Well it looks like all things negative about the global economy are about to come to a head. Converging situations of varying importance are tugging on the fortitude of the markets and seemingly it is just a matter of time before something gives.
The nuclear crisis in Japan appears to be worsening, as aftershocks the size of large earthquakes continue to rock the island nation, making it harder to control the nuclear disaster that has taken place over there and providing uncertainty to the global community.
Meanwhile in Libya, the civil war there continues and the US and allied forces have been engaged for over 10 days, though no one is quite certain what we are doing. President Obama will speak tonight to attempt to provide clarity.
In the EU, Ireland is posturing that senior bondholders share in some of the losses from the debt crisis as a way of negotiating a better deal for themselves in the EU. Should bondholders be required to take losses, that could speed up the contagion to Spain and Portugal as bond yields would certainly rise to even more unsustainable levels.
Here in the US, personal consumption and spending figures are due out later this morning, thought the markets appear to be feeling a tad risk averse despite some dollar weakness. The Dollar rose last Friday after a Fed official suggested that QE2 should end early.
Stocks are looking to open slightly higher here in the US, though commodities are lower to start the morning.
In the forex market:
Aussie (AUD): The Aussie is mostly higher, though pulling back from an overnight high of 1.03, a 29-year high! Australian bonds have been the best performers so far this year, highlighting the strength of the Aussie economy. (Click chart to enlarge)
Kiwi (NZD): The Kiwi is mostly lower ahead of tonight’s trade balance data. While the Kiwi had a nice run into the end of last week on better than expected GDP data, they have a long way to go to catch Australia.
Loonie (CAD): The Loonie is mostly higher despite oil prices that are pulling back some. GDP figures are due out on Thursday.
Euro (EUR): The Euro is mostly lower as the focus has shifted back to the debt crisis. The in-fighting that is taking place between countries is bound to create further complications and not produce solutions. German CPI data is due out tomorrow which could give interest-rate watchers some food for thought.
Pound (GBP): The Pound is mostly lower continuing its slide lower ahead of tomorrow’s GDP figures. A contraction of .6% is expected because of government austerity measures, but don’t be surprised if the UK economy is surprisingly stronger. (Click chart to enlarge)
Dollar (USD): The Dollar strengthened last week after a Fed official suggested that QE2 should end early. The market appears to be shaking off the risk premium that it maintains over the weekend due to risk events, and personal consumption data due out later this morning will show whether the consumer is starting to come back.
Yen (JPY): The Yen is lower across the board as the nuclear crisis is still unresolved and the economic and social uncertainty is tremendous. The jobless rate is due out later tonight but it will not contain the effects of the disaster so it is largely a non-factor.
The convergence of geo-political and economic events may just be too much to handle. The US Fed money-pump has sustained us thus far, but it is about to end in a few short months and it will be interesting to see what happens leading up to that point.
Will unemployment still be high? Will commodities prices derail household income? Will housing prices continue to fall? Will the EU resolve the debt crisis? Will Japan be able to contain the nuclear disaster and start the re-building effort?
All of these questions need to be answered and the uncertainty of it all may be too much for the market to bear. Once the first domino in the chain falls, then it could set off a reaction that perpetuates the next leg lower.
There is still tremendous risk in the marketplace, and should everything hit the fan at the same time, we could be in for some trouble.
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