Weekly Market Commentary
11th March 2012
Provided by TA Knowledge
Welcome to the Weekly Market Commentary from DGCX, providing you with a snapshot of what's happening in the energy, precious metal and currency futures markets.
The commentary and analysis included in the DGCX Weekly newsletter is provided by TA Knowledge, a leading UK-based provider of news and intelligence.
Please note that the observations and views expressed in this newsletter do not reflect the views of DGCX and are solely the view of the writer (TA Knowledge).
Economic Data Overview
The theme of the month ahead was set this week, as the Greek debt swap was finally agreed and 95.7% of Greece's privately held bonds will participate in the swap after so-called collective action clauses are triggered. For now the debt crisis and euro currency uncertainty may have been put on the back burner. However, there are still huge issues in Europe which have yet to feed through to the market. The use of collective action clauses may trigger $3 billion of insurance payouts, and where is this money going to come from? Pension funds and European banks are going to see reserves plundered and balance sheets undermined on non-insured bonds while other financial institutions will have to come good on insurance obligations.
The ECB which left rates unchanged yesterday, but raised its inflation target ceiling to 2.3%, is set to sail a difficult course this year. The combined problems of austerity, increasing commodity prices - especially oil - credit restriction on corporate and personal lending by banks trying to survive in depressed economies, will make it hard to let that work in all Eurozone regions. Europe's biggest economy, Germany is set to grow much faster than the smaller debt-crippled economies, so keeping inflation under control while tending to the needs of a two speed Europe will be very hard to achieve. However, Draghi is convinced that better liquidity, recapitalised banks, stability and renewed confidence in the euro project are all enough to generate growth and attract external investment. Even if all these factors remain in place, the market still has to deal with referendums on the new Fiscal Compact and failure to pass this will cut off the lifeline to further bailout funds. This is something even an optimistic Draghi is unwilling to comprehend.
US Jobs data, released on Friday was strong and keeps the trend of growth in America, one of the main bright sparks in the world economy, intact. In addition, a revision to previous month's data releases means that an overall number of 300,000 new jobs were reported in Friday's data. However, the 8.3% unemployment rate which will be important in determining the result of this year's presidential election remains unchanged. There is an increasing chance that the rate can yet dip beneath 8% which would boost the Democratic position. The policy of taxing rich and welfare help for poor, as well as Obama-care would then remain. However, if the jobless rate cannot decline, the prospect of austerity and prioritising balanced budgets will become the most likely course as Republicans gain traction with voters. US Treasures fell slightly after the data and remain in a range just beneath their all-time highs. The economy is not out of the woods yet and inflation pressure is not the main concern in the US, yet. In contrast, Bunds traded higher on the debt deal as investors chose to focus on local issues at the end of last week.
This week the market will digest the news that comes out of the European Finance Ministers meeting over the weekend. The next instalment in the Japanese reflation story will also unfold as the BOJ interest decision is on Tuesday. The US retail sales data is released on the same day, as are the FOMC minutes. The chances of the FED initiating a new round of QE in 2012 are small. In addition, the Swiss National Bank will decide on rates on Thursday. No change is expected but the policy of setting a 1.2000 floor under EURCHF is working very well. Finally on Friday the market will watch US CPI ex food and energy which is expected at 2.2%, versus the last report which read 2.1%. This year inflation is the biggest concern in terms of keeping rates low and encouraging growth, an upside shock would be bad news for debt markets. ..Read more
