Wednesday, February 9, 2011

Spin Doctors!

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By Mike Conlon | February 9, 2011

At least that’s what is going on this morning as there is little economic data due out that would sway markets in one direction or another. We have been hearing from various Fed officials recently and today the head honcho Bernanke will be out there trying to sell his version of economic reality.

This is not exclusive to the US as overnight the Finance Minister in New Zealand pulled out the “recession card” claiming the country could fall into one in the second half of the year. Talk about not pulling any punches! While it is true that normal economic drivers of growth are not present yet, this blatant attempt to lower the value of the Kiwi has not gone unnoticed.

In the Euro zone, a speech later today from the head of the EFSF (emergency bailout fund) could produce some market activity.

And the countdown to the BOE rate policy decision begins as tomorrow will show whether or not the Central Bank is serious about attempting to control inflation or whether they are content to allow the reduction in government spending to hopefully quell demand.

So stocks markets are lower to start the day, perhaps feeling some residual effect from the Chinese rate hike yesterday.

In the forex market:

Aussie (AUD): The Aussie is lower despite rising consumer confidence figures as risk aversion is starting to increase. Tomorrow is the Australian employment report which will show how the economy is faring. The market may be more concerned with the Chinese rate hike than it let on yesterday.

Kiwi (NZD): The Kiwi is lower after the Finance Minister said it was possible that New Zealand could slip into recession in the second half of the year. The MSCI Pacific stock index was lower, helping take the Kiwi lower. (Click chart to enlarge)


Loonie (CAD): The Loonie is mixed as higher oil prices and increased money flows from the Kiwi and Aussie offset general risk aversion in the market. There is no economic data to speak of for Canada due out this week.

Euro (EUR): It’s also quiet in the Euro zone as German exports decreased last month 2.3% vs. an expectation of a gain of .8%. The head of the EFSF will speak later today and I can’t imagine a scenario where this provides positive sentiment.

Pound (GBP): The Pound is mostly higher after the BRC Shop Index showed prices increased 2.5% lending further credence to the inflation proposition. The UK current account deficit came higher than expected, and a higher-valued Pound would not help correct this situation. Tomorrow’s rate decision couldn’t be more important.  (Click chart to enlarge)


Dollar (USD): The Dollar is benefiting from risk aversion this morning and with no news on the docket it will be up to Fed Chairman Bernanke to light the proverbial fuse.

Yen (JPY): The Yen is mostly weaker despite the mild risk aversion in the market as the Chinese rate hike does indeed affect Japan as well. The focus has shifted toward Europe and the US as worries over the Japanese fundamentals still persist.

Trading days like today can sometimes be difficult as the market hangs on every word of the “spin doctor” who is speaking. One never knows what will set off the market or when a proverbial bomb could drop sending the markets into a tailspin.

Generally speaking, these officials know better than to disrupt the markets with anything deemed overly positive or negative. But unfortunately this type of rhetoric has become accepted as a policy tool designed to affect a currency’s value.

Look no further than New Zealand for proof of that. As irresponsible as it may seem, that is the nature of the beast. These speeches can sometimes provide major volatility to the markets, which is welcomed by those who know how to trade, but feared by those who don’t.

Which type of trader are you?

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