/SGD , USD/HKD): China: The PBoC guided the one-year bill rate higher by 8bp to 1.9264% for a second week in a row.

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VENSTAR MARKET OUTLOOK – January 05, 2010

North American Highlights | USD Outlook (CAD, AUD, EUR, CHF, JPY, GBP)

USA Data (USD): The New Year is starting with the NFP on Friday and Manufacturing ISM. The former is important as we appear to be around the neutral position in NFP, with economists, according to Bloomberg, split as to whether we get a positive number or not. The question of whether this recovery has self-sustaining legs once stimuli and free money are removed is the central issue.

Since 17th December (when volumes started to disappear across all markets), equities have rallied 2-3% and FX has seen EUR/USD, EUR/GBP and GBP/USD all virtually unchanged (with some yen weakness) but the real interest comes from rates and credit. In government bonds, US 2y and 10y yields are around 40bp higher, German/UK yields 30bp higher, with a 6% target for 10y US yields eventually.

US manufacturing ISM: Look for the ISM headline measure to have rebounded in December, rising to 55.

The USD's sensitivity to this week's data will depend on whether the market believes a very gradual rise in Fed rates in 2010. EUR/USD losses do have some momentum. The 1.4220 range lows, and beyond this the 38.2% fib of the March/December up-trend will be an early focus. EUR/GBP level to watch is 0.8830. Two stories stand out e - UK fiscal concerns and Pimco cutting US, UK bonds as borrowing increased.

Canada Data (USD/CAD): Canada: USD/CAD: USD/CAD's break of 1.0450 as this level provided support during Nov\Dec. A clear break would open the door to a test of parity during January.

Europe Data (EUR/USD): Euro area manufacturing PMI, Dec: Final reading of the PMI was unchanged from the flash estimate of 51.6, as expected.

Sweden PMI, Dec: PMI rose to 58.2 from 56.0 in November, well above expectations. Riksbank rate decision minutes: The board was split over the decision to keep the repo rate at 0.25% and to the keep the repo rate path unchanged in December. Svensson wanted to cut the repo rate to zero and also wanted a lower repo rate path. Nyberg and Wickman-Parak felt that the more positive outlook for growth made it "necessary to raise the interest rate sooner than" autumn 2010.

Swiss PMI, Dec: PMI fell to 54.6 from 56.9, well below expectations. In the breakdown, orders slumped to 56.0 from 66.5 but output continued to improve rising to 59.6 from 59.4.

UK Data (GBP/USD): UK manufacturing PMI, Dec: PMI posted a larger than expected increase, up to 54.1 from 51.8 in November. Driven by a jump in new orders ( 57.4 from 53.3, a 29-month high). UK Chancellor Darling: Tightening the fiscal reins too hastily could harm the economy and derail the recovery. UK lending to individuals, Nov: New mortgage approvals rose to a higher than expected 60.5k from 57.7k. Cash-terms net mortgage lending rose to £1.5bn from an upwardly revised £1.1bn in Oct, above forecasts. Net unsecured lending was again negative coming in at -£0.4bn. UK M4 & M4 lending data, Nov: Lending data was noticeably firmer. On the ex-intermediate OFCs basis (the MPC's preferred measures), M4 rebounded by 0.9% m/m in Nov after hefty falls in Oct (-0.6%) and Nov (-0.9%). M4 lending up 1.1% m/m in Nov after a 0.6% fall in Oct.

Asia Outlook (USD/JPY, USD/SGD, USD/HKD): Singapore GDP, Q4: Rose 3.5%y/y in Q4, less than the 3.8% median market expectation. Japan: Performance of the JGB was mixed over the past 10 Januaries, from 2000 to 2009. There were five Januaries that 10yr yields moved up (January close vs December close); there were also five Januaries that yields dropped. Expectation for 10yr yields with little changes in January compared to December close.

