Forex Market Outlook 11/23/11
Well there's not much to be thankful for, economically speaking, ahead of tomorrow's Thanksgiving holiday here in the US. Markets and banks will be closed tomorrow, and Friday will be a half-session, though the forex market will continue to trade, albeit on lighter volume during the US session. So if investors have fears about the global economy or markets in general, now would be a decent time to take some money off of the table.
And that's exactly what we are seeing this morning as there is some major risk aversion to start the day and fears have picked up, primarily on two major developments. Global stocks and commodities are down to start the day ahead of the increased docket of data releases due out here in the US.
The first bit of bad news came out of China overnight when they reported manufacturing PMI that came in with a 32-month low of 48. Last month's reading was at 51 and could be a major sign that the global economy is indeed slowing.
The second piece of news came out of Germany, who had a poor showing on a 10-year bund auction which failed to get bids for some 35% of the offering, which sent yields higher for Germany. While they are blaming some sort of technical glitch, the reality is that investors did not step up to the plate to purchase German debt which could have happened for a few reasons. This is being dubbed a "disaster" by market pundits.
First, investors may be trying to lighten the load on the Euro zone region in general. Second, they may feel they already have enough exposure to Germany via their stake in the ECB and all of the other Euro zone debt which they are essentially on the hook for a big portion of; lastly, investors may be sending a message to Germany that they will hold out in protest unless Germany steps up to back the ECB in further asset purchases or re-considers the Euro-bond solution to the debt crisis.
Whatever the reasoning, global markets are sending a message to Germany that they won't buy their debt (at the lower rates of course) unless they will increase their participation in the rescue programs.
In addition to this, Euro zone industrial production figures came in way worse than expected, though various PMI figures were mixed. This takes the wind out of the sails of yesterday's news that the IMF was expanding a lending facility to the Euro zone and that the Fed meeting minutes showed a readiness to expand monetary policy yet again, causing a late-morning rally.
This morning is action packed here in the US on the data front, as essentially 3 days worth of data is being released this morning. In a situation such as this, it is usually best to step aside for a few minutes and let the markets figure out what the aggregate sentiment is based on the data.
So here is the laundry list of what will be released later this morning: Durable goods orders, Personal income, Personal spending, Initial jobless claims, and U Michigan confidence figures. Usually this data would play out over the next three days but has all been jammed into today because of the Thanksgiving holiday.
In other news, the BOE released the minutes from their rate policy meeting and were unanimous for the first time in a while with their decision to maintain the current policy, though some noted that they would be willing to become more accommodative should a fall-out from Europe happen. They expect that somehow inflation is going to magically fall to below their 2% target by the end of next year from the current 5%. Good luck with that one!
Tomorrow's release of GDP in the UK is expected to show a paltry .5% growth and may change some tunes at the BOE, but my guess is that like most of the economic data we have been seeing from the UK will surprise to the upside, allowing for a break from further easing for a while. Tomorrow will also bring the release of German GDP figures as well.
So again, it's not a pretty picture going into essentially what is a long weekend here in the US and the fear out-trumps the risk at this point. Should we make it through the weekend with no further "problems", then next week could be risk on again.
As for now, I am going to enjoy the Thanksgiving holiday with family as I still have some things to be thankful for. Although the global economy is offering little hope at this point, things could definitely be worse! I'll be back on Friday with a recap.
Happy Thanksgiving!
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