Trading in the first half of this week has been extremely difficult with a dearth of fundamental news on the economic calendar leading to all markets trading in very narrow ranges.  This price action has also been seen across all the major forex pairs with only one or two offering any degree of volatility and opportunities.  The market mood at present is reflective as we now await for the second half of the week to unfold and with an increase in both the number of news items and their relevance we should see some trading opportunities unfold both on Thursday and Friday.

The underlying theme across global markets is the ongoing issue of government money which continues to be thrown into the various economies and which may well lead to sustained inflation in due course.  Thus far the poor benighted tax payer has seen little return on his/her money.  In other markets yields on index linked Treasuries at an all time low largely as a result of the QE programmes but in addition a further cause is the absolute yield on conventional Treasury paper which is also at rock bottom at present.  The forex market is looking for direction at present and commodity currencies such as the Aussie and Canadian Dollar are likely to lead with UK Sterling and the Euro dragging behind.  As always the dollar yen pair is unpredictable and liable to swing in a random fashion around the 90 level, largely as a result of Japan’s fiscal year end when institutions look to repatriate their funds.  The precious metals sector looks positive with a further modest rally forecast and we may see gold push on towards new highs in the next quarter.  The indices continue to defy some market analysts with both the FTSE and Dow recovering from their recent short term reversals and showing positive momentum as we move towards the end of Q1.

Europe

European ministers are now increasingly blaming the speculators once again for the continuing problems with the Greek sovereign debt, in particular the number of short positions taken in credit default swaps.  It was particularly interesting to see Rasmusson lambasting one of the UK hedge fund managers last night on tv by suggesting that the they were directly responsible for exacerbating the current situation.  This is a lazy intellectual argument and much the same as the one put forward when oil rocketed to $147 a barrel.  As is usual in these circumstances there is much debate and discussion about the practice of short selling with threats to control or even ban it outright – all laughable of course and impossible to police given the number of instruments now widely available.   At the moment we have only seen minor skirmishes and no doubt ministers and their advisors will be returning to this battlefield before long.

With no tier one economic releases in Europe this week we can expect the eurodollar to trade sideways with only the possibility of a short squeeze.   With this lack of hard data watch out for the ECB monthly bulletin on Thursday which is an analysis of the recent rate decision coupled with a forecast for the Eurozone economy moving forward.  It is unlikely to contain any surprises but the markets may seize on this in the absence of anything else.

Friday closes again with limited news and the only item to note is industrial production forecast at 0.8%, an improvement of last month’s dismal -1.6% – this could provide a small lift for euro bulls.

Japan

With Japan focusing on its year end there is little news all week and the only items of note being final GDP due out later tonight and forecast at 1% against a previous of 1.1% and revised industrial production due out early Friday morning.  This is forecast to be come in flat at 2.5%.

Switzerland

The key number in Switzerland on Monday was retail sales which showed a healthy growth up from 2.4% last time to 4.4% this time while tomorrow sees the announcement of the latest libor rate which is currently 0.25% which is expected to remain unchanged.  The decision will be followed by a statement from the SNB (Swiss National Bank) where they communicate future monetary policy and their economic outlook which may provide clues for future rate decisions.  Watch out for any reaction in the EURCHF which for the past few weeks has been trading in a most bizarre fashion.

UK

Sterling was helped lower earlier in the week by poor housing data and given a further shove lower this morning by the manufacturing production figures which came in well below forecast and negative at -0.9% against a previous of 0.3%. For those of you who follow the UK the housing market is one of the most important barometers of economic health and it has been calculated that a 1% drop in house prices leads to a 0.7% fall in consumer spending s0 an important market sector to watch.

Very little news for the rest of the week.

Canada

The Canadian dollar was one of the few currencies to have some significant news earlier in the week with housing starts on Monday which came in better than expected at 197k, exceeding the forecast of 188k.  The big number tomorrow is the trade balance which is forecast to be positive at 0.3bn, reversing last month’s negative output of -0.2bn.  This figure represents the difference in value between imports and exports with a positive number indicating that more goods were exported than imported.  This is always a significant release for the Canadian currency as around 65% of Canadian exports are purchased by the US and therefore could be considered a leading indicator for both economies.

Friday sees another important set of numbers for Canada with the employment data which is forecast to see the unemployment hold steady at 8.3% whilst the employment change is positive at 17.5k – not quite so good as last time at 43k but nevertheless trending in the right direction.

Australia

The major release for Australia and the Aussie came this morning with home loans coming out dramatically lower and indeed negative at -7.9%, in stark contrast to the forecast of 2.1%.  The forex market largely ignored this release as the Aussie rallied against both the US dollar and the Japanese Yen confirming our currency forecast of an interim target of 0.92 against the US dollar.

