The Ice Storm!
This morning the NE Coast in the US is covered in ice which is indicative of the way that bad weather has plagued the US so far this year. Though at this point is doesn’t seem to be slowing down the global economy as world stock markets are trading much higher. Commodities prices are slightly lower, as gains received from safe haven plays are given back as the economic climate improves.So far in Egypt, the President there has said he will not run for election again, but that may not be enough as the people want him gone—now. So there is still a potential event risk brewing there until some sort of agreement is reached.
It also looks like Australia is going to get hit with its second natural disaster of late. In addition to the flooding, there is major cyclone that is about to hit that could wreak havoc as well. If the rebuilding efforts due to the flooding were not enough to add to inflationary pressures, perhaps the addition of this cyclone will be.
In the UK, PMI Construction figures came in much better than expected posting a reading of 53.7 vs. an expectation of 49.5.
In the forex market:
Aussie (AUD): The Aussie is mostly lower as they brace themselves for this cyclone that is about to hit and could be disastrous. While this may have a negative effect on the economy in the short run, this could potentially add to demand as they re-build which could stoke inflation higher, causing the RBA to move with a rate hike again.
Kiwi (NZD): The Kiwi is also mixed though slightly higher ahead of their employment report due out later this evening. With the economic picture around the globe improving, so is demand for yield which makes the Kiwi an attractive destination.
Loonie (CAD): The Loonie is trading mostly higher despite relatively little news on the docket and that oil is trading slightly lower. The Loonie is benefiting from money flows from the Aussie and Kiwi, and the Loonie is trading back toward 2-year highs vs. USD. (Click chart to enlarge)
Euro (EUR): The Euro is mostly lower as PPI figures show a slight increase and the Dollar is picking up strength as the morning moves forward. An EU economic summit on Friday is rumored to stamp out the debt crisis so the market could be disappointed if a resolution is not achieved.
Pound (GBP): The Pound is higher across the board as PMI Construction figures came in better than expected. With inflation counter-balancing austerity, the BOE’s laissez-faire policies may actually be working. (Click chart to enlarge)
Dollar (USD): The Dollar is starting to track higher as perhaps some risk assets may have come too far, too fast. A surprise to the upside of the NFP report would confirm that the economy is moving in the right direction. The expectation is for 135K jobs to be added with the unemployment rate to hold steady at 9.4%.
Yen (JPY): The Yen is weaker across the board as early risk appetite has driven demand for carry trades. In addition, the Nikkei was up close to 1.75% which is usually Yen-negative.
As the global economy recovers and becomes a more stable environment for growth, we can really see the effects of QE2 and a weaker Dollar driving other world markets.
Issues like inclement weather, natural disasters, and political instability are bound to creep up, providing temporary respites from Dollar decline. However, we are not out of the woods yet. Steady, managed growth is going to be important going forward to prevent the boom/bust mentality that created this financial crisis in the first place.
As the global economy improves, it will be interesting to see how potential inflation is dealt with and if any type of coordinated action can be achieved. Until that time comes, continue to buy the currency of those countries that appear to have their stuff together, and sell the currencies of those that don’t!
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