Last night another earthquake rocked New Zealand in the city of Christ Church—again! The more serious of the quakes was of a 6.0 magnitude and the extent of the damage is still unknown. This is sure to slow the rebuilding efforts from the last earthquake, and likely to delay any potential rate hikes for some time.
Also weighing on markets is the Greek debt crisis, and though officials claim to be able to come up with a resolution by month-end, at this stage of the game this doesn’t seem likely.
Tomorrow China will report its CPI data and there is fear in the markets that higher than expected inflation there could cause the PBOC to raise interest rates as they attempt to slow down growth. This would be very unwelcome in a marketplace that is already seeing weakness and is on high risk alert due to the problems in the Euro zone.
CPI data due out this week from different regions around the globe will show how hot inflation is, and it appears as though global stagflation may be on the way. Stocks are higher to start the morning, though oil prices have pulled back. There are some elements of risk-taking in the market with the exception of Kiwi weakness, though that may change throughout the day.
In the forex market:
Aussie (AUD): The Aussie is higher on risk-appetite this morning despite the setback in New Zealand. Business and consumer confidence figures are due out this week, though expect volatility tomorrow on the release of the Chinese data on what is otherwise a slow week for news out of Australia.
Kiwi (NZD): Well I guess you have to have faith in a city named Christ Church after another round of earthquakes rocked New Zealand’s second largest city. This will have an obvious impact on the rebuilding efforts from the last earthquake, and could delay rate hikes going forward.
Loonie (CAD): There’s not a lot of news due out this week for the Loonie so expect it to trade closely tethered to oil prices and to be affected by US economic data. Risk events such as the Euro debt situation and Chinese CPI could drive3 price action as well.
Euro (EUR): The Euro is rebounding some from last week’s selling as the Greek debt crisis is the major news driving the shared currency. Industrial production figures due out mid-week and CPI data on Thursday could give ECB hawks some ammunition, though the market is starting to believe that raising interest rates while the debt crisis is still uncertain may be irresponsible. (Click chart to enlarge)
Pound (GBP): The Pound is in focus this week as a slew data is due out this week, starting with CPI tomorrow, employment on Wednesday, and retail sales on Thursday. Lat week’s data came in worse than expected, though some are blaming the Royal Wedding for the slowdown, which may be plausible but not likely.
Swissie (CHF): The Swissie is showing some strength today despite the risk appetite in the market ahead of an economic report due out tomorrow and the SNB rate policy decision on Thursday. While no change is expected to the interest rate, Switzerland has been performing exceptionally well in the face of the global economic slowdown.
Dollar (USD): Last week was the biggest one-week gain for the Dollar in some time, led mostly by Euro weakness and risk aversion. There is a lot of data due out his week, with Advance retail sales, CPI data, housing starts, and consumer confidence all on the docket. Taken together this will show the current state of the US economy as we move into the summer months.
Yen (JPY): The Yen is noticeably weaker as the market is anticipating some type of monetary easing in the not-so-distant future. A 2-day BOJ meeting may produce this result, as economic weakness still persists and recession has “officially” taken place. Machine orders figures were negative overnight.
So it looks like round two of the economic slowdown is about to begin and we may be in for another perfect storm of Euro debt, Chinese slowdown, and higher commodities prices. Though this time it may add up to stagflation.
Japan is still recovering so its economy is not yet back on track, and everyone else seems to be slowing down. Easy monetary policy by Central bankers is intended to buy time to fix problems but it is apparent that the time given has not been used wisely.
So here we are again. Leaders in the Euro zone have not been able to come up with a solution for these debt-laden countries and interest rates have doubled since the beginning of the crisis making it nearly impossible to resolve now. Yet they say that they hope to have a solution in the next two weeks despite the lack of agreement thus far. Good luck with that!
The US is doing nothing about its budget deficit problems, as well as the housing market that is hanging over the economy. Housing starts figures this week are bound to paint a bleak picture.
There is still great risk in the marketplace, though how long “extend and pretend” can continue is anyone’s guess.