Tomorrow we have the unemployment numbers with the rate forecast to remain steady at 5.3% and the change in job creation to show a positive growth of 15k – not so dramatic as last month’s 52k, but nevertheless again showing a positive sign of recovery.

China

China’s trade balance shrank to its lowest level for a year last month as a surge in imports signalled to the markets that China may overtake the US as the number one economy in the world sooner rather than later, with imports rising a staggering 45% from this time last year.  However, against this it must be remembered exports gained almost 46%. In other news tomorrow sees the release of industrial production which is forecast to increase to 19.5% from last month’s 18.5%.

USA

We have to wait until Thursday for two major releases in the US which are the trade balance data and unemployment claims.  The first of these is forecast at -40.9bn against a forecast of -40.2bn with unemployment forecast at 456k against a previous of 469k so a small fall here.  The week ends for the dollar with retail sales figures which are expected to be negative at -0.1% reversing last month’s positive 0.5%, but with core retail sales just holding firm in positive territory at 0.1% against a previous of 0.6%.  Finally the week rounds off with the UoM (University of Michigan) sentiment index, a leading indicator which shows a mildly bullish outlook at 74, marginally higher than last month’s 73.6.  Watch out for Treasury Secretary Geithner who is due to speak at the Annual Conference of Export/Import Bank in Washington later in the day on Friday.

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A very busy week for fundamental news across all the markets with the highlights including interest rate decisions from the Bank of Canada and the Reserve Bank of Australia followed by the ECB & the UK, all of which are expected to remain unchanged but as always the associated statements will be more interesting.  The week, of course, rounds off with US non farm payrolls and unemployment data so a lively week of trading in prospect:

Australia

The trading week started in Australia with new home sales and the current account figures as the markets now await for four level 1 economic releases: the first of these on Tuesday is building approvals forecast to show a steep decline from last month’s 2.2%, down to 0.7%, a worrying trend should this be the case.  Second we have retail sales which are expected to be positive at 0.8% giving us an improving picture from last month’s -0.7% so in contrast to building approvals a more positive outlook. The third release, and the most important, is the interest rate decision due on Tuesday as well with some analysts forecasting an increase from 3.75% to 4%, although this is far from certain.  This is against the backdrop of last month’s decision when rates where expected to rise but the RBA held them on that occasion.  The decision is accompanied by the associated rate statement which will be provide an insight into the decision.  Should interest rates indeed rise then the Aussie will strengthen as a result, in particular against the Yen and US dollar.

Wednesday sees another big number with the release of the quarterly GDP figures which are forecast at 0.9% against a previous of 0.2% and again if these are on target, or better, should be positive for the Aussie dollar.  Thursday sees the release of the trade balance figures which are forecast at -1.57 against a previous of -2.25 – an improving picture.

As a result of these important numbers we should see some dramatic moves in the Aussie crosses & if the forecasts are correct then we should see 92.50 on the Aussie Dollar.

China

The week started in China with PMI manufacturing figures which came in at 52 indicating an economy in expansion although well down on both February’s and January’s figures of 56.6 and 55.8 respectively so has recent Chinese monetary policy effected the slowdown it was hoping for?   There have also been mutterings that China is now prepared to see the Renmibi rise – we shall see.

Eurozone

No tier one releases for Monday, Tuesday or Wednesday and we have to wait until Thursday when we have the ECB rate decision which is expected to remain at 1%.  This is  closely followed by the press conference, a closely watched event, which consists of 2 elements, the first of which is a pre-prepared statement followed by a question and answer session.  The entire event is usually webcast on the ECB website with a small delay from the real time event.

United Kingdom

The week started early with the release of the manufacturing PMI data which came in flat month on month at 56.6 and fractionally better than forecast at 56.3.  However, this release has been swamped by the avalanche of bearish sentiment towards sterling as a result of election uncertainty and the possibility that UK gilts will soon lose their AAA rating.  Tuesday sees the release of the monthly Halifax housing data which is forecast to show a modest decline in house prices at 0.3% against a previous of 0.6%.  Wednesday’s key data covers the services sector with the release of the PMI data forecast to show a small improvement to 55, up 0.5 from last month’s figure.  However, this index appears to have peaked in December at 56.6 and has been on a downwards slide since suggesting the danger of a double dip recession.

