ZEW Survey Posts on Forex Blog
Is Systemic Risk Over Hyped?
Jul 15, 2008
Certainly systemic risk is a real threat to the US Dollar.
With Fannie Mae and Freddie Mac woes (each down 75% year to date) and other banks encountering credit related problems it is easy to be glum. With record energy and food prices it is easy to be pessimistic about US growth.
But is it really financial Armageddon?
Are traders justified in running up the Euro and Pound in the face of more pessimistic data out of Europe?
In the short term, perhaps yes.
In the medium term, I don't think so.
What the US has going for it
This is not your grandfather's depression.
First, you have a Fed with far fewer constraints vis-a-vis the 1929 Fed. Indeed, the Fed is now run by monetarists who have extensively studied and argued how the Great Depression could have been avoided. Are they wrong? Only the markets can answer that in the long run, but early indications, while sometimes obscured in a sea of negative presidential year rhetoric, are to the contrary.
Consider this, the Fed today has increased expectations for annual GDP growth to 1.0% - 1.6% vs earlier forecasts of 0.3% - 1.2%. In addition, monthly job losses have held below 100k, far below previous recession peaks of 300k+. Q1 GDP was revised upwards from an annual rate of 0.6% to 1.0%. Exports remain a source of growth while inventory is tightening (meaning exporters are only buying what they can move).
And in a great sign for the tech sector, Intel posted prfit gains of a whopping 25% today. I have long suggested the housing recession would end in part with a Web 2.0 / High Def / extreme bandwidth tech cycle.
Second, the US government has bankers in all the right places. Hank Paulson of Goldman Sachs fame runs the US Treasury. And now the US Senate has finally confirmed a banker for the Fed in Elizabeth Duke. These 2 combined can provide an immense amount of insight and necessary guidance in steering the US through the economic storm.
Third, after entering the credit crisis while sitting on their hands, various entities have become innovative and expanded beyond the standard usage of interest rate policies to move markets. This was first demonstrated by the Fed when they negotiated the sale of Bear Sterns to JPMorgan Chase and opened the discount window to investment banks.
And lately, this innovation has gone further. Including a) the Fed opening the discount window to Fanny and Freddy b) the Treasury asking congress to grant emergency powers to expand GSE credit facilities and purchase equity and most recently c) Christopher Cox banning naked shorts on Lehman Brothers, Goldman Sachs, Merill Lynch, Morgan Stanley, Fanny, and Freddy
If the shorts get too bold, and the Treasury is granted permission to buy equity, I trust that Hank Paulosn knows how to coordinate a short squeeze. While perhaps unethical and smacking of market manipulation, it is a possible strategy that Mr. Paulson may use to restore value in Fanny and Freddy, and thus renew investor confidence in the mortgage markets.
As Mr. Paulson said before the Senate today, when you walk down the street with a squirt gun, you are likely to have to use it. When you walk down the street with a bazooka, others are unlikely to test you. So it shall be with the Treasury and GSE shorts.
What the Eurozone has going against them
In short, a crises of false hopes.
Today, some traders are fleeing to the Euro in the mistaken belief it is a safe heaven against a systemic crises in the US.
They could not be more wrong.
Consider the latest data, the ZEW Survey came in at an astoundingly low -63.9, European auto sales are down -8% year over year, Italian GDP has been slashed from 1.0% this year and next to 0.4% in 2008 and 2009, and ECB members now warn of growth risks despite their mandate to keep inflation in check. And that all happened today, when the Euro set fresh new highs.
As things settle down in the US, Euro longs may be in for a rude shock as markets readjust for recent macroeconomic data.
Indeed, ECB Council Member Vito Constancio has sounded rather Greenspanian circa 2004. He warned "Under normal circumstances, a rise in the interest rate by the ECB would have resulted in higher medium-term rates and a higher euro. Well, the exact opposite happened," Sounds like the EU is facing their own conundrum.
