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Collinson FX Market Commentary- June 6, 2014 - Negative deposit rates

by Collinson FX on 7 Jun 2014
Taeping - RNZYS Winter Series - May 24, 2014 © Richard Gladwell www.photosport.co.nz
Collinson FX market Commentary: June 6, 2014

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Draghi delivers as promised overnight with the ECB launching a super round of monetary stimulus. Central Bank monetary expansionism hit new lows with the bank being the first to offer a negative deposit rate (-0.10%). The ECB promised further asset back purchases and targeted liquidity to the banks in an effort to stimulate lending to the wider economy.

The Bank cut growth forecasts for the year and raised targets for 2015. The lack of growth and the advent of deflation has spurred this radical reaction. The excess of Monetary Policy has reached new levels and shows the desperation of the dysfunctional single currency. Equity bubbles loved the news and stretched to new all-time record highs, while the EUR bounced from lows to 1.3650, on a 'buy the rumour.....' trade. US markets lapped up the stimulus and now look with confidence to tonight's Non-Farm Payroll.

Chinese Composite and Services PMI both jumped supporting commodity demand and aiding the AUD, which continued to climb, back to 0.9330. The KIWI reversed recent weakness, jumping to just under 0.8500, amidst the ECB fallout.

All eyes now turn to US Job numbers and this should settle the weeks direction. This is good news for equities, but once again, for all the wrong reasons!


Collinson FX market Commentary: June 5, 2014

Nervous equity markets tested record all-time highs, 'prairie-dogging'.The Australian market was set alight early in the trading day with GDP numbers beating expectations. The first quarter GDP came in at a stronger than expected, 1.1%, which translated to an annualised number of 3.5%!

This is strong growth and a boost for the ailing Government still pushing the unpopular budget. The AUD reacted by moving back towards the 0.9300 mark and swimming against the tide. The KIWI remains weak and stalled under the yoke of a repressive interest rate regime, imposed by a delusional Central Banker, who fails to understand the supply side of the equation.

The NZD drifted back to test the 0.8400 on the downside. European and US markets keenly await the much anticipated and telegraphed expansion of monetary policy. Services and Composite PMI measures fell in the Eurozone, steeling Draghi's resolve,and putting downward pressure on the single currency. The EUR dropped below 1.3600, while the GBP held ground, drawing a definite contrast and holding 1.6730. US markets are focused on the ECB decision with an eye on local employment data.

The ADP reported a fall in private sector jobs. Non-Government added 179.000 jobs with expectations for over 200,000. This did not auger well for the all-important Non-Farm Payrolls released tomorrow. The global economy is stuttering and any relapse into recession will be far more grave, as most developed nations are in much worse shape.

Since the GFC Western nations have employed Keynsian economics and extended deficits and accumulated mountains of debt which leaves them less able to fight further shocks. All eyes are now on the ECB and their attempt to stimulate a dysfunctional single market.

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