Thursday, January 27, 2011

DC To Davos!

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By Mike Conlon | January 26, 2011

Last night the politicians were out in full force as were the financial elite in Davos in what has become nothing more than self-aggrandizement exercise whereby we are supposed to feel confident that our economic problems will be solved among platitudes and champagne! Color me unimpressed.The State of the Union speech came and went last night with no appreciable clarity that would inspire confidence that the US government is prepared to “get real”. While the business climate here in the US has improved, we still have a LONG way to go to reduce that 9.4% unemployment rate which continues to drag on the economy.

Later this afternoon, the FOMC rate decision is expected and while no change to policy is expected, listen to the economic forecast to see what they are basing their projections on.

Across the pond, the BOE minutes revealed that indeed another policy-maker has blinked, as the thought of that higher CPI data has caused another to join the push for a rate hike. This has sent the Pound higher this morning, but it must be noted that the awful GDP number reported yesterday was not factored into the dissent, so I don’t see how it is possible to raise rates when contracting GDP figures point to a double-dip recession.

Later tonight, we will get the RBNZ rate decision from New Zealand where no change is expected, but pay close attention to whether or not the comments appear to be hawkish or dovish.

So today is a bit of a mixed bag, with stocks and commodities initially higher to start the morning.

In the forex market:

Aussie (AUD): The Aussie is mixed as investors can make neither heads nor tails of all of the jabber surrounding the markets. There’s no additional economic data due out this week, so expect the Aussie to trade on risk themes.

Kiwi (NZD): The Kiwi is lower across the board to start the day ahead of tonight’s rate policy decision. While there expected to be no change, a change in sentiment could produce big moves in either direction though I am inclined to say that the Kiwi should go down on dovish rhetoric. (Click chart to enlarge)


Loonie (CAD): The Loonie is mixed to start the day, catching a bid from higher oil prices and the expectation that the FOMC meeting may forecast stronger US economic growth which would benefit Canadian exports.

Euro (EUR): The Euro is mostly trading flat to lower as all eyes are focused on the shindig at Davos. There is no significant news for the Euro zone today, though German import price index did increase more than expected.

Pound (GBP): The Pound is higher across the board as another dissenter joined in the call for an interest rate increase. However, it must be noted that this is unlikely to be the case after the negative GDP number reported yesterday BEFORE austerity measures actually kick in. So this may be a “sell the news” type of opportunity here in the Pound. (Click chart to enlarge)


Dollar (USD): The Dollar is strengthening ahead of today’s FOMC meeting which is at 2:15 EST for those who trade the market. Be careful around the announcement, as volatility can sometimes produce crazy movement. New home sales are due out later this morning.

Yen (JPY): The Yen is mostly higher as all of the indecision in the market has induced a bit of demand for safety. The Nikkei was down overnight which sometimes has an inverse correlation with the Yen which would induce some Yen buying.

With all of the talk surrounding this week in the markets, there’s a bit of sleight-of-hand going on as it seems to be a case of “listen to what I say, but don’t watch what I do”. The Davos meeting has become a billionaire’s retreat where the champagne and caviar flow and the new “financial rockstars” of the world decide on the new paradigm of how they are going to steal fromâ€"er I mean help, the average citizen.

Meanwhile, the hot air keeps coming out of Washington DC and it’s getting tiresome already. Just fix the problem already! Quit talking about it! We get it! There’s a problem!

We don’t need more talk, we need action. And it all starts with employment. I didn’t hear anything last night that would lead me to believe that anyone has a clue what’s going on. But hey, maybe we can all get jobs at Davos, servicing our financial rock stars!

In the meantime, there is still great risk in the marketplace, and you should look to continue to invest in strong economies, and sell those that are weak.

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