Forex Market Commentaries - Getting That Deja Vu Feeling

Déjà Vu, The Uncanny Sense That We've Been Here Before

Nov 17 • Market Commentaries • 1588 Views • No Comments

At times it’s worth taking a step back from chaotic situations in order to evaluate the damage. This also provides the opportunity to establish what measures have been taken to move away from chaos into effective crisis management. A clearer picture can then emerge as to how the damage is being contained, repaired and what measures are being put in place to re-build and avoid the same chaotic situation arising again.

Déjà vu (literally “already seen”) is the experience of feeling sure that one has already witnessed or experienced a current situation, even though the exact circumstances of the prior encounter are uncertain and were perhaps imagined. The term was coined by a French psychic researcher, Émile Boirac (1851–1917) in his book L’Avenir des sciences psychiques (“The Future of Psychic Sciences”), which expanded upon an essay he wrote while an undergraduate. The experience of déjà vu is usually accompanied by a compelling sense of familiarity, and also a sense of “eeriness”, “strangeness”, “weirdness”, or what Sigmund Freud calls “the uncanny”. The “previous” experience is most frequently attributed to a dream, although in some cases there is a firm sense that the experience has genuinely happened in the past…

I generally ‘produce’ somewhere in the region of 5,000 words a day for FXCC. Many of the news articles are created by having a healthy obsession with regards to current economic news, in particular news and or fundamental decisions that may shape our forex currency world. I’ll avidly scour Bloomberg, Reuters, the FT, the UK mainstream news and the iconoclastic news outlets to mentally snip bits and pieces of the overall landscape to deliver what we hope will be an interesting insight, snapshot and slant on current affairs. Naturally there are times when I produce an article and it ‘feels’ as if I’ve repeated myself, on occasion I have to perform a double take to make sure I haven’t written something similar recently, such as the news yesterday that emerged that France and Germany are deeply divided on the next step forward.

Was it only October that Merkel and Sarkozy were having endless shuttle flights between Germany and France in order to act as the big players to find a solution to Europe’s sovereign debt crisis? Were they not going to lead us out of this chaos into a new pact? Yet here we are a month on and Reuters delivers a headline and article suggesting that nothing has been accomplished over the past month other than the seemingly impossible; a bad situation has been made worse..

A different form of chaos has now emerged due to the total mismanagement of the situation by all the officials connected with the malaise. There are two messy unelected technocratic governments in place at the heart of the maelstrom and despite the endless series of meetings no overall blueprint or roadmap has been agreed let alone put in place and the Merkozy alliance remains unreconciled over the ECB acting as a lender of last resort, or quantitatively easing given it conflicts with the remit and constitution.

The only achievement is the seventeen members of the single currency turning a blind eye to the never ending and unpublicised bond purchases and arguably illegal activities the ECB are currently engaged in. The situation is as chaotic as previous, but now has layers of unnecessary complexity added. It is a miracle that the main indices connected to Europe haven’t imploded back to 2008-2009 levels, only zirp (zero interest rate policy) and gargantuan levels of fresh liquidity since 2008-2009 has prevented this inevitability. France and Germany have stepped up their war of words over whether the European Central Bank should intervene more forcefully to halt the euro zone’s debt crisis after modest bond purchases failed to calm markets.

Facing rising borrowing costs as its ‘AAA’ credit rating comes under threat, France urged stronger ECB action. Bond market turmoil is spreading across Europe. Italian 10-year bond yields have risen above 7 percent, unaffordable in the long term. Yields on bonds issued by France, the Netherlands and Austria which along with Germany form the core of the euro zone have also climbed. “The ECB’s role is to ensure the stability of the euro, but also the financial stability of Europe. We trust that the ECB will take the necessary measures to ensure financial stability in Europe,” French government spokeswoman Valerie Pecresse said after a cabinet meeting in Paris. French Finance Minister Francois Baroin repeated Paris’s view that the euro zone’s EFSF bailout fund should have a banking licence, something Berlin opposes. Such a move would allow the fund to borrow from the ECB, giving it extra firepower to fight the spreading crisis. “The position of France is that the way to prevent contagion is for the EFSF to have a banking licence,” Baroin said on the sidelines of an awards ceremony.

But German Chancellor Angela Merkel made clear Berlin would resist pressure for the central bank to take a bigger role in resolving the debt crisis, saying European Union rules prohibited such action. “The way we see the treaties, the ECB doesn’t have the possibility of solving these problems,” she said after talks with visiting Irish Prime Minister Enda Kenny. The only way to recover markets’ confidence was to implement agreed economic reforms and build a closer European political union by changing the EU treaty, Merkel said. ECB policymakers continue to reject international calls to intervene decisively as Europe’s lender of last resort, stressing that it is up to governments to resolve the debt crisis through austerity measures and reforms.