Thursday is all about the BOE (Bank of England) with the interest rate decision and rate statement due at mid-day along with a statement about their asset purchase programme (QE), although the markets are expecting a further 200bn.  This would be the fifth month in a row at this level.  The week rounds off for sterling with PPI input data which represents the change in the price of goods and raw materials purchased by manufacturers and forecast at 0.1%, a steep decline from last month’s 2%.

Switzerland

The only major item for Switzerland is the GDP data due out on Tuesday and forecast to come in at 0.4% against a previous of 0.3% which continues the steady upwards trend following the four consecutive negative numbers of late 2008 and 2009.  Market reaction to this number tends to be seen in the EURCHF which is moving relentlessly sideways although we could see the injection of some life once this data has been released.

Canada

An important day for Canada today which sees the release of GDP figures and uniquely to Canada are released on a monthly basis.  The headline number is 0.4%, no change from last month, and appears to be holding firm.  If the actual is better than forecast then we could see a strengthening of the loonie.  On Tuesday we have the interest rate decision from the Bank of Canada who are expected to keep rates on hold at 0.25% but as always it is the accompanying statement that will be closely scrutinized.

Thursday sees two key releases:  firstly with building permits which are expected to show a decline from last month, down to 1% from 2.4%.  This is followed later in the trading session with the IVEY PMI index forecast to come in dramatically higher at 56, significantly up on last month’s 50.8.  As a leading indicator it is closely watched and anything above 50 is taken as an economy in expansion.

United States

Today starts in the US with the ISM numbers, expected to come in at 57.7, marginally lower than last month’s 58.4.  The ISM is an important release as it measures the relative level of business conditions and is based on a survey of around 400 purchasing managers and generally considered a leading indicator.  If the actual is better than forecast then this should be good news for the dollar.

Tuesday is a quiet day in the US with the next major releases due out on Wednesday which include ADP and ISM non manufacturing.  The ADP data generally provides the market with a good guide to the non farm payroll numbers on Friday as it is based on actual payroll statistics, and the forecast is for -13k against a previous of -22k indicating a gradually improving picture.  Later in the US session we have the non manufacturing PMI data which again shows a marginally improvement picture at 51 against a previous of 50.5.

Thursday continues the labour market theme with the weekly unemployment claims which are expected to show a modest decline from 496k last time to 472k this time around.  Later on we have the month on month pending home sales which are forecast at 1.4%, up from last month’s 1% – which if confirmed should be good news for the US dollar.  The week rounds off on Friday with non farm payroll which still remains obstinately below positive territory with a forecast of -40k against a previous of -20k, coupled with an unemployment rate which has risen fractionally from 9.7% to 9.8%.

Market Watch for this week:

The VIX fear index continues to slide lower which is usually considered positive for equities and is currently sitting at 19.5 and well below the peak of November 2008 when it reached the dizzy heights of 82.  The current trend for the indicator remains bearish and the danger signals will start to appear once the index reaches 16 or below so we still have some way to go in the equity markets to the bull side.

The dollar index closed February breaking fractionally above all three moving averages and confirming the bullish engulfing signal of late 2009 once again.  The weekly chart confirms this optimistic view with prices breaking and holding above the 200 week moving average with the 9 and 14 week crossing above the 40 to add to the bullish sentiment for the US dollar as the index broke above 81 in the early London session.

Elsewhere sovereign debt levels both in absolute and relative terms are likely to be a problem for many governments as they are forced into de-leveraging positions as a result of the excesses of the banking industry.  The forex market continues to be over extended in several areas so we are likely to see corrections in March.  Treasury yields are likely to continue their recent declines with many being forced to seek safer havens.

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The dangers of debt & debt deflation

Not just a quiet start to the trading week for fundamental news, but a positively comatose one.  In fact anyone checking the economic calendar today must wonder if there is an error on the screen!!  So here is a breakdown of the major items for the remainder of the week.

Japan

The only item on Tuesday is the release of the monetary policy minutes following the recent BOJ meeting and if this is more hawkish than expected should be good for the Japanese Yen.  Wednesday’s major news item for Japan is the trade balance data which measures the difference between imports and exports with a forecast of 0.51T against a previous of 0.52T – so relatively unchanged.  Again if the actual is better than forecast this should be Yen positive.  With no news on Thursday there is a raft of minor news on Friday, including Tokyo Core CPI, preliminary industrial production, and retail sales.  These are all second tier announcements and the Yen is more likely to be influenced by equities and the US dollar this week rather than by any significant fundamental news on the economic calendar.

