Weekly Market Commentary
18th 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 largest rise in US consumer prices in ten months did not cause Treasury yield to rise. However strong jobs data and continued signs of growth in the US economy as well as concerns about the inflationary threat of energy costs saw US ten year yields make the most sustained advance in six years last week. All markets are very nervous about inflation. The interest rate forward curve is now predicting a 25bp rise in US rates in the third quarter of 2013 instead of no change in rates until the final quarter of 2014.
The prospect of a further round of US quantitative easing now looks more distant. Growth is what the markets want to see out of the US but not inflation. The worst combination is limited growth and higher inflation, as the measures need to address inflation will suppress growth. With yields still not far from their all-time lows across the US yield curve, all the panic will be to upside inflationary shocks. Last year in crisis-torn markets the place to be was in the bonds and not stocks. This year equities are proving resilient as higher inflation may give companies the opportunity to grow margins. So far the official response is not to worry and the Fed suggests that the recent advance in energy costs will be temporary and overall inflation is expected to remain subdued.
At the end of the week treasures traded sideways and the dollar fell as the consumer price data was not as strong as forecast. The currency market is still very fragile and while so many analysts have predicted a one way bet in the dollar this year, experience shows that the slightest let-up in dollar positive news can invoke very strong selling.
This week the Greek debt deal did not dominate headlines but there was news of the prospect that the bailout fund for European debt may now grow to €700 billion from its current €500 billion level. This would help to narrow the spread further between the yields of peripheral debt burdened economies and the core well capitalised economies. The popular US recovery plays are oil and dollar/yen. Here the on-set of the driving season increased confidence amongst US consumers about purchasing big ticket items like cars and the prospect of continued employment growth have underpinned the market. The widening yield differential between the US and Japan also underpins the recovery in dollar/yen.
Next week attention on the data calendar will focus on German producer price index on Tuesday and the release of the Bank of England minutes on Wednesday. In the US housing data is expected to dominate the week's calendar. ..Read more