However, many analysts believe such a move now represents the only way to stem the contagion, despite the potential risk of inflation from printing money. Italian Prime Minister Mario Monti will seek parliamentary support for his plans to tame the euro region’s second-biggest debt as bond yields remain above the 7 percent bailout threshold. The yield on Italy’s benchmark 10-year bond rose 6 basis points to 7.07 percent, the third day it held above the level that that led Greece, Portugal and Ireland to seek European Union aid. Monti, will test parliamentary support for his technocrat government today when he presents his programme in the Senate in Rome at 1 p.m. before facing a confidence vote in his new government beginning at 8 p.m.

Italy is trying to tame a debt of 1.9 trillion euros ($2.6 trillion), more than Spain, Greece, Portugal and Ireland combined, and the jump in bond yields is already raising borrowing costs in a country that needs to sell about 440 billion euros of debt next year. The Treasury had to offer a yield of 6.29 percent, the highest since 1997, on five-year bonds at an auction on Nov. 14. Roberto d’Alimonte, professor of politics at Luiss University in Rome;

Monti will try to present the plans of his government with the ‘coupling technique,’ simultaneously announcing measures that will make both of the main parties unhappy. There may be the reintroduction of the main property tax which Berlusconi’s party doesn’t want and some new legislation on the pension system and the labor market which the Democratic Party or some of its lawmakers oppose.

 

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UK Confidence Collapses To Reach New Recorded Low                                                                             Consumer confidence in the UK has hit an all-time low, fuelled by the fallout from the eurozone crisis and intense pressures on household budgets, a report from Nationwide found. The Consumer Confidence Index, which is based on a monthly survey, found that confidence fell for the fifth month in a row in October to a new rock bottom of 36 points. This is well below the long-running average of 78, while consumer expectations also reached their lowest ever reading of 48, falling by 14 points last month. Just 3% of consumers described the current economic situation as “good” and only 13% expect it to improve over the next six months.

Robert Gardner, Nationwide’s chief economist, said:

Consumer confidence continued to slide in October, falling by nine points to a new all-time low of 36. The index has now fallen for five months in a row, leaving it languishing five points below the previous low of 41 recorded in February this year. The confidence index, which began in May 2004, is now more than 40 points below its long-run average of 78.

The latest index was released the day after the Bank of England forecast a heightened risk of a double-dip recession and paved the way for another round of emergency measures.

Market Overview                                                                                                                                                                     European stocks fell, sending the Stoxx Europe 600 Index lower for the third day in four, before France and Spain sell bonds amid surging borrowing costs. U.S. index futures rose while Asian shares were little changed. The Stoxx 600 slid 0.5 percent to 235.75 at 9:25 a.m. in London as Spanish 10-year bond yields rose to a euro-era record and French five-year yields jumped to a six-month high. Futures on the Standard & Poor’s 500 Index expiring in December climbed 0.4 percent. The MSCI Asia Pacific Index was little changed. France and Spain plan to sell 12.2 billion euros ($16.5 billion) of bonds today in a test of investor demand as surging borrowing costs infect the region’s core. France auctions as much as 8.2 billion euros of debt after yields on the nation’s 10-year bonds rose yesterday to a euro- era record relative to benchmark German bunds. Spain is issuing as much as 4 billion euros of a new benchmark security maturing in January 2022.

Market snapshot at 10:15 am GMT (UK time)                                                                                                        Asian markets experienced mixed fortunes in the overnight early morning session. The Nikkei closed up 0.19%, the Hang Seng closed down 0.76% and the CSI closed down 0.3%. In Australia the ASX 200 closed up 0.25%. European bourses have and another indecisive and uncomfortable morning, all the major indices are currently negative. STOXX is currently down 1.08%, the UK FTSE is currently down 1.30%, the CAC is down 1.43% and the DAX down 0.78%. Brent Circe is down 1.23% on ICE and gold spot is down 0.43%. the SPX equity future is up 0.14%.

Economic data releases that may affect the afternoon session sentiment                                                   13:30 US – Housing Starts October 13:30 US – Building Permits October 13:30 US – Initial and Continuing Jobless Claims 15:00 US – Philly Fed November A Bloomberg survey forecasts Initial Jobless Claims of 395K, compared with the previous figure released which was 390K. A similar survey predicts 3633K for continuing claims, compared with the previous figure of 3615K.

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