New Zealand

Tomorrow morning sees the release of inflation data which provides us with a view of the change in the price of goods and services over the next two years.  There is no forecast but the last quarter’s figure was 2.6% and this has been steadily rising throughout 2009 from a low of 2.2%.  The impact of this release is always seen in the NZD/JPY as any hint of a rise in interest rates by New Zealand usually heralds a further bout of carry trade speculation.

Thursday sees the release of the NBNZ confidence indicator, a diffusion index based on a survey of firms and service providers with a figure above zero indicating an optimistic view of the economy.  Towards the end of last year this began to fall away from a peak of 49.1 and shows a steady decline in confidence.  Once again there is no forecast and the figure last time was 38.5.  Later in the trading session we have both building consents and trade balance data and again no forecast has been offered for either but of the former this moved from positive to negative last time suggesting that any recovery remains fragile for the time being.

Australia

Several second tier announcements for Australia during the week before we get to Thursday with the release of the private capital expenditure numbers which are currently forecast at 1.5% against a previous of -3.9% so a significant shift in sentiment from the last time.  Should the forecast prove correct, and indeed better than expected, this should propel both Aussie Dollar and Aussie Yen higher.

Switzerland

All second tier announcements this week other than on Friday where we have the KOF economic barometer – a composite index which predicts the direction of the economy over the next 6 months and is therefore considered a leading indicating.  The forecast is for 1.81 against a previous of 1.77 – watch out for any SNB intervention – usually seen in the EUR/CHF and dollar swiss.  The second tier announcements include on Tuesday UBS consumption indicator and the employment level on Thursday with the figures expected to remain flat at 3.95m.

Europe

Tuesday’s main number for the eurozone is the German IFO data – a very important release which is a composite index based on a survey of businesses across many different sectors.  It is a highly respected indicator and markets react very quickly to the release as it is based on a survey of around 7000 respondents.  The forecast is for 96.2 against a previous of 95.8 and this has been climbing steadily since it collapsed at the end of 2008 and is now around half way towards the peak levels of 2007 where it achieved 108.6.  Look for reaction in the eurodollar and European equities.

Wednesday sees some second tier announcements including GFK German consumer climate data, German final GDP (expected flat at 0%) and Italian retail sales, also expected to come in flat at 0%, with the final number for Wednesday being industrial new orders which are expected to move from a positive 2.7% to a negative -1.2%.  This last release could impact the euro.

Thursday’s numbers are all second tier announcements once again with German unemployment change, marginally up, M3 money supply moving from negative to positive, and finally private loans expected to be marginally higher at 0.3%.

Friday rounds off the week with further second tier data with German preliminary CPI released throughout the day as the various states report, and the forecast is for 0.5% against a previous of -0.6%.

Do remember that the Greek debt problems still linger and keep a watch on the bond spreads.

United Kingdom

A number of important releases this week for the UK which starts on Tuesday with the inflation reports from BOE Gov King and the MPC members who are testifying before the Treasury Committee.  With the current bad feeling between the BOE and the government expect to see the markets react to any comments from Mr King which are generally considered a fairer reflection of the economic reality rather than the airbrushed view offered by the “Prime Monster” – ooops I mean the Prime Minister, G Brown!!  At the same time we have BBA mortgage approvals which are forecast to show a decline from the last time, marginally lower at 45.3k.

Thursday sees BOE Gov King back in the limelight once again as he is due to testify about the future of the banking industry at a commission hearing in London and his comments will be closely watched by the markets.  Later in the London trading session we have CBI realized sales, a diffusion index based on a survey of retailers and wholesalers.  Any number above zero indicates increasing sales and the forecast is -1 against a previous of -8 so whilst an improving picture, still far from positive.

Friday sees 2 level one announcements: the first is the Nationwide HPI housing data which is forecast at 0.4% against a previous of 1.2% – suggesting a decline in house prices and that the present “recovery” is far from certain and that the UK is heading towards a double dip recession.  Finally we have the revised GDP figures which are expected to be revised upwards to a startling 0.2% from 0.1% and no doubt will be seized upon the government as evidence that “Things can only get better”!

Finally for the UK keep a watch on gilt yields as the news on the wires is that the bond vigilantes are riding out!

USA

The key number tomorrow for the US is the CB consumer confidence, a composite index based on householder surveys, and forecast to come in 55 against a previous of 55.9 so a minor decline.  If the number is better than forecast then this should help the dollar.  Wednesday’s key fundamental news centres on Fed Chairman Bernanke as he testifies before the House Financial Services Committee on the topic of Monetary Policy.  The testimony comes in two parts, the first of which is a pre-prepared statement followed by a Q&A session which is where we are likely to see market volatility.  At the same time we have the release of the new home sales which are expected to show a modest improvement, rising to 350k against a previous of 342k.  If these come in as expected then again this should add further to positive dollar sentiment.

