Tuesday, June 21, 2011

How Confident Are You?

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By Mike Conlon | June 21, 2011

That’s the question that needs to be answered today as the current Greek government faces a confidence vote today, where the results are to be released at 5pm EST (midnight Greece time, probably intended to mitigate protests). This is coming after the cabinet was changed last week, with the intention to provide more unity.

An affirmation of the current government will be seen as positive as it would then appear likely that they would vote for the further austerity required to receive the additional funding from the EU and the IMF. The markets appear confident that this will happen, as risk appetite has increased with global stocks and commodities higher across the board to start the morning.

Despite the risk-taking in the market, the Aussie is lower after the release of the RBA rate policy meeting minutes which showed that they were comfortable with current rates as the Euro debt crisis has the ability to get worse.

In the UK, a BOE policy-maker came out ahead of the release of the BOE minutes tomorrow and said that further easing, and not tightening, may be the next move. Tomorrow’s release will confirm or deny, and it must be remembered that inflation in the UK is more than twice the BOE target rate.

Lastly, retail sales figures in Canada and existing home sales in the US round out the major news expected for the US session.

In the forex market:

Aussie (AUD): The Aussie is mostly lower despite the risk appetite in the market as the RBA minutes revealed that current policy was “prudent” given the state of the Euro debt crisis and despite rising inflation Down Under.

Kiwi (NZD): The Kiwi is responding more favorably to the risk sentiment in the market ahead of this evening’s release of the current account balance figures.

Loonie (CAD): The Loonie is trading higher as oil prices have rebounded ahead of this morning’s release of the retail sales figures and leading indicators. The former is expected to have risen .4%, the latter is expected to have risen .5%. (Click chart to enlarge)


Euro (EUR): The ZEW economic surveys came out earlier this morning and were lower than expected, as confidence is beginning to wane in the EU. However, we can essentially throw the fundamentals out the window as all eyes are on the Greek debt crisis. The markets appear highly confident that the current government will pass the confidence vote, however, it remains to be seen whether they will vote for the additional austerity measures.

Pound (GBP): The Pound is mostly lower after a BOE official suggested that further monetary easing could be the next move and not a tightening to help manage the declining growth prospects of the economy. While inflation is twice the BOE target, the bank may be content to let inflation die on its own, if possible. (Click chart to enlarge)


Swissie (CHF): The Swissie is mixed today as risk appetite has abated this morning, though money flows could pick up as the trading day moves forward.

Dollar (USD): The Dollar is lower across the board as risk themes cause less demand. Existing home sales due out later this morning are expected to be weak, and tomorrow’s FOMC meeting could reduce economic growth forecasts for the remainder of the year.

Yen (JPY): The Yen is mostly lower as carry trades are resumed and the All Industry Activity Index came in lower than expected.

It will be interesting to see how this day shakes out ahead of this Greece confidence vote. When looking at the overall market, I am inclined to sell rallies in risk sentiment as I think we are hardly out of the woods. One of the interesting aspects of this vote today is that the market sees a passing vote of confidence in the same light that Greece will accept whatever austerity measures are put to them.

Frankly in my opinion, Greece is holding the cards. If they don’t consent to the EU demands and default, this could set off a chain reaction throughout the Euro zone. So in that regard, who has more to lose? The Greeks who are already in trouble, or the banks of the Germany and France who could potentially be taken down if contagion causes the Euro to fail.

Seems like a major risk for the Euro, and not the other way around. This situation is far from over, so think twice before you put on that risk!

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