Τι μια εβδομάδα να δούμε τι κάναμε στις αγορές σας……

 …… or for non Greek readers …What a week see what we did to your markets

It is difficult to describe last weeks events but suffice to say it completed one of the most volatile ever for forex, bond ,equity and commodity markets. The biggest winners in the forex markets was the Jap Yen 4% stronger against the USD which itself was 4% stronger against the Euro. In bond markets the flight to quality saw the German and US government bond markets rally as the blood bath in Greek and other Southern European Countries continued. Equities collapsed everywhere not least the Dow which dropped an incredible 900 plus points on Thursday most in a matter of minutes before recovering 600 points in the same time.
The Greek problem certainly went global. Amazing as it is for a country accounting for just 3% of European GDP, but such is the fear of contagion.

As I write the markets are awaiting announcements from the EU on an Emergency Funding Mechanism which is designed to support Euro members and therefore the Euro. How the markets react will be interesting .Will it be one handed applause or will it put a squeeze on Euro shorts and and also the so called bond market vigilantes’.
It seems that whatever is announced the upshot will be to throw more good money after bad.When the politicians finally realize that the Euro in its current guise is floored and the final cost may be catastrophic.For sure If the so called PIGS were not within the Euro they would not have been able to get to this stage.
The equity markets have been spooked big time and it may well be some time before confidence returns. Risk appetite has been choked and so we will be back to more volatile and uncertain markets.
Good trading opportunities but for Investors not so much fun.

Amidst all this the UK election came and went much as expected. Sterling which had faired better than the Euro lost some ground as the uncertainty of who would actually end up in government dawned on the markets.At this time a Conservative, Liberal Democrat Alliance looks just about more likely. If that happens then Sterling and Gilts may get a lift. However, if that is not forthcoming early in the week then uncertainty and the possibility of a Labour Lib Dem Alliance will weigh on them: Indeed if a Brown Clegg pact happens the markets will vote with their feet at the prospect of a Laurel & Hardy run government.

ps At some point I believe there will be an investor stampede into Gold and other precious metals

GREEK BONDS BUY ONE GET ONE FREE

 The Greek Pantomime Continues

The situation in Greece again dominated the markets although most of the real volatility was confined to the bond markets rather than Forex markets.
Matters came to a head with the downgrading of Greek Bonds to Junk by Standard & Poors. Greece was finally forced to formally request their bailout ,agreeing to a new round of further austerity measures.

The Euro recovered from lows but appetite for the single currency remains poor and any bounce from final EU government approval may prove short lived.
It remains difficult to gleam anything Euro positive from the bailout and even commitment of € 120 Billion over 3 years could still prove inadequate. There still remains the possibility of a large spanner in the works on two fronts. Firstly an escalation of Civil unrest in Greece beyond the May Day street fighting and sustained Union opposition. Secondly there seems a distinct possibility of a legal challenge in Germany on the basis of it being a Violation of European Treaties. Angela Merkel has dragged her feet worrying about regional elections and has flitted between being the fairy godmother and the wicked witch in the whole Greek pantomime.

Most of the major currencies remained narrowly mixed. However, the stock markets looked distinctly edgy last week. The US market as ever seems to hold the key and any further sell off could prompt a much bigger clear out. The Jap Yen which looked to be wobbling itself would of course benefit from this.

Technically the outlook for the Euro remains poor under USD 1.3420 and with current sentiment continues to look vulnerable.

Finally the week ahead has the long awaited UK election. If the Conservatives can squeeze a working majority then Sterling could enjoy a good move up to € 1.20 plus . On a hung parliament while the initial reaction may not be that large Sterling will remain very vulnerable to a sell off. Gordon Brown seems to have surpassed himself and sunk any hope of a labour victory and his reclassification as Junk awaits him.Perhaps he could be repackaged with a bunch of Greek Bonds and sold off. Now who can we think of to arrange that I wonder?

Weekly Review- Dollar fails to push on

Forex Update

The surprise of the week was the Federal Reserves decision to raise the discount rate by 25 basis points to .75 %. This was of not a signal of Fed tightening but merely targeting the supply of reserves.
After an initial Knee Jerk stronger the dollar ended the week close to where it began. However, it may reinforce the growing view that the US is further advanced on the recovery road and thus the Fed will be the first to exit from stimulus measures.Markets are predicting some tightening by the Fed in the Autumn but some commentators are now predicting this may be earlier. The yen suffered particularly losing ground not only against the commodity currencies but also the Euro.

The long dollar and short Euro positions held by the currency markets seem to be stalling any further moves at the moment. A more corrective phase may ensue and perhaps some dollar bulls and euro bears will have to be squeezed out of positions before we see an assault on the lower 1.30s. It is quite possible we will see the Euro back at 1.40 against the dollar and nearer 130 against Yen before any further weakness.

The situation in Greece seems to have slipped to the back burner and may add to that corrective phase. However, this problem together with the other PIGS will run and run. Greece has major problems persuading its public to accept the budget cuts required. Although 70 % of the public appear to back the government many different factions appear not to want to bear their share. Ireland which is now held up as some example of facing up to its responsibilities, has a long long way to go.In general the Euro area growth will remain very sluggish merely exacerbating the deficit problems.If governments are forced to turn off the stimulus taps then we could see some real anxiety and likely the beginnings of even greater social unrest in some countries.

The UK statistics were all very disappointing. A first January deficit for PSBR (-GBP 4.3 Billion as apposed to expected -2.4 billion). Retail sales dropped 1.2 % in January and the CPI hit a whopping 3.5 %.
Sterling has not benefited from any of the recent Euro weakness. While the rating agencies are engaging in a wait and see what the election brings approach,the outlook for the pound remains vulnerable.
Indeed it is not difficult to envisage a scenario further ahead of another crisis for the pound.
Talk of tough action on the deficit is not good Electioneering and Gordon Brown in particular seems convinced that he can go on spending until the UK grows out of its problems.As I mentioned last week the mumblings of a possible hung parliament are growing. That leads to uncertainty as the UK has never faced that before and that could well add to the pounds woes.

The key for the coming weeks may well be the performance of the stock markets. A little spooked by the Fed the US markets are still hanging on to some big physiological levels. If we were to see further weakness in the Dow and S&P under the 10,000 and 1000 levels then things could get nasty and the dollar and yen could swing back into favour.However , as I mentioned in the short term it maybe these 2 currencies which suffer from a Euro pullback in the foreign exchange markets.