Thursday has three key items of news: starting with core durable goods orders, forecast at 1.2%, marginally lower than last month’s 1.4% coupled with the unemployment claims at 466k, down fractionally from 473k last time.  The US trading session rounds off with another day of testimony from Ben Bernanke, this time before the Housing and Urban Affairs Committee.   The week for the US ends with a big number, the preliminary GDP data forecast at 5.6% against a previous of 5.7%.

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Last week’s market obsession with debt and in particular the problems with Greece will, no doubt, continue to dominate the markets this week although expect to see a rally in the euro as fears are calmed and investor risk returns.  However, the start of this week will be relatively quiet in terms of trading volumes given that the US and Canada are closed on Monday and the Chinese markets closed all week for the New Year Holidays.

Here is a breakdown of the more important fundamental news items for the various countries and which are likely to move the markets.

Japan

The first major news item for this week is in Japan in a couple of hours time with the release of Preliminary GDP forecast at 1% against a previous of 0.3% suggesting that Japan’s economy has grown at its fastest pace since Q1 of 2008.  Clearly export demand appears to have returned and should the actual be better than forecast then this should be good for the Yen and the Nikkei.  As this is the preliminary version it is red flag announcement being the first of 2 releases.

There is little other news for Japan until Thursday when we have the overnight call rate which is forecast at 0.1%, and is the interest rate at which the BOJ (Bank of Japan) re-discounts bills and extends loans to financial institutions.  This decision is coupled with a BOJ press conference but the timing of this tentative at present.

UK

Very little for Monday which is likely to move markets with the first tier one news item being CPI (Consumer Prices Index) on Tuesday which is forecast at 3.6%, significantly higher than the 2.9% last time and as a consequence is set to exceed the target set by the BOE.   No doubt Gov King will be sharpening his pencil in preparation for communicating with Chancellor Darling to explain why the Bank has overshot the 3%.  We could see some volatility as the markets take the news at face value as a signal for a potential rise in interest rates, sooner rather than later and then promptly reverse once rational thought returns.

Wednesday sees the unemployment data which is expected to show a small fall once again.

The key number on Friday is retail sales which are forecast at -0.5% against a previous of -0.3%, so worse than previous which could be bad news for sterling & the UK economy, if correct.

Europe

Nothing on Monday.  Key number on Tuesday is the German ZEW economic sentiment – a very important release which is forecast much worse than previous at 42.5, down from 47.2 which could dent any recovery in the euro which we might see on Monday.

The week rounds off on Friday for Europe with a series of PMI manufacturing and services data all of which is second tier.

USA

Holiday on Monday.  Tuesday’s key number is the TIC data – which measures the difference in value between foreign purchases of long term securities and those purchased by US citizens.  The number forecast is 50.3bn, a significant change from last month’s 126.8bn.  The data indicates the demand for both domestic securities (Treasuries) and currency since overseas buyers need to obtain the dollar in order to buy the securities.

Wednesday’s level one data is Building Permits forecast at 0.63m against a previous of 0.65m and this number measures the total of new building permits issued and therefore is considered a leading indicator for both the housing market and general economy.  The other piece of news on Wednesday is the release of the FOMC minutes due late in the trading session so watch out for these.

Thursday is a busy day with three key announcements; first is PPI (producers’ price index)  forecast at 0.8%, against a previous of 0.2% and should the number be higher than forecast then this could be dollar positive.  At the same time we have the weekly unemployment claims which are currently forecast to show a small uplift from the last time at 445k vs 440k previous.  Finally on Thursday we have the Philly Fed manufacturing index which is forecast to show an improving picture, up 2 points to 17.2 from previous.

The main news item on Friday is the Core CPI data, coupled with CPI, the first of which is forecast at 0.2% and the latter at 0.3%, both marginally than last month’s 0.1% for both.

Canada

Holiday on Monday.  No major announcements either Tuesday or Wednesday with the first item being core CPI and CPI on Thursday.  These are forecast to come in at 0.1% and 0.3% respectively, both moving into positive territory following last month’s negative figure of -0.3% for both.  Friday sees core retail sales forecast to show a modest improvement from last month’s flat performance at 0% rising to this month’s 0.4%.

Australia

The week starts for the Aussie on Tuesday with the release of the Monetary Policy Minutes which is considered a red flag item and should be closed watched for any clues as when the RBA will be looking to raise interest rates.    Thursday sees RBA Gov Stevens speaks as he testifies before the House of Representatives in Canberra.

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