30 dubna 2009

30/4 Commentary on the FOMC statement

Less dovish fed than was expected as the statement was mostly a discussion of existing policy . This is somewhat supportive of the USD all else being equal – though it was easy for the Fed to look relatively hawkish considering the shock March FOMC statement and move to outright debt monetization. The Fed is noting some positive signs of stabilization for the first time in a long time and is obviously hoping that it can now begin the process of sitting back and waiting for all of its stimulus to take hold in the economy. (we think any recovery will be extremely anemic if it materializes at all) Still, the Fed is still clearly cautious and gives itself plenty of leeway with the part of the statement that said the FOMC will “continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of financial and economic developments.”

Looking at the other key markets that impinge on the USD, we see that the strong equity market rally is making it tough going for USD bulls, while interest rate differentials are much more supportive of the USD. It appears in the shortest term that USD direction will hinge on the direction of risk appetite. We’ll also have to see how EUR fares at next week’s key ECB meeting, for which it has promised to deliver on new non-traditional monetary policy measures.

29 dubna 2009

29/4 FOMC Monetary Policy Statement this evening

The market now awaits the FOMC monetary policy statement this evening. The last FOMC meeting shocked the market as the Fed declared that it would move aggressively with expansion of its non-traditional monetary policy measures and most importantly, laid out plans to purchase US treasuries outright. This time around, the Fed can hardly expect to surprise the market to the same degree unless Bernanke announces imminent cash drops by helicopter across the USA.
The baseline scenario is that the monetary policy statement expresses continuity of existing policies with possible fine-tuning announcements as well as the hope that Fed efforts are gaining traction. Still, there is some chance that the Fed is not satisfied with the degree to which credit is being extended to the economy by the banking system, and especially, the disappointment that longer rates have failed to move lower.
The 3.00% level on the 10-year notes is very critical and an obvious market focus at the moment. So there is a reasonable chance that the Bernanke announces a stronger intent to manipulate the long end of the curve with an enlarged treasury-buying spree.
At the short end of the curve, with the rate effectively at zero and the Fed already having stated that it is likely to remain at zero for some time, we should expect no new guidance on the trajectory of the Fed Funds rate. A recent study by the Fed showed that the ideal interest rate in the US would be -5% - thus indicating how much it would like to lower rates wherever they can be lowered.

Market reaction: if Fed goes nuclear on rate lowering attempts again while risk appetite remains elsewhere, this could see the weak USD move extending in the short term.(USD very much coupled to equity markets at the moment, for example)

29/4 FOMC Monetary Policy Statement this evening

The market now awaits the FOMC monetary policy statement this evening. The last FOMC meeting shocked the market as the Fed declared that it would move aggressively with expansion of its non-traditional monetary policy measures and most importantly, laid out plans to purchase US treasuries outright. This time around, the Fed can hardly expect to surprise the market to the same degree unless Bernanke announces imminent cash drops by helicopter across the USA.
The baseline scenario is that the monetary policy statement expresses continuity of existing policies with possible fine-tuning announcements as well as the hope that Fed efforts are gaining traction. Still, there is some chance that the Fed is not satisfied with the degree to which credit is being extended to the economy by the banking system, and especially, the disappointment that longer rates have failed to move lower.
The 3.00% level on the 10-year notes is very critical and an obvious market focus at the moment. So there is a reasonable chance that the Bernanke announces a stronger intent to manipulate the long end of the curve with an enlarged treasury-buying spree.
At the short end of the curve, with the rate effectively at zero and the Fed already having stated that it is likely to remain at zero for some time, we should expect no new guidance on the trajectory of the Fed Funds rate. A recent study by the Fed showed that the ideal interest rate in the US would be -5% - thus indicating how much it would like to lower rates wherever they can be lowered.

Market reaction: if Fed goes nuclear on rate lowering attempts again while risk appetite remains elsewhere, this could see the weak USD move extending in the short term.(USD very much coupled to equity markets at the moment, for example)

29/4 CEE meny

CEE meny: PLN aj HUF posilujú. CZK ostáva bez vyraznejšich pohybov. Za posilnením PLN stoja hlavne správy o tom, že straty z opčných obchodov poľskych firiem by nakoniec nemuseli byť až tak výrazné. To podporilo aj centrálnu banku a je možné že to bude aj jedným z dôvodov ponechať úrokové sadzby nezmenné. EURPLN na úrovni 4,42. Support 4,40.

29/4 Important market news today

Today’s US Q1 GDP figures will be important. The median expectation is -4.7% vs. -6.3% in Q4-08, but both our weekly and monthly indicators are suggesting that Q1-09 should be WORSE than Q4-08. We expect -5.5%.

27 dubna 2009

Keeping it real! An update from the commodities market

With Crude Oil and Gold being in the spotlight this week, especially against purchasing news out of china, we still need to keep our feet firmly planted on the ground as we take a look at the facts.
Looking at the raw data on Crude Oil provided by the EIA, it is very hard to be supportive of a bullish price action for the near term. Crude Oil, Distillate’s, Gasoline and Propane stocks all reflect a much higher cyclical average than previously seen for this time of the year. This is underpinned by above average production level and Crude Oil days of supply.

Taking this into consideration, these types of builds would not be a cause for concern, provided of course, that we are in a situation where demand is on the increase. According to the IEA, “Global demand is now forecast at 83.4 million barrels per day, 2.4 million less than 2008. The pace of contraction is close to early 1980s levels, with a growing consensus that economic and oil demand recovery will be deferred to 2010”.

And even judging by the short term movements in demand, there is really nothing to suggest an increase in the present environment. After all, China’s Crude Oil imports did fall by 5.5% from last year and their Gasoline imports being virtually none.

The recent price action paints a slightly different picture as we approach the top of the range for this year’s prices in WTI. Having seen the sharp rejection of the downside this week, good discipline will be needed in approaching any shorts. But it is really hard to see why we should be anything but short, targeting a correction in prices over the next couple of weeks towards $41.00.

The Gold price action is very similar to that of Crude Oil over the past week. However, there too, the upside does seem to be fairly limited. Much of the upside coming on the back of news saying that China had increased their reserves by 76% since 2003. I am slightly skeptical about all this talk, as to some extent it sounds like a bid to talk up the market and I am still of the persuasion that no one country is able to buck the market.

We need to remember that we are trading far from the lows in stocks markets, and even when the carnage on equities was at its bleakest, we failed to break higher ground in Gold. In saying that, it brings to questions whether Gold should carry a high weighting in a general market portfolio. With little upside potential in Gold, I still believe that Gold at 780.00 remains a realistic target in the near term.

In general, I think in our current market environment, keeping it real and sticking to the facts remains the prudent strategy.