Macro Morning: Dijsselbomb

See the latest Australian dollar analysis here:

Macro Afternoon

I had grave concerns about the Dutch Finance Minister Jeroen Dijsselbloem and his ability to lead the Euro Group and command the gravitas and experience necessary for that position. Overnight we saw that he is still wearing his L-Plates as he torpedoed the markets rally after the Cyrpus deal was announced.

In an interview with Reuters and the Financial Times, Dijsselbloem signaled that the Cyprus deal to bail in depositors was a template for other nations:

What we’ve done last night is what I call pushing back the risks…If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?’. If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders…

As FTAlphaville said:

Dijsselbloem, do remember that careless talk costs lives

The article is a great take down and worth a read (HT Business Insider) and it really hits the mark in relating the impact of words on markets . This is something we thought Europeans learned last year and Mario Draghi had settled things down but junior Dijsselbloem has let the genie out of the bottle and genuinely sent the signal that investors and depositors are fair game.

Obviously that is not a bad message to tell people that they need to take a bit more care where they place their cash and think about the risks of individual institutions but last night and the way he did it is possibly not the way.

Looking at the markets the euro was the big loser in currency land and Italian and Spanish stocks got slammed in equity markets. The euro traded up to 1.3048 but is now back at 1.2858 and well on track for the 1.2650 zone I have been targeting for a while now. Worth noting is that for the first time since November 2012 euro is below the 200 day moving average:

eur, eurusd, euro, euro (eur) price quote

In other FX markets USDJPY broke my trend line making a low of 93.53 and I would now be short USDJPY targeting 93.05 then 90.73. But if you like Fibonacci levels the way that I do a “usual” retracement within an uptrend would see a move back to the 38.2% level which is 89.97.

jpy, usdjpy, yen, dollar yen, dollar yen quote,

The Aussie has been fairly stable over the past 24 hours, breaking up through last week’s high at 1.0457 and trading up to 1.0480 before pulling back a little with the euro but it is still sitting at 1.0465 this morning and still targeting a push toward 1.05. The pound was volatile overnight in line with the euro trading up to 1.5267 with a low of 1.5141 and it sits at 1.5177 this morning.

As noted above after a strong open across the continent for equities, Italy and Spain were the hardest hit by Dijsselbloem’s comments  losing 2.50% and 2.26% respectively. With its weak economy, France was knocked 1.12% while the DAX fell 0.51% and the FTSE was 0.23% lower. The Euro Group has already tried to hose down Disjsselbloem’s comments but the cat’s out of the bag.

In the US, stocks were off following the lead of Europe with the Dow Jones Industrials down 0.44%, the Nasdaq dropped 0.31% with the S&P down the same amount or 5 points to 1,552. These moves aren’t too bad and nothing too large but as you can see in the chart of the S&P 500 is continually bumping into the top of its uptrend channel – the roof line as my son likes to call it – which continues to provide solid resistance. The rally is fading and a period of consolidation/pullback looks likely.

s&p 500, spx, s&p 500 chart

In commodity markets gold’s rally continues to fade and it has slipped back below $1,600 sitting at $1,596 at the moment. Crude oil rose 0.93% to $94.58 Bbl. Copper fell 0.49% and the Ags were mixed.

Data

RBA Governor Glenn Stevens speaks today with little else out before Durable Goods, Case Shiller house prices and the Richmond Fed manufacturing index out in the US tonight.

Twitter: Greg McKenna

Disclaimer: The content on this blog should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation, no matter how much it seems to make sense, to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility and you should consult your investment or financial adviser before making any investments.

Latest posts by Deus Forex Machina (see all)

Comments

  1. As if you had to be a genius to see this one coming. When you get the world rally on one small little nation like it did then something really is wrong and i guess market sentiment finally caught up with the reality of what is truly going on in the EU. The EU is nothing more than a toxic bomb waiting to go off. I have never believed they can pull themselves out of this, the whole idea is fundamentally unbalanced, and it would seem in Germany’s favor.

    With Chinese inflation growing fast all eyes will be on US data for growth but if investors get shaken with the EU crisis then one would expect the US to slow to a halt again.

    The average Australian should be battening down the hatches and preparing for what could be a really rough road ahead.

    • Deus Forex Machina

      “As if you had to be a genius to see this one coming.”

      Thanks for your considered remarks aand such thoughtful comments.

      My strength is that I know I don’t know everything it is what makes me money. Any ideas of genius went out the door early in my career when the market handed me a few lessons.

      My pocket book lives and dies by my views and thoughts I can’t afford to have delusions of genius – how do you go?

      Have a nice day

      Greg

      • hmm, it was one of those statements that people use but not directed at you but at the general populous. I don’t think I have ever criticized a writer as they tend to know more than i do. no offense intended.

        • Deus Forex Machina

          ok – sorry please accept my apologies.

          In brissy for a conference and had to get up at 430 local time to write the piece so in hindsight I was too titchy.

          Once again apologies

          Cheers

          Greg

    • I think we need to stop using the term “investor”.

      There is nothing in this behaviour that suggests any long term rational thinking.

      It’s like watching a bunch of seagulls trying to decide which chip eating beachgoer is more generous.

      Even “trader” doesn’t begin to encapsulate that kind of speculative herd movement.

  2. reusachtigeMEMBER

    Maybe it’s just me but my iPhone is struggling with Macrobusiness today. It started some time yesterday.

    • JamesTheBearMEMBER

      It’s not just you – I’m having difficulties too. It seems to clear up once you log in , but if you’re not logged in all the articles moosh up on top of each other.

  3. Perhaps Jeroen Dijsselbloem will very soon be seen to be the Dutch Martin Ferguson. Stating the obvious doesn’t sit well with many….

  4. As always very interesting reading about events in Europe.

    Years ago there used to be a conspiracy theory that Greenspan (or someone) was running a Plunge Protection Team on the Dow (I think).

    The idea was basically that when panic gripped the market the PPT would dash in a buy lots of shares to ‘restore confidence’.

    It sounds like the Europeans have their own PPT but this time it is the “Panic Protection Team”.

    Mr Dijsselbloem may need to work on his ‘moves’ a bit more before being let out on the paddock with seasoned players like Mr Draghi.

    Of course this assumes that there is actually no reason to panic and thus protecting people from panic is a worthwhile endeavour – especially if it is intended to merely buy time while the ‘problems’ are being fixed.

    But if they are not being fixed then some panic might be warranted.

  5. “…but last night and the way he did it is possibly not the way.”

    So, when is the right time, and what is the right way, to tell the truth?

    • +1 Op8.

      A while ago a major Euro personality was being roundly castigated for confirming that “when all else fails. Bankers lie”, or words to that effect.

      Now we have a Euro politician, new to it yes, who actually dares to tell the truth about the state of Europe’s financial affairs? And for this he should be blasted. Better the truth than the BS, spin and doctored data we have been fed these last 4-5 years.

  6. Template, the “T” word.

    Run, run, run from those banks, little European vegemites 😯

    • run where?
      Swiss banks
      gold
      productive land
      US govt bonds
      mattress
      drinks cabinet

      I suppose the answer differs depending on the amounts in question.