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Collinson FX Market Commentary- July 11, 2014 - Portugal bank defaults

by Collinson FX on 12 Jul 2014
Taeping - RNZYS Winter Series July 5, 2014 © Richard Gladwell www.photosport.co.nz
Collinson FX market Commentary: July 11, 2014

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Equity market crashed in Europe as panic ensued triggered by yet another banking crises emanating from the previously destructive shores of Portugal. One of Portugals largest Banks, Bank Espírito Santo, was under the spotlight. An associated institution, Espírito Santo International, defaulted on bond payments.

This was blamed on an IT glitch which was exposed as a lie when a debt to equity swap was offered to bond holders. Central Bank investigations have exposed 'irregularities' with the institutions accounts. The problem would not be so dangerous if it was not that Portugal was at the heart of the GFC Banking crises.

This is all despite the billions that the ECB has poured into these banks, both directly and indirectly. The problem lies not just in the banking sector but in the national balance sheets. Private debt was transferred to the public dime and snowballed with fiscal ineptitude since the GFC. The problem has been disguised by Central Bank control over low interest rates thus reducing servicing payments. The chickens are coming home.

The EUR dropped below 1.3600 and the GBP slipped to 1.7130. The AUD dropped in local trade after Unemployment hit 6% but recovered as markets tumbled. The NZD traded 0.8820 but global shocks will impact these commodity currencies. New developments in Europe and Geo-political crises have potential to upset bubbles!


Collinson FX market Commentary: July 10, 2014

US Equities rebounded overnight after two days of selling. Fed minutes released overnight confirmed discussions about interest rate rises in the future. QE has been reduced and should come to an end by the end of the year although interest rate rises are not seen as likely until the end of 2015. The DOW now looks to break back above 17,000 again after sustaining heavy losses to start the week. The Dollar slipped back further with the release of the minutes.

The EUR moved up to 1.3640 while the GBP hit 1.7150 again. The AUD was hit by a weaker than expected consumer confidence number. Confidence did rise 1.9%, but expectations were higher, and the currency slipped back although this was reversed with the fall in the USD after the Fed minutes. The AUD again approached 0.9400 and the KIWI hit 0.8825.

The RBNZ will be disappointed with the NZD continuing to rise considering all the efforts to dampen the attraction!? Wheeler attempts to vocalise the NZD lower, or wish it lower, have failed. Investors flock to buy the ever growing interest rate differential as should be expected!?


Collinson FX market Commentary: July 9, 2014

A slow leak appeared in a rather large equity bubble overnight. The sell-off gained momentum with the DOW plunging back below the record 17,000 level. Nervous investors have been spooked by Banks predicting an end to the biggest monetary expansion in history.

Goldmans was the latest to review the Feds end of QE and rate rises will be on the horizon. The endless flow of liquidity has fueled the expansion of the equity bubble and without major improvements on the economic front. The parameters set by the Fed was employment and inflation, which have improved to levels denying the Fed an excuse, but debt/deficit conditions remain perilous. The Fed minutes will be released tonight and should confirm an extended period of low interest rates blah, blah, blah...!

The IMF continued to review global economic conditions lower questioning the recovery. UK Manufacturing and Industrial production, reversed recent recovery, contracting for the month.

The GBP slipped back to 1.7130 while the EUR traded around 1.3600, supported by a weaker reserve currency, only.

Australian Business Confidence improved from 7 to 8, and gave a boost to the local currency. The AUD moved back towards 0.9400 enhanced by a weaker USD.

The KIWI was also the beneficiary of the measuring unit and mystified a deluded RBNZ, now approaching 0.8800. Markets will keenly await the Fed minutes and the their attitude to economic developments.

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