Monday, July 4, 2011

Summer Soft Patch?

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By Mike Conlon | July 1, 2011

At least that’s what it seems like as the data continues to come in showing slower growth around the globe. But indeed it is growth and that is something that can’t be overlooked. Various PMI data from around the globe has showed slowing manufacturing as demand has weakened in light of other economic conditions.

However, we are coming off of the best 4-day rally in stocks that we have seen since before QE2 started back in September and the mood has been decidedly risk-on after the Greek crisis was temporarily put to bed. All things considered, US stocks are looking very attractive at these levels and as long as we can avoid a major catastrophe (such as the political battle over the US debt ceiling), then risk sentiment should improve.

However, today seems a little indifferent with markets flat to slightly lower ahead of the long Fourth of July weekend here in the US. As a reminder, US markets will be closed on Monday.

Yesterday, the rumor mill was in full effect that the Swiss National Bank (SNB) was intervening in its currency to try to thwart recent strength as it is harming their exports and making it more difficult to raise interest rates from these levels. While neither confirmed nor denied, the un-wind of the safe-haven play happened quickly and dramatically.

It should also be noted that yesterday was the end of the second quarter, so perhaps there was some window-dressing to try to improve returns. I don’t expect much activity today as the long holiday weekend may have started early for some.

In the forex market:

Aussie (AUD): The Aussie is mixed as Chinese PMI data weakened to its lowest level in nearly 2 years as the global economy starts to cool down. Nevertheless, Australian interest is still attractive so there is still demand.

Kiwi (NZD): New Zealand’s interest rate is not as attractive as Australia so that is why it is lower across the board. Slight risk aversion ahead of the long weekend has reduced demand.

Loonie (CAD): The Loonie is also lower today as oil prices have pulled back to a 94 handle, though the last two days of better than expected economic data make Canada a prime suspect for a rate hike. (Click chart to enlarge)


Euro (EUR): The Euro is mostly higher though slightly lower vs. USD after PMI data from its big 3 economies came in lower than expected, highlighting the global slowdown.

Pound (GBP): The Pound is also mostly lower after holding resistance at 1.61 vs. USD that I highlighted in yesterday’s article. PMI figures came in 51.3 vs. an expected 52.3 adding to the overall weakness.

Swissie (CHF): Very big moves for the Swissie yesterday which could have been the result of an intervention, or just a rapid un-wind of the safe-haven play. Either way, the move was dramatic and left a lot of trend traders holding the bag. (Click chart to enlarge)


Dollar (USD): The Dollar has been weaker this week as risk appetite has been insatiable. July’s Non-Farm Payrolls report will be coming out next Friday and not today due to the July 4th holiday. Consumer confidence figures are due out later this morning.

Yen (JPY): Lots of data for Japan last night, but the major take-away is Yen weakness as the Nikkei rallied. The jobless rate was better than expected as was CPI data, but manufacturing data and personal spending came in lower than expected. With the supply chain disruptions from the natural disasters, this is a logical scenario.

With the Greek debt crisis behind us for now, it could be smooth sailing for a while if US politicians can get their act together and resolve this debt limit issue. There is no reason for this to drag out so the quicker it’s solved, the better.

As July 4th commemorates our independence here in the US, we must remember that the people do not exist to serve government, but rather that government exists to serve the people.

The quicker they figure this out, the better!

Happy July 4th and I’ll be back on Tuesday.

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