Wednesday January 24, 2007 - 10:48:53 GMT
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Black Swan Capital - www.blackswantrading.com
â€˘ Australia's consumer inflation data for the December quarter posted its lowest quarterly reading in almost eight years, well below market expectations, and as a result it has sharply reduced fears the Reserve Bank of Australia is likely to increase interest rates in early February, economists said. (AFX)
â€˘ The U.K. economy grew at the fastest pace in 2 1/2 years in the fourth quarter, led by services, adding to the case for a further interest-rate increase. (Bloomberg)
â€˘ Chinese stocks hit a new record high for the fourth straight day on Wednesday. (Reuters)
â€˘ Key Reports (WSJ):
7:00a.m. MBA Refinancing Index. Previous: +6.3%.
â€śThe emerging world has grown much more rapidly than the United States. In the U.S., ultra-expansionary monetary policy got under way ahead of Y2K in 1999. It continued after 2001, when the Fed slashed interest rates to 1% from 6.5%. Though the Fed has raised rates since 2004, to 5.25%, we still have expansionary monetary policies worldwide. If you define economic growth by consumption, the U.S. has grown rapidly and will probably continue to grow. If you print money you give people the opportunity to spend. But along with the spending came a growing trade and current-account deficit, which was offset by surpluses in Asia. Every region of the world has a current-account surplus with the U.S. For the first time in capitalism, the poor countries, notably China, are financing consumption in the U.S. This will not last forever.â€ť
Mark Faber, Barronâ€™s Roundtable
FX Trading â€“ Blam!
A few months ago I was re-reading Tom Demarkâ€™s book on technical analysis, The New Science of Technical Analysis. It was written in 1994, thatâ€™s when I first read it, so I guess itâ€™s not exactly â€śThe New Scienceâ€ť any longer. But in the book he said with markets becoming so tightly linked by news and the herd instinct of fund managers that he prefers applying percentage moves to describe short, intermediate and long term. That was 13-years agoâ€”we know the heard mentality in markets has become even more pronounced since then. Last nightâ€™s (for those on EST) collective crushing of the Australian dollar by Mr. Marketâ€”on the snap conclusion the Reserve Bank of Australia (RBA) is now on hold thanks to lower than expected inflation newsâ€”proves this in spades:
AUDUSD 30-min chart
Overdone, or a short-term trading period complete? Probably! We expect the Aussie to hold up as a key repository of the continued liquidity being pumped out by the Bank of Japan i.e. a beneficiary of yen carry, even if the RBA is â€śexpectedâ€ť to be off the table.
AUDUSD vs USDJPY Daily chart
But there are other potential scenarios lingering, we think. One is that despite everyoneâ€™s belief in abundant liquidity, hikes by assorted central banks, shrinking levels of petrodollar recycling, and the growing backdrop of ugliness in the Middle East could be a bit more draining on market liquidity, or at least risk appetites, than expected. Emerging market debt might make sense to watch here. Below is a chart of the Exotic Debt Index, compiled by Wesbruin Capital, via Bradynet.com, and itâ€™s been heading south since April:
Exotic Debt Chart
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