Over and over, financial news airwaves are filled with noise about since the Bank of Japan–under the supervision of Governor Kuroda–has embarked on a massive dose of Quantitative Easing, there has been no real outflow of YEN around the world. The only problem with this bloviating is that its devoid of fact. The BOJ’s action, or rather, call to action has led to a drop in European bond yields as well as a new pillar of support for U.S. Treasuries. Further proof is last night’s employment data from Australia, which was much weaker than expected (a 36,000 job loss and a 0.2% jump in the unemployment rate to 5.6%), but the AUSSIE DOLLAR rallied after an initial selloff as Japanese investors are seeking higher returns. A favorite place for higher yields for Japanese seekers has been Australia and New Zealand. Many financial institutions offer what are known as Urudashi and Samurai bonds. These are bonds issued in Japan in foreign currency of usually kiwi and Aussie. Those who say that the Japanese don’t invest afar and remain in Japan–what is called HOME BIAS–are badly misinformed.
Posts Tagged ‘Aussie Dollar’
Give the pollsters their due. They were virtually perfect in the predictions of electoral outcomes. Can the electoral algos now reduce all that data and tell us the policies that will be produced to deal with the problems that plague the U.S.? The Obama victory was greeted by a market selloff as the investment world woke up to the possibility of tax increases and spending cuts leading to a recession and decreased profits. The elections were widely anticipated as the bookies in London and worldwide had predicted. I am left scratching my head, wondering what caused the steep decline in the U.S. equity and commodity markets? The EURO currency was not sold hard enough to think that the Greek situation was the catalyst. Besides, the Greek parliament passed the austerity budget tonight. There is no way that Europe will not provide the Greeks with the promised funds as the outcome would not be worth the 30 billion euros that are in question. If the Obama victory and coming government standoff should have led to a selloff in the BONDS for one would have to be insane to purchase U.S. bonds priced at FED manipulated risk levels.
Following up last night’s post, Arthur left a note on the blog linking an article from Bloomberg Businessweek, written by Brendan Greeley. The language of the article is crystal clear and provides another example of a Euro policy maker claiming far more insight than the collective wisdom of Mr. Market. “Investors ,he told the Bundestag, are ‘charging interest rates to countries they perceived to be the most vulnerable that [go] beyond levels warranted by economic fundamentals and justified risk premia. This fear is “unfounded. The market is wrong.’”
Thursday in Europe the ECB meets to announce its decision on interest rates. The unanimous consensus is for the ECB to hold rates at 1%. This is probably correct for Draghi will not want to be seen as possibly aiding Sarkozy. The reports out of France tonight are that Mr. Hollande more than held his own against President Sarkozy in the only televised debate of the campaign. Thus, with four days to the election the ECB will lay low. If Draghi, though, is familiar with the Wizard of Oz, he would do well to ask for the necessary elements of decisive action.
The tale of the first quarter tape is in and evidenced by the large gains of the equity markets, global investors have benefited from the sea of liquidity provided by the CENTRAL BANKS OF THE DEVELOPED WORLD. Global stock markets have been calmed by the massive liquidity injections provided by the BOJ, ECB, FED and BOE.The German DAX closed the quarter up more than 15%. The long dormant NIKKEI was up almost 20% powered, by the new inflation mandate of the BOJ/MOF; and, of course, the S&Ps were up almost 12%, while the tech-ladened NASDAQ climbed more than 20%.
ABSTRACT: A theoretical view of NOTES FROM UNDERGROUND is that the initial action of a flattening yield curve is BULLISH, or, most importantly, not BEARISH for a developed market currency for it signifies that a CENTRAL BANK is ahead of the inflation curve and thus, is given confidence by BOND BUYERS. The corollary to this premise is that flattening curves and certainly inverted curves are a BEARISH INDICATOR FOR EQUITY MARKETS. In a RISK ON/RISK OFF algo environment, the market continually reflects this, especially as we saw today. However, day-to-day trading strategies are certainly not the major test of the theory. A reader of the BLOG commented on Sunday’s post that the opposite view was what he believed. Again, theories are to be tested for trading like good science “ADVANCES ONE FUNERAL AT A TIME.” (Max Planck).
The word out of Washington about the BUDGET RESOLUTION is that taxes ought to be raised out of fairness. The President of the U.S. is consistently talking about fair. Give up that specious argument. Is it fair that the savers of this country are being punished so as to bail out the WALL STREET TOO BIG TOO FAIL BANKS? Is it fair that an incompetent Treasury Secretary was allowed to obtain the Treasury position even though it appeared that he cleverly tried to avoid paying taxes? Is it fair that the Wall Street banks were bailed out while mortgage paying homeowners were granted no relief against the coming exploding ARMS mortgages that have worsened the foreclosure problems and continued being an albatross around the neck of the economy?
The FED chairman delivers a major address on the economy at the International Monetary Conference hosted by the Atlanta Fed. It seems that the FED is content to stand behind the veil of its dual mandate. Bernanke did a great deal to explain away the transitory nature of commodity price increases, while maintaining that the economy recovery is too fragile and unemployment too lackluster to begin removing the language of … “economic conditions are likely to warrant exceptionally low levels for the federal funds rate for an extended period.” This is very consistent language and unlike the way the S&Ps reacted to the chairman’s speech, I believe that Bernanke’s language was very soft.
Last night the RBA, as expected, left rates unchanged at 4.75 percent. The statement released after the meeting was deemed semi-HAWKISH as the RBA noted the strength of India and China. The Australian central bank also opined that the massive Australian floods would result in pressure on wages as the rebuilding and repairing would bid away construction workers from the extremely buoyant mining sector. Some analysts had been bearish the AUSSIE DOLLAR based on lost productivity but GOVERNOR STEVENS ended that outlook.
Friday’s U.S. unemployment report was far less robust than anticipated. This consensus miss led to a selloff in the DOLLAR and a rally in commodities as the weak number gave rise to the need for more aggressive FED action. At first blush the GOLD was sold and other commodities also were falling but that didn’t last long as the risk-on trade gained the upper hand on the full execution of QE2. The worst part of the unemployment data was that the RATE INCREASED TO 9.8 PERCENT and this is what drives the FED at this juncture.