Weekly Market Commentary
8th April 2012
Provided by TA Knowledge
Welcome to the Weekly Market Commentary from DGCX, providing you with a snapshot of what's happening in the energy, precious metal and currency futures markets.
The commentary and analysis included in the DGCX Weekly newsletter is provided by TA Knowledge, a leading UK-based provider of news and intelligence.
Please note that the observations and views expressed in this newsletter do not reflect the views of DGCX and are solely the view of the writer (TA Knowledge).
Economic Data Overview
There have been two diverging themes in the market, these are the strengthening US economic recovery and continued crisis of confidence in European debt markets.
This week saw the release of Federal Reserve minutes recording a large majority opposed to QE3. A decision we see as clear evidence, that the chance of another round of quantitative easing, ever, is very unlikely. This vote is completely at odds with the dovish tone used by Ben Bernanke in recent press conferences. Gold has been battered by the news and the dollar has rallied three big figures against the euro. Federal Reserve Regional Presidents have been stressing the threat of inflation, as economic confidence becomes more established. Interest rate futures are pricing in a quarter point hike in Fed funds between September and December 2013. This is a year ahead of the forecast made by the Federal Reserve. Ten year bond yields are above 2.0%, strengthening a base reached in September 2011. If, as we suspect, all the inflation risks are on the upside then it is very difficult to add to long bond positions at current levels. Our view is supported by the limited flight to quality in US bonds this week, even with the renewed panic in European debt markets.
The other part of the optimistic US outlook has been the strong performance by the major stock market indices. Since November 2011 equities have rallied sharply. While the market has traded sideways over the past three weeks in a jagged ranging pattern, losses have been limited. The S&P 500 is currently trading at the highest levels since 2008. This is a strong endorsement of the better economic outlook emerging in 2012.
The negative news has all been coming out of Europe. All asset classes in the euro bloc are back on a crisis footing. The need to reduce the Spanish budget deficit in line with EC pressure has seen massive austerity measures proposed. This medicine is proving difficult for investors to stomach as they believe it will be very hard for Spain to fund its deficit with such huge cuts in spending and increased taxes. Unlike Greece Spain is a not a minor player, it is the fourth largest economy in Europe. Spanish unemployment is above 20% and youth unemployment is 50%. The yield on Spanish bonds ballooned again this week as an auction of their bonds was barely covered. The cost of Spanish credit default swaps has also risen sharply. The calm following the deal on the Greece private sector debt has now passed and all investors exposed to Europe are looking for safe havens.
German bond yield have fallen rapidly and currency flows back in to the Swiss franc have pushed the market lower to test the 1.2000 SNB floor. Market sources claimed that the Swiss National Bank has 9 billion Swiss francs to sell at this level on Thursday, as authorities tried to limit the rise of the currency. Last year the entire intervention program is believed to have cost 17 billion Swiss francs.
So far this year the US economy created an additional 200,000 plus jobs, each month. Expectations are of a further 210,000 additional jobs in March, while the unemployment rate is due to remain unchanged at 8.3%. The market consensus is of an even higher jobs number than currently forecast after Thursday's 6000 fall in the weekly initial jobless claims. The weekly claims are now at the lowest level in four years.
Next week the market will look to a BOJ interest rate decision. No change is anticipated but comments will be watched closely for further reflation proposals. French CIP and US PPI are also on the calendar along with US CPI. Our bias is for stronger US data. ..Read more