We talked about the state of the US consumer – the factors that had led to a pickup in spending in late 2011, but also the headwinds facing spending in the early part of 2012.The key element to turn the relatively better US data in the last few months into something more meaningful would be the ability of the private sector to continue to step up hiring and a pick-up in wages. Today’s data showed personal incomes rose 0.5% in December, while spending was flat.

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Recap of the Latest Global News By Cory Vi & Andrew Su on Jan 30, 2012 The announcement by the Federal Reserve that it plans to keep interest rates low through till at at least 2014 counterbalanced some weaker than expected economic growth figures last week to keep investor sentiment more optimistic. Furthermore, developments over…

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This week will feature plenty of talk about Greece and the conditions for the EU’s second bailout, now that the Greek debt restructuring talks are close to agreement. On tap this week will also be the most important fundamental indicator of the month the Non-farm Payroll report, but we also recieve manufacturing reports from around the globe for the January period. Euro-zone countries issue around 22 billion of euro debt, and the political question about the possible loss of sovereignty for Greece.

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A soft GDP report begs an important question. Will this report make it more likely that the Fed will undertake more quantitative easing. If so, that would have the effect of weakening the USD, even when the normal reaction to soft growth data would be a move towards safety and risk aversion and therefor towards the USD. Looking at the Dollar index we see the possibility that the technical line up with a swing in this fundamental bias.

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Even as the euro has strengthened against the dollar over the last week and a half is unable to carry that advanced to its fight against the Swiss franc. This week we test key support near 1.2060 that if breached would set up a big battle between the market and the SNB. The fact that the Greek debt negotiations have not found resolution continue to not see a resolution in the Greek debt negotiations, the CHF continues to be bid as a safe haven thereby reinforcing a fundamental bias for the Swiss franc against the euro in these conditions.

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With the possibility of a shallow recession on hand the Bank of England may feel pressed to expand its purchase of bonds in its quantitative easing program. Market participants’ expectation is that the BOE will in fact increase the scope of its bond buying program, the main question then is by how much. The drop in GDP growth could reinforce those on the BOE that want more stimulus and that could mean that the recent rally in that GBP/USD may find some fundamental factors for a retracement.

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The main focus therefore will be on the new rate projections and whether this further guidance by the FOMC is able to goose markets one last time. The second focus will be if the Fed believes the recent pick up in employment and economic activity has any lasting momentum, and if they may be easing their foot of the printing accelerator in 2012 and what would need to happen from the inflation and employment standpoint to cause the Fed to pursue further monetary easing.

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