With the global economy slowing down, fx traders in late 2008 / early 2009 are likely to see an environment where the US is raising rates while Europe, the UK, Australia, and New Zealand are cutting rates and the Swiss and Canadians at best hold firm. Such an environment will put a smackdown on the current Carry Trades.
Again, don't get me wrong. This is NOT short term advice. I would not put a stop in the EURUSD below 1.5781. But with FX markets currently ignoring macroeconomic data to focus on systemic risk, it is better to keep a clear perspective on the entirety of the big picture.
ZEW Survey, Credit Crunch, Hank Paulson, Bernanke, EUR, USD
FX Preview July 13 - July 18
Jul 12, 2008
The economic calendar is chokingly full of events this week,
The early part of the week will be dominated by CPI reports, with data coming out from New Zealand (Mon) Italy, UK (Tue), Germany, France, the Eurozone, and US (Wed).
The back half of the week will be dominated by US bank earnings reports from JPMorgan Chase, Merrill Lynch (Thu), and Citigroup (Fri).
Monday night may see some big movement in the AUDNZD, with New Zealand's Consumer Prices and the RBOA minutes reported 15 minutes apart.
Sunday July 13
6:45pm New Zealand Retail Sales (expect -0.1% MoM, 0.5% MoM excluding auto)
11pm Bank of Japan Rate decision (expect hold at 0.5%)
Monday July 14
4:30am UK PPI (expect 2.6% MoM, 29% YoY)
10:00am Fed Governors Vote on Mortgage Rules in Open Meeting (this is a set of new rules crafted by the Fed. The policy is for lending hundreds of billions of dollars to banks and other financial entities to ease a severe credit crunch. It is unclear how big a role the recently confirmed Elizabeth Duke, a Virginia banker with an insider perspective, played in crafting this policy.)
8:45pm New Zealand Consumer Prices
9:30pm Bank of Australia Minutes from July Meeting
Tuesday July 15
4:00am Italy CPI (expect 0.4% MoM, 3.8% YoY)
4:30am UK CPI (expect 0.4% MoM, 3.6% YoY)
5:00am German ZEW Survey (expect -55)
8:30am US PPI (expect 1.3% MoM, 8.7% YoY)
8:30am US Empire Manufacturing Index (expect -5)
8:30am Retail Sales (expect 0.5%, 1.0% excluding auto)
10:00am Fed Chairman Ben Bernanke testifies before the Senate
11:00pm Reserve Bank of Australia Governor Stevens Speaks
unknown time First Mariner Bank (FMAR) reports earnings (expect -0.21 a share, stock has plunged since Chuck Schumer's infamous letter)
Wednesday July 16
2:00am Germany CPI (expect 0.3% MoM, 3.3% YoY)
2:45am France CPI (expect 0.4% MoM, 3.6% YoY)
5:00am Eurozone CPI (expect 0.4% MoM, 4.0% YoY)
before 8:30am, Wells Fargo (WFC) reports 9expect 0.50 a share)
8:30am US CPI (expect 0.7% MoM, 4.5% YoY)
8:30am US CPI ex food and energy (expect 0.2% MoM, 2.3% YoY)
10:30am Crude Inventories
10:00am Fed Chairman Ben Bernanke testifies before the House
Thursday July 17
6:30 am JPMorgan Chase (JPM announces earnings (expect 0.47 a share)
before 8:30am MGIC Investment Corp (MTG) reports earnings (expect -0.61 a share)
10:00am US Philly Fed Index (expect -15.0)
4:00pm Merrill Lynch (MER) reports earnings (expect -1.91 a share,
Friday July 18
5:00am Eurozone Trade Balance (expect -€1.0 billion)
before 8:30am Citigroup (C) reports earnings (expect -0.59 a share)
ZEW Survey, CPI, Credit Crunch, upcoming reports
German Investor Confidence Sinks, Euro Trade Balance Beats
Jun 17, 2008
The ZEW Survey of Economic Sentiment and Expectations hit a 15 year low today. The reading dropped 11 points to -52.4 vs expectations for a 1 point drop to -42.5. This is well below the historical average of +29.2. Expectations dropped for Germany and the Euro-zone as a whole.
