In previous months, these pages have warned of slowing global growth and cited crude as the leading indicator. Crude plummeted nearly 18% in May compared with just a little over a 6% decline in the S&P 500. Reitterating the stance that crude is the leader (the ‘tell’ if you will) in the next wave of develeveraging, equities probably have much more downside in the coming months.
After Greek leaders announced that they failed to form a government, guaranteeing at least one more round of elections, higher yielding currencies and risk-correlated assets entered a free fall. The EURUSD fell to its lowest level since January 17 overnight while the AUDUSD dropped to its lowest level since December 15. Similarly, global equity markets have sold off sharply in the aftermath, with Asian shares being hit the hardest.
Most of the major currency pairs continue to show significant correlations with the MSCI World Stock Index, suggesting that broad-based risk appetite trends remain dominant as drivers of price action. This puts thematic macro-level concerns – specifically, the durability of the US recovery and its ability to offset headwinds from Europe and China facing global growth – squarely at the forefront. The US economic calendar is relatively quiet, with headline event risk clustered at the end of the week as PPI and UofM Consumer Confidence readings cross the wires on Friday. This puts the onus on evaluating the extent of downward pressure.
The ongoing political turmoil in Europe continues to shake the markets, with the inability for Greece to form a government now fueling speculation that the country might soon exit the Eurozone. Although an exit by Greece would have only a minimal impact on the broader economy, given the country’s size, fears of contagion seem to be the bigger problem right now, as investors start to price in the impact this will have on larger economies like Spain and Italy.
Euro: French, Greek Elections Raises Risk For Breakup – 1.3000 Crucial British Pound: Correction In Focus, BoE To Discuss Exit Strategy Euro: French, Greek Elections Raises Risk For Breakup – 1.3000 Crucial The Euro tumbled to a fresh monthly low of 1.2954 as French President Francois Hollande overtook Nicolas Sarkozy as the president of France, while the two main parties in Greece failed to obtain a joint majority, and the
– Market optimism fades and suggests more USD strength – Widespread calls for a break lower in Eur/Usd – Key economic data and political risk ahead – Focus for now on monthly US employment data Although we have seen no clear breakouts in most of the major currencies, and although the Euro still remains locked in a very well defined 1.3000-1.3500 consolidation (that has defined trade for much of 2012),
THE TAKEAWAY: PPI numbers come in lower than expected -> high energy prices continue to affect producers -> Euro trades within tight range Producer price inflation in the 17-nation Eurozone increased less than expected in March, representing the sixth consecutive monthly drop in the gauge. The month-on-month number came in at 0.6% vs. the 0.5% predicted by economists, while the yearly number was 3.3% versus the expected 3.4%. The numbers
The NZDUSD (Kiwi Dollar) currency pair is one riddled with uncertainty. It has spent the better part of 2012 heading higher from its January low at .7708. After moving as much as 677 pips to our standing high at .8385, the pair has faltered failing to advance further to challenge the pairs all time high at .8841.
Daily Winners and Losers The Japanese yen is the top performer against a stronger dollar at the close of European trade with loss of just 0.11% on the session. The greenback has continued to outperform all its major counterparts as markets remain on the defensive after a weaker than expected ADP employment report showed the addition of just 119K private sector jobs in April, missing consensus estimates for a print
THE TAKEAWAY: Manufacturing PMIs much weaker than expected -> Core countries hit by slowing demand from the European south -> Euro falls against US Dollar Weak readings from the European manufacturing sector sparked a bout of Euro weakness today. The weighty German manufacturing purchasing managers’ index came in at 46.2 versus the expected 46.3. Beleaguered Italy was hit hardest, with the gauge coming in at 43.8 versus the expected 47.1.
