Events of the past week
-USD-:
1. European, US and UK inflation accelerates base on CPI’s.
‧ Easing concern that Fed will cut rates again at the next meeting in January, USD strengthens last week, recovering from earlier steep losses, particularly against GBP and EUR.
2. European central banks on Dec18 announced injection worth $500 billion into financial system, boosting European and US capital markets as investors are convince that the injection will help economy avoid a recession.
‧ European and capital markets recover from earlier losses but US capital markets gains was limited as on the same day Goldman Sachs Group Inc Chief Financial Officer David Viniar said he is cautious about the near-term outlook, putting pressure on capital markets.
3. US economic releases are mostly favorable, particularly consumer related, but US Philly Fed index actual figure released totally missed economist estimates. Morgan Stanley mortgage related writedowns are higher than economist forecasted, but gets $5 billion cash infusion from China Investment Corp that acquires as much as 9.9 percent of the firm
‧ Causing investors concern over manufacturing sector. Mid-day capital markets was dragged down by the Moran Stanley statements, snapping earlier rally but Dow Jones still closes at the green zone and USD strengthens throughout the session. GBP fell against the euro, and dropped to a four months low against USD, as traders increased bets that BOE will keep lowering interest rates to shore up the economy.
4. Bear Stearns like other financial institution, post larger than expected loss, dragging down capital markets, but have limited impact as investors are more focusing on next day economic releases which are PCE Core –MoM and YoY, PCE Deflector, personal income, personal spending (0.7%) and University of Michigan Consumer confidence Index.
‧ Friday’s economic releases are within forecast range or better and USD strengthen against most currency last week on favorable economic releases and events that lead investors to worry less on US heading into recession soon.
Events of the past week
-JPY-:
1. Global capital markets was weak early last week as growing investors concern over US and European economies.
‧ JPY strengthens against most currency on cross currency weakness particularly against GBP as investors speculate that BOE will cut rates.
2. ECB announce plan that loaned $500 billion to banks, snapping earlier capital markets losses.
‧ Prompting European indexes and Asian indexes surge, recouping from earlier losses, causing JPY to weaken particularly against GBP. JPY retraced from previous gains against most currencies where investor’s dumped position betting on stronger JPY after European central bank statement regarding the $500 billion loans are release increasing demand for carry trade.
3. BOJ hold rates at 0.5% as economist expected and Japan's export growth slowed in November as the US housing recession cut demand from US, shipments to the US declined for a third month, the worst losing streak in more than three years.
‧ GBP/JPY reacted strongly as BOE meeting minute’s shows policy maker voted unanimously for an interest rate cut.
4. US indexes retreats from earlier gains in early trading as Goldman Goldman Sachs Group Inc. Chief Financial Officer David Viniar said he is “cautious about the near-term outlook”(Dec 18), Morgan Stanley and Bear Stearns reports larger than expected losses on the same week.
‧ JPY reacted by regaining strength for most of the week, but retreats at Friday as US capital markets surge caused by short-covering as investors close position ahead of weekends and next week Christmas holiday, snapping recent capital markets downfall. GBP/JPY reacted strongly on GBP weakness as traders increased bets that the BOE will keep lowering interest rates to shore up the economy
Conclusion:
USD, most US economic release last week are favorable for USD easing investors concern that US economy are likely to head into recession soon. Those economic figures release, particularly consumer related eases investors concern that Fed will continue their rate cuts in near future to avoid fueling inflation; bringing investors confidence on USD back
But don’t loose guard, as it was reported by retail sectors that their surveys shows December sales were slowest in 5 years and economy figures in future will show the actual, if what was surveyed was true, it should drag down capital markets and USD. Fed are likely to avoid a rate cut, but future economic release are still the indicator for Fed decision, we will still have to monitor closely before concluding on Fed decision. Next week important economy release - US consumer confidence, jobless claims, Chicago PMI and New home sales – should serve as an early indicator for Fed decision.
JPY, last week capital markets and cross currency was volatile, trend of cross currency and capital markets last week don’t last as high amount of releases affect capital markets and currency movement, JPY last week like always, was affected by capital markets and US economy outlook, instead of JPY related economic releases.
We should see JPY next week to get weaker on capital market surge, but volatility should be low throughout next week because of Christmas, next week US consumer confidence, jobless claims, Chicago PMI and New home sales releases will be the leading influence on US capital markets, monitor those figure closely as JPY will get strength from US capital markets movement.
-Check out Admiral Market’s market analysis to get updated analysis posted daily.-
Loh Chang Yuen,
Junior Strategist
All rights reserved: Admiral Markets Ltd
Weekly overview and analysis.
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