July 1, 2009

 

 

-- Financial markets adjusting to the half-yearend and setting up for the second half.

-- Global economy has been uneven, but generally most economies have hit bottom and are recovering.

-- Markets moving back in a cautious risk assumption posture.

 

USD:

-- Latest Fed statement took a slightly more hawkish tone. No rate hikes in the cards yet.

-- Employment data on Thursday likely to show May improvement was partially a statistical fluke. Employment loss on the order of -450K would not be surprising.

-- Recent improvement in the tone of the bond market bears scrutiny. 4.0% in the 10yr note is the pivotal level.

 

JPY:

-- Declining trade surplus reduces capital export (JPY positive).

-- Deflationary pressures persist.

-- Economy bottoming.

Click on chart for two year history

 

EUR:

-- EUR/USD 1.40 the tipping point for the markets.

--.Key ECB meeting is on Thursday. They talk tough but have badly overestimated the strength of EZ economy. Watch what they do more than what they say.

-- Tight EUR/USD to S&P correlation has been working only intermittently.

 

 

Click on chart for two year history

GBP:

-- UK economy still weak but bottoming.

-- Final 1Q09 GDP surprisingly weak.

-- Brown government in crisis. Could fall at any time. More conservative government could be seen as GBP positive.

 

 

Click on chart for two year history

 

CHF:

-- SNB concerned about weakness of the economy, but CHF tied to EUR.

-- Expect SNB intervention at any time to hold EUR 1.50 line vs. EUR.

 

 

Click on chart for two year history

 

Business Cycle Trades:

-- CAD, AUD and NZD business cycle trades come into favor when markets in risk assumption posture.

-- Crude $70 line pivotal