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VENSTAR MARKET OUTLOOK – December 16, 2009

North American Highlights | USD Outlook (CAD, AUD, EUR, CHF, JPY, GBP)

USA Data (USD): Smaller than expected 0.034% increase in core CPI. The rebound in starts and the C/A headline were both as expected.

Breakdown of the data shows few surprises in CPI. Apparel was soft again and vehicle prices were up solidly as the post clunkers impact continued. Medical care was also solid at +0.3. Despite this, core CPI was soft helped by very soft housing where owner’s equivalent rent was -0.1% and the key depressant Lodging away from home. The CPI data will reinforce the view that the Fed has plenty of leeway to focus on growth without any immediate inflation fears. Nonetheless, USD has not moved much on the data mainly due to: 1) caution before the FOMC meeting; 2) a more positive USD rally already supported.

Europe Data (EUR/USD): One key to the next move remaining whether EURUSD will hold the Oct low at 1.4480. A breach of this level would be taken as a signal of renewed downside momentum. Any shift on the FOMC 'extended period' language would be key in taking out this level near-term of 1.4480.

Greece remains a banking scare - although December moves can be exacerbated, sovereign balance sheets will remain in focus for 2010. The US and the UK are countries where many worry, but worries are increasing in Europe as well, especially outside of the core countries.

UK Data (GBP/USD): UK Labor market conditions continue to show some improvement, but underlying fundamentals remain significantly more fragile than the headline employment data shows. The increase in total employment is entirely the result of higher part-time and self-employment. The number of full-time employees - an important gauge of labor market conditions - continues to show significant layoffs (85k in the latest 3 months). This represents an improvement relative to the spring and summer (when jobs losses of 200k+ were the norm) but it is some way from 'real' job creation. A modest pick-up in average working hours shows some improvement in overall labor market conditions.

Japan Outlook (USD/JPY): There exists a possibility of USD/JPY to rise further; although still in a down trend, many speculators are probably still holding onto JPY longs. A break above the recent high of 90.77, should start to shift sentiment more clearly against JPY. There is strong resistance around 92. Support on the downside near 88.0 and 87.5. JPY.

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VENSTAR MARKET OUTLOOK – December 09, 2009

North American & European Outlook

EUR/USD: The market is asking questions about whether USD tides have turned since the USA employment report. Although a pause in the USD's weakness has been under way, a complete turnaround is not likely this far ahead of Fed tightening.

There are a number of factors supporting the USD: EUR/USD trend line was broken from the March low when risk started to move upwards. The 1-month trailing EURUSD correlation with its risk reversal shows signs of EURUSD consolidation, if not a complete turn. Many EUR pairs look weak. Greece's financial crisis is obviously EUR-negative, showing once again that the EUR has many countries affecting its value, that can affect the currency most adversely, for example Germany maybe performing, but Greece can bring the EUR down on its own.

There are a number of fundamental factors as well against USD strength, dovish comments by Bernanke and Dudley point in regards to the Fed’s easy policy to promote a sustainable recovery, putting the first tightening move no sooner than late summer and possibly substantially later.

USA: Since the employment data are in line with a mild recovery, the USD risks of another downturn leading to a fiscal shock is lessened. The employment data should reduce the probability, including the risk of a USD collapse. All in all there are strong signs of a period of consolidation in EUR/USD, however by early next year the market should be buying USD.

The US trade deficit was significantly smaller than expected, while the initial claims were slightly higher than expected. The majority of the trade surprise was in the petroleum balance. Additionally, exports appear strong, with a moderate up-tick in global trade. There were no shocks in the bilateral trade balances, with the China imbalance remaining overly concerning.

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VENSTAR MARKET OUTLOOK – December 01, 2009 

November 2009 Recap | USD Outlook (CAD, AUD, EUR, CHF, JPY, GBP, NZD)

Fresh highs for the year were made in riskier/commodity currencies, equity markets and commodities, notably gold. Due to the news of financial problems in Dubai, moves in financial markets were sharp. A severe risk sell off was seen towards the end of the month as worries over a default in the Middle East surfaced which left the JPY as the sole FX outperformer. This prompted tougher talk from Japanese officials on currency strength.

USD/CHF: CHF also performed well, forcing the SNB to intervene to stem the currency's strength.

USD / USA: The weak USD trend continued, as Fed officials continued to issue statements on keeping monetary policy accommodative for the foreseeable future. In the bond market, US yields moved lower over the month, hitting 3.15% towards month-end. US September employment report disappointed as payrolls pulled back significantly. The 263k fall was 100k worse than expected. The unemployment rate rose to 10.2% from 9.8%. The October US employment report was as disappointing as the jobs situation after improving through the summer. Payrolls fell 190k but upward revisions to August and September were made.

GBP: Bank of England monetary policy remained uncertain. Policy rates were left at 0.5%. The Minutes revealed a three-way split. Some MPC members suggested that the November extension may be the final one and this could bring the exit. There was also talk of lowering the bank deposit rate in the future. The November Inflation Report was much more dovish than expected, with inflation still under wraps. The view that UK policy rates will be lower for longer was tightened and further rate cuts couldn't be ruled out. As a result, GBP was one of the worst performers.

AUD: The Reserve Bank of Australia tightened its policy rate by 25bp to 3.50%. The RBA minutes showed that the board was open to a pause in December but there was evidence of further recovery abroad keeping the possibility open for a December hike.

EUR / Euro: The ECB left rates on hold at 1% as expected. EUR maintained its trading range of 1.47-1.51 throughout November.

USD/NZD: Worries over the health of the New Zealand economy, with the Treasury calling for significant tax reform/tighter fiscal policy to allow the RBNZ to target lower interest rates and to weaken NZD. This left NZD as the worst performer.

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VENSTAR MARKET OUTLOOK – November 12, 2009

North American Highlights | USD Outlook (CAD, AUD, EUR, CHF, JPY, GBP)

The price of gold continues to track higher than other commodity prices and faster than the rate of appreciation of other currencies against the USD over the last two weeks.

The market may not be buying those particular currencies that have had very strong runs and are meeting greater resistance from Government/central bankers, but investors continue to like the USD and are running with arms outstretched towards gold. This sentiment is helping give stability to most currencies, commodities and US asset prices suggests the general concern is still towards inflation for those assets priced in USD.

GBP has slipped in response to the BoE inflation report. In regards to the exchange rate, the BoE were hinting for a weaker GBP saying, "this process of balance sheet adjustment implies the need for the UK economy to rebalance away from private and public consumption towards higher net exports [and] the fall in the exchange rate over the past two years will help to smooth that process".

In the US, Geithner said that he "believes deeply" in a strong dollar, whereas the Fed's Fisher said that the dollar's fall is an orderly reversal of its rise after the Lehman crisis.

USA: US Treasury Secretary Geithner continued by saying “The challenge "right now" is to restore growth and most countries see the need for more government support”. He singled out Asia as the region to lead the global recovery. Also, reiterated that it's very important to have a strong USD.

Asia: Japan Ministry of Finance official Furumoto said “Japanese domestic demand is in a severe condition, the jobless rate is a pressing issue and the corporate earnings outlook for 2009/10 is 'gloomy'”.

Europe: Euro area industrial production, Sept: IP rose a smaller than expected 0.3% mom to -12.9% yoy, slightly weaker than expected. However, the August prints were revised up to 1.2% mom and -15.1% yoy.

Sweden CPI, Oct: Inflation was higher than expected, rising 0.3% mom to -1.5% yoy, up from -1.6 % yoy in September. Underlying CPI rose 0.3% mom, pushing the annual rate to 1.9%, up from 1.4% yoy. Despite the data exceeding consensus forecasts, this is the 7th consecutive month of deflation

Swiss ZEW survey, Nov: Expectations balance fell back to 56.4 after the strong jump to 65.0 seen in October.

 

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