Tonight New Zealand released its unemployment numbers and its result made soothsayers of the Reserve Bank of Australia (RBA). The projected number was 6.8%, but the actual number was 7.3%, up from 6.5%. There is no way to spin this number for it is a terrible number and will put the RBNZ on hold for awhile. The Aussie/Kiwi cross jumped immediately after spending the majority of the day holding below the 200 day-moving average. Short-term Kiwi strength on the crosses will give way as Kiwi rates will remain 125 basis points below the Aussie. Those involved in the Kiwi as a carry trade have some serious thinking to do with this disasterous number before them.
Tomorrow we will hear from the ECB and the BOE and it is unanimous that rates will remain unchanged. The European debt situation deteriorated further today as it was Portugal’s turn to be paddled hard by the markets as the long term rates on Portugese debt closed 21 basis point higher. Greek debt remained unchanged as Brussels gave the nod and wink to their budgetary plans, but that really is nothing but a market distraction. British 10-year gilts have held up surprisingly well through all this, even as Bill Gross verbally trashes them.
Speaking of Pimco, we wonder what will happen to German Bunds if the Merkel government decides to provide large “loans” to shore up the Greek’s debt problems. Gross has been openly touting the BUND against the U.S. and U.K. debt play, but if Germany takes the political decision to bailout the European PIIGS it will result in the selloff of BUNDS. Presently, the Bunds have been well-bid as the safety valve for those seeking EURO-denominated debt. This is one announcement that could rile the markets. Interestingly, the PIMCO group is owned by the Germans, ALLIANZ.
This weekend, post unemployment U.S.A., we get two new stories to ponder. First are the elections in the Ukraine, in which the latest polls have Ms.Tymoshenko trailing Yanukovich by 10 percentage points. Yulia T. is protesting that the Ukranian Parliament has changed the voting laws to favor Victor Yanukovich. Previously, Ukranian law stipulated that in order to count votes at a polling place there had to be a quorum of representatives from each candidate. The votes could then be approved as both side felt that there was enough representation to ensure an honest count. Parliament voted a change to the need for a quorum and Yulia is crying foul and asking for more international observers to prevent a fraudulent outcome. Victor Yushchenko, the sitting president, can still veto the legal change, but pundits believe the strains between Tymoshenko and Yushchenko will prevent the veto from taking place. We watch this closely as it will effect Russia’s role in Europe going forward.
Also, we get the remnants of the old colonial regimes with the G7 meeting this weekend in Iqaluit,Canada. We are happy to hear that there will be no formal communique released–no big deal as they are seldom adhered to anyway. For those who don’t know, the G7 consists of the U.S., U.K., Germany, France, Japan, Italy, Canada and Russia who observe and bring the women and vodka. Please end this attempt at self-importance and let the G20 take its rightful place on the world stage. Will somebody tell these tired old world actors to exit? Enough already!