Key News
New Zealand Dollar Rises to One-Month High as Carry-Trade Demand Returns -- Bloomberg
Pound Declines After BOE Minutes; Bank Offers Three-Month Emergency Funds -- Bloomberg
THE WEAKENING DOLLAR IS PUTTING upward pressure on oil prices, which closed at another record of $81.93 a barrel. – WSJ
Gold Rises to 27-Year High of $730.51 an Ounce in London -- Bloomberg
The long-widening U.S. current-account deficit appears to have begun reversing course, as growth slows. A gradual shift could correct imbalances in the global economy, but a rapid one could be painful to U.S. consumers.
Key Reports Due (WSJ): 8:30a.m. Initial Jobless Claims. Expected: +1K. Previous: +4K. 10:00a.m. August Leading Economic Indicators. Expected: -0.3%. Previous: +0.4%. 10:00a.m. DJ-BTMU Business Barometer. Previous: -0.2%. 12:00p.m. Sep Philadelphia Fed Business Index.
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FX Trading – Fed Gets Its Hand in the Pot, But Risks Remain
For those of you who think the Fed has achieved financial market stability for the long-run might want to reconsider, or at least wait a bit longer to arrive at a final conclusion.
Sure, you can tell by just looking at U.S. equity markets’ performance over the last two days that slashing the discount rate and the fed funds rate by 50 basis points was a quick fix. But can it make a lasting difference?
The thought is, now that the Fed has opened up the window to credit, lenders can jump back on the gravy train and conduct business as usual. We’ll all go on our merry little ways like this credit crunch never even happened.
Yeah…Right.
It’s true the latest Fed announcement hasn’t helped the dollar, but absolutely no one expected it would. And considering the idea that credit will become more available, we should see risk-taking (via carry trade especially) resume. Though I think it’s important to note that a full resumption of the carry trade is still a long way from decided.
Have a look at the Australian dollar and the British pound since the Fed made their announcement Tuesday afternoon.
Both huge beneficiaries of carry trade funds before the credit crunch, but not quite the same rebound story for these high-yielders. The glaring difference: local sub prime related concerns have popped up in the U.K., whereas Australia thus far appears unaffected by local credit problems and is still blowing and going on the back of surging commodities prices.
Don’t count out the impact of this sticky credit situation just yet, and be selective.
John Ross Crooks III,
Black Swan Capital
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