Despite the expectations drop, European trade beat expectations to come in at +2 billion. Exports rose 6.2%.
At 7:30am est, the EURUSD has fallen below 1.55 to 1.5485.
Euro, ZEW Survey, trade balance
ZEW Predicts More ECB Rate Hikes, US and German Numbers Bad
May 20, 2008
As was expected, the main driving force in Euro FX trades came from the ZEW. However, the devil really was in the details, as the "what" caught traders by surprise. The German ZEW sentiment dropped to -41.4, lower than the expected increase to -37. Worse yet, German PPI came in at 1.1%, far higher than the expected 0.5% reading.
Depsite the bad fundamental news, markets moved on future expectations from the ZEW of an ECB rate hike. Wolfgang Franz, head of ZEW, supplied a mild jolt to the market when he indicated the ECB may increase rates "in the near future". For months now, many traders have thought the ECB was moving towards a rate cut - the global credit crunch, negative Eurozone consumer sentiment, and a crash in housing in many European countries was thought to portend a very bad slowdown. Nevertheless, as Mr. Trichet reiterated last week and yesterday, inflation remains concern #1 for the ECB.
In the US, wholesale inflation was up 0.2% for April, an ok number after the 1.1% jump in March. However, core inflation was worse than expected, coming in 0.4% vs the expected 0.2% increase. On top of the core inflation and record oil prices (which are just insane and way out of whack with the fundamental decline in gas demand + inventory increases), the US government raised their forecast for food price increases to a 4.5% - 5.5% range. That would be the largest annual growth since 1990. Overall, US inflation is up 3% in the last year, making it the largest increase since 1991.
In late trading, the EURUSD was up more than a cent to $1.5660, the GBPUSD was up to $1.9682. The dollar was also off against the Yen and Swiss Franc.
ECB, European Central Bank, inflation, ZEW Survey, EUR, USD
Forex Traders Keep Your Eyes Open - A Bevy of Currency Data Tomorrow
May 19, 2008
Tomorrow will be one of those fun days to watch the ticker, as a slew of data will be coming from around the world. I always love watching the morning ticker while at the gym on these days. Keeps my emotions in check, and on rare occasion I met another investor/trader when I see faces reacting with glee/horror to the latest report.
Anyways, the reports. Overnight, the Japanese Central bank will meet and decide on rates. They are expected to hold steady at 0.5%. A shocker, eh?
Also overnight, the German ZEW sentiment will be reported. Some traders think a positive report will lead the Euro out of the $1.53 - $1.56 range. Interestingly, Trichet came out today warning that the Credit Crunch is still ongoing, but inflation remains the top concern. Combine that with France's weak GDP number (0.3% expected for Q2, half of Q1) and methinks things may not look rosy for the Germans. Of course, the fine folks at Barclay's disagree, and the UK actually saw a rise in home prices (wtf?!).
And finally, the US producer price index will be released tomorrow. The German ZEW and US PPI can definitely move things, so watch for any break through of the Euro range!
Bank of Japan, ZEW Survey, PPI, interest rates, BOJ
Analysts Wrong - ZEW Survey Weak
Apr 15, 2008
The ZEW Indicator for German confidence fell an unexpected 8.7 points to -40.7 today. Market analysts had been expecting a minor improvement in the ZEW indicator. The historical average is 30.0. Overall confidence across the Eurozone declined 9.8 points to -44.8.
Despite this negative news, Germany is still expected to see GDP growth of 1.7% this year. And, analysts still do not expect the the European Central Bank to cut rates in the near future.
Read more at ZEW
Euro, ZEW Survey, GDP
