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Simon Smith

A messy compromise for Greece

Greece’s creditors reached a deal to avoid a summer car crash in a way that only they know how, involving extension of maturities, adjustment of interest rate payments with a good dose of things still to be decided, some of them after the German federal elections next year. The often used headline in recent years was “kicking the can down the road” and for the most part, this amounts to another example of that. The IMF remains involved, but retains its demand for meaningful debt restructuring. ...

Simon Smith

Fresh Aussie pressure

It’s the Aussie and euro feeling the pressure at the start of the European session and for very different reasons. The Aussie has reacted to comments from RBA Governor Stevens, where he talked in more detail about the continued low inflation outlook, with indications that he expects this to persistent for foreseeable future. This has given some life to expectations of further rate cuts, hence the push towards the 0.7060 level as we enter the European session. Meanwhile, the euro appears to be ...

Simon Smith

Fed remains in focus

I talked last week whether June was going to turn into September (of last year), when we saw strong expectations of Fed tightening ultimately disappointed by the hike that never came that month. That theme is likely to remain in place this week, with FOMC Chair Yellen speaking Friday, although this is less a prepared speech so it may not be the place for pointed references to the June meeting. We’ll have to see. Ahead of that, the preliminary PMI data for the Eurozone has so far fallen to the ...

Simon Smith

Will June be September?

The significance of today’s G7 meeting in Japan has been falling in importance in line with the weakening yen. Back on 3rd May, when USDJPY was down at 106, it was thought that Japan would be looking to re-align the currency and perhaps looking for some support from their G7 counterparts, but that was always going to be a long-shot, not least because there are few who are looking or hoping for a stronger currency at this point in time. So expect some anodyne statement in relation to currencies, ...

Simon Smith

Data watching and the dollar

The minutes to the April FOMC meeting were making a fairly strong data-dependent case for a June rate increase from the FOMC. There were seven mentions of the month, the text suggesting that for most members “if incoming data were consistent with economic growth picking up in the second quarter…then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June”. Still, this remains a fairly big ‘if’. The pace of growth has been slowing for the ...

Simon Smith

Misplaced hope on the Fed

The dollar finds itself firmer during the Asia session, with gains most pronounced against the Aussie and Kiwi, those currencies still with positive interest rates and generally higher beta vs. the US dollar. This came about partly on the back of comments from regional Fed Presidents Lockhart and Williams, both of whom were pushing the prospect of two “possibly three” rate moves this year. But don’t forget that they have been consistently wrong over the past year in their predictions for the ...

Simon Smith

RBA taking it easy

No major central bank decisions this week, but plenty of indications of their thinking with minutes from the FOMC, ECB and the RBA overnight from Australia. The rate cut earlier this month was not fully expected by the market, so it should not be a surprise that the minutes were suggesting that the RBA is taking a cautious approach to the outlook. Perhaps it is not surprising was that it was the “broad based softness in prices and costs” was the main factor behind the decision to cut rates to ...

Simon Smith

The downward pressure on equities

We highlighted on Friday the dilemma that currently faces equities and also US equities in particular. This was highlighted by the retail sales data on Friday, whereby firmer than expected failed to provide any uplift for equities. On the other side of the coin, it’s very hard for equities to get excited by weaker data, because there is no prospect of further QE from the Fed and very little chance it will flatten the already flat expectations for the Fed Funds rate this year. Bottom line, for ...

Simon Smith

The opposing forces on equities

In the US at least, there are opposing forces on equities. Continued low interest rates and limited expectations of further tightening are offering support, but at the same time, some of the indicators on the economy have been softening of late. Furthermore, most economic surprise indices for the US (difference between expected and actual) have been falling of late, reflecting this run of disappointment. So do equities trade on the economy or the easy policy? In the early days of the crisis, it ...