Key News
* Bank of England Voted 9-0 to Continue Money-Printing Program (Bloomberg)
*UK Unemployment Rises Less Than Economists Forecast (Bloomberg)
*U.S. Consumer Prices Rose Less Than Forecast in May (Bloomberg)
The Event Agenda
The Morning Run-Down
After some whipsaw action in currencies yesterday, the currency markets, stocks, commodities and interest rates are back on path, showing more confirmation this morning that a deterioration of risk appetite is underway. The pound made a strong move higher yesterday on some slightly hotter inflationary data. But today’s Bank of England minutes disclosed the unanimous vote to stay the course with zero-like rates (50bps) and additional stimulus measures, indicating the BOE is very concerned about the downside risks and not overly optimistic about the sustainability of the small improvements that have made in the economy. That brought the pound back down to earth quickly.
But news is not really driving markets right now—it’s more a matter of risk, giving way to risk aversion. There have been key technical breaches in currencies, commodities and stocks that support the argument that risk aversion is returning. And volatility is suggesting the same. The VIX, the gauge of what stock market participants are paying for protection, is breaking higher. And Credit default swaps on sovereign debt have been rising briskly. See the charts below of more details…
Key Charts
The clean break of the trendline that represents the entire move from the