Forex Market Commentaries - Is the Economy Due a Reboot

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Nov 22 • Market Commentaries • 2334 Views • Comments Off on Ctrl+Alt+Del

There’s been many theories and solutions offered up as to the escape route for the current insoluble financial malaise, those of us with memories that extend beyond the previous year’s X-Factor winner will have noticed the subject of Iran creeping back into the MSM’s (main stream media) agenda lately and how the drumbeat started in a similar fashion to create the illegal invasion and occupation of Iraq. Perhaps this isn’t the space to get geo political, however, these macro economic fundamental issues will directly affect our business and moreover our opportunity to draw down a living from our market place.

There is one ultimate tool left in the toolbox the PTB (powers that be) have to wrestle control back of the inevitable disorder and disharmony within the western populous, it’s called the re-set button. We’ve all experienced that situation were your pc has crashed and there’s only one solution left, control + alt + delete, re boot and start again hoping there’s no corruption to the hard drives.

The noises emanating from France’s leader in particular are troublesome to say the least.

SARKOZY WRITES LETTERS CONCERNING IRAN’S NUCLEAR PROGRAM
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Why trouble yourself with a pesky trivial matter such as an AAA rating when you’re on “save the world” duty? Why trouble yourself when there’s high class entertainment on the menu? In the midst of a full blown economic crisis, as governments scrape to find missing billions, the price per night of French President Nicolas Sarcozy’s suite in Cannes for the G20 summit was a little provocative to say the least, but he wasn’t alone in demonstrating largesse;

  • Sarkozy: 39,000 Euros,
  • Obama: 35,000 Euros,
  • Berlusconi: 29,000 Euros,
  • China’s Hu Jintao: a very thrifty 11,600 Euros ($16,000) per night.

This figure doesn’t include room service, and yes, we all shudder to think what kind of bill Silvio racked up and moreover who he stiffed the bill on given he knew his inevitable departure would come the following week.

France AAA Credit Rating
Investors aren’t waiting for Standard & Poor’s or Moody’s Investors Service to strip France, Europe’s second-biggest economy, of its top credit rating. The extra yield demanded to lend to AAA-rated France for 10 years was 154 basis points more than the German rate yesterday. The French 10-year yield is at 3.4 percent, about midway between top-rated Holland and Belgium, which is graded one level lower at Aa1 by Moody’s. French borrowing costs are more than a percentage point above the AAA-rated U.K.

President Nicolas Sarkozy has unveiled two sets of budget cuts since August to preserve the credit rating and try to calm jittery markets. Two-year yields on French debt have climbed 59 basis points to 1.7 percent since Sept. 1, while the rate on German bunds of similar maturity fell 24 points to 0.4 percent.

Moody’s warned France could lose its prized AAA-status if the debt crisis in Europe worsens. Worries about France’s growth prospects and its exposure to peripheral sovereign debt have seen the country dragged into the heart of the debt crisis. This saw spread between French and German 10-year government bonds rise about 200 basis points for the first time since the launch of the euro last week.

Moody’s senior credit officer Alexander Kockerbeck said:

Elevated borrowing costs persisting for an extended period would amplify the fiscal challenges the French government faces amid a deteriorating growth outlook, with negative credit implications.

Bill Blain, a strategist at Newedge Group in London, who recommends buying U.K. government debt;

France isn’t trading like a AAA. The market has made its judgment already.

 

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Market Overview
MSCI’s global equity index added 0.3 percent at 8:21 a.m. in London and the Stoxx Europe 600 Index climbed 0.5 percent. Standard & Poor’s 500 futures were up 0.3 percent, after earlier gaining 0.6 percent. German 10-year bond yields increased three basis points to 1.94 percent.

About $3.3 trillion has been wiped out from global equity market values this month. Standard & Poor’s and Moody’s Investors Service kept the U.S.’s credit rating unchanged after Congress’s special debt-reduction committee failed to reach an agreement, setting the stage for $1.2 trillion in automatic spending cuts. Data today may show euro-area consumer confidence fell to a two-year low, while the World Bank said developing East Asia will grow at a slower pace next year.

The Stoxx 600 rebounded from a three-day, 5.2 percent drop that dragged the gauge yesterday to the lowest level since Oct. 5. The measure is valued at 9.9 times estimated profits, compared with a five-year average of 12 times, according to data compiled by Bloomberg. Germany’s DAX Index added 0.7 percent, France’s CAC 40 gained 0.8 percent and the U.K.’s FTSE 100 increased 0.5 percent.

Currencies
The yen weakened 0.5 percent to 104.20 per euro and traded 0.2 percent lower at 77.03 versus the dollar. The yen fell against 15 of its 16 major peers. The euro rose 0.3 percent to $1.3523. The currency earlier fell to $1.3469 before a report today forecast to show that consumer confidence in the 17-nation region fell this month to a two-year low. Spain sells bills after 10-year yields climbed 17 basis points to 6.55 percent yesterday.

Commodities
Copper for three-month delivery rose 1.9 percent to $7,445 a metric ton on the London Metal Exchange, following a three-day, 5.4 percent slump. Tin futures added 2 percent and aluminum gained 1 percent. Immediate-delivery gold rose as much as 0.9 percent to $1,692.45 an ounce after falling 2.7 percent yesterday, the most in two months. Oil rallied 0.7 percent to $97.60 a barrel in New York, the first increase in four days

Market snapshot at 9:45 am GMT (UK time)

After Asian markets closed the results were mixed, the Nikkei closed down 0.4%, the Hang Seng closed up 0.14% and the CSI closed down 0.01%. The ASX 200 closed down 0.72%, now down 11% year on year. The STOXX is currently up 0.38%, the UK FTSE up 0.41%, the CAC up 0.63% and the DAX up 0.44%. The Athens main exchange index is up 1.62% down 53.51% year on year.

Economic calendar data releases that may affect sentiment in the afternoon session

13:30 US – GDP Annualised 3Q
13:30 US – Personal Consumption Expenditure Q3
15:00 Eurozone – Consumer Confidence November
15:00 US – Richmond Fed Manufacturing Index Nov
19:00 US – Minutes of FOMC Meeting

Economists polled by Bloomberg gave a median prediction of 2.5% for the GDP Price Index, which is the same as the previous release. The quarter on quarter annualised GDP figure was also expected to remain unchanged at 2.5%.

Analysts surveyed forecast a figure of 2.4% for PCE, which is the same change as the previous month. Core PCE is expected to be 2.1% (for the quarter), which is the also the same figure as the last release.

A survey of analysts predicted a figure of -21, from last month’s figure of -19.9 for the Eurozone consumer confidence.

A Bloomberg survey gives a median consensus of -1 from -6 previously for the Richmond fed manufacturing index.

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