ABN: Curencies, Equities and Commodities Still At Risk for Additional Declines
In recent weeks we have noticed that market participants have bought back into risk despite overall softer global economic data. As such, we see more risk for liquidation of these risk correlated asset classes going forward…
There have been two stories that have been making headlines in an otherwise quiet session of Asian trade. The first comes from an FT report which says that China speculators were the cause of some wild moves in the silver market in recent days that resulted in a surge to $50 and sharp pullback to the $32 area. The second comes out of New Zealand where RBNZ Bollard has reiterated that rates will stay on hold at record low levels for some time. Mr. Bollard cited risks to the local economy and the aftereffects from the earthquake as his reasons for leaving monetary policy accommodative, and said that rates would not move higher until downside risks passed and the economy started show signs of recovery.
Other than these two stories, there is very little else to talk about, but the ongoing fears of contagion in the Eurozone certainly continues to remain at the forefront of investor minds. Overall, whether currencies manage to mount a little more of a rally against the buck in the coming sessions, we see these rallies as being well offered with more upside for the Greenback. In our opinion, there has been a serious disconnect between rallying currencies, equities and commodities in recent weeks and consistently weak global economic data. Although market participants have been persistently buying back into risk, the justification for the risk buying appears to be less and less substantiated. As such, we continue to forecast more currency, equity and commodity selling ahead, with the US Dollar to be the main beneficiary of these moves.
Looking ahead, German and Eurozone GDP and US CPI and Michigan confidence are the main economic releases for the day. However, we continue to expect to see the markets trade off of broader macro themes and developments. Appetite for risk (or lack there of) will play a major role in the direction of the markets should contribute to volatility in Friday trade. US equity futures and commodities are tracking lower into European trade.
