Macro Morning: Itaaaallllyyyyyyyy

Nothing really matters this week except for the outcome of the Italian Elections which will start to filter out in Asian time today and then Bernanke’s walk up the Hill to give his testimony to the US Congress.

On the former it is in the hands of the Italian people what happens but regarding the latter, after last week’s fall in equities Bernanke will try to soothe fears of an imminent withdrawal of stimulus.

Certainly the stock market will be looking for this type of reassurance and if Bernanke fails to deliver then this is a big risk for global stock markets and possibly a big support for the US dollar. But all things being equal the more likely outcome is stocks to be supported by Bernanke and the US dollar slightly undermined.

On Friday stocks saw a relief rally on the back of the German IFO data which was stronger in terms of both sentiment and actual conditions than had been expected which together with some dovish comments from the Fed Brotherhood in the US put a better tone into the market. After the swoon mid-week the Dow closed the week with a rally on Friday of 0.87% at 14,001, the S&P regained 0.9% of the previous two days 1.9% loss on Friday closing up 14 points to 1,516 while the Nasdaq was 0.97% to 3,162.

In Europe there was a strong rally with the FTSE up 0.71%, the DAX up 1.03%, the CAC fairly roared up 2.24% with Madrid up more than 2% as well while in Milan stocks rose 1.40%.

Even though the S&P 500 finished the week on a better note the technical picture is deteriorating and last week’s low must hold or a deeper retracement is in the offing.

s&p 500, spx, s&p 500 chart
 Elsewhere the UK lost it’s AAA rating from Moodys being downgraded one notch to Aa1. Moodys said:
The main driver underpinning Moody’s decision to downgrade the UK’s government bond rating to AA1 is the increasing clarity that, despite considerable structural economic strengths, the UK’s economic growth will remain sluggish over the next few years due to the anticipated slow growth of the global economy and the drag on the UK economy,

As I noted last week I am now targeting a move of about 10 big figures toward 1.42 over the months ahead for the GBPUSD rate but looking closer to hand the the dailies for GBP are very over stretched with the crash of the last week which took it from the previous Friday’s close above 1.55 to approximately 1.5150 last week.

Everyone is going to be focused today and probably the next few days on the Italian election and whether the outcome gives more or less clarity to the chances of Italy sticking to the deals entered into and the policies undertaken by the Monti Government. Indeed it is worth noting a Wall Street Journal article over the weekend with Bernard Connolly, who was running the European Commission’s Monetary Affairs Unit when he was sacked 17 years ago for saying that the euro would usher in a crisis eventually.

It is an article well worth a read but we thought that we’d highlight a point worth remembering both given the election and the trend over the past three years for Europe to blow up around April May. Connolly was quoted as saying:

The European political class, he says, believes that the crisis “hit its high point” last summer, “because that was when there was an imminent danger, from their point of view, that their wonderful dream would disappear.” But from the perspective “of real live people, and families and firms and economies,” he says, the situation “is just getting worse and worse.”

Protests around the zone over the weekend about austerity programs and the loss of Britains AAA rating show the bind politicians are in. They don’t seem to be able to win either way and in time might loose their careers.

The Australian dollar took on all comers last week rallying against the major crosses. After comments from RBA Governor Stevens left the market in no doubt that the RBA’s hands off approach to the Aussie is likely to continue. At the same time Stevens suggested that the hurdle for further cuts is quite high implying that the economic performance of the economy needs to undershoot the RBA’s expectations if any cuts are to come. The NAB thinks they will, the CBA is not so sure:

Global FX Aussie Cross Weekly Performance

On commodity markets gold is sitting at $1,572 oz this morning after it tried to climb back inside the down trend but was likely rebuffed both by the technical damage done to the price during the week but also with the equity rally reducing the need for the golden safe haven. Gold’s outlook in many ways rests not with itself but with other markets in the days ahead. Silver found some support for the third day in a row around $28.30 oz in MT4 pricing terms. Crude had further weakness below the previous day’s low but recovered to have a small rally on the day closing at $93.36. Soybeans fell 1.78%, wheat dropped 0.87% and corn was largely unchanged.

Data

The Italian election is front and centre in our time zone today if/as news filters out about the results.

HSBC Chinese M’fg PMI is out with the Chicago Fed National Manufacturing Activity index out tonight together with BoC Governor Carney’s speech which will be interesting to hear.

Lets have a look at some Meta 4 charts from my  AVATrade platform.
GBP/USD:

The Pound has now broken both a big uptrend from the 2008 low as well as down through the bottom of the channel it has been in since mid 2010. As we noted last week we are now targetting a move of about 10 big figures toward 1.42 over the months ahead.

Looking at the dailies GBP is very over stretched with the crash of the last week which took it from the previous Friday’s close above 1.55 to approximately 1.5150 last week:

gbp, gbpusd, gbpusd price quote, gbp weekly chart

AUD/USD:

As can be seen in the chart below the Aussie is bouncing around in quite a wide range and although Friday night’s close was not that flash in terms of where it has been a few hours earlier the daily charts are building momentum. But unless or until the box breaks its just a wild roller coaster ride around the same track again and again and again.

aud, audusd, australian dollar, australian dollar price quote, audusd

Twitter: Greg McKenna

Here is how markets looked this Morning

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Comments

  1. Why has it aroused so little media comment all around the world, that “Prime Minister Mario Monti” was literally an appointed “Receiver-Manager”?

    What about Democracy and the threat to it from transfer of sovereignty to trans-national organisations?

    • Deus Forex Machina

      As to your first point I was only thinking the same thing over the weekend.

      As to your second I guess that’s why the pollies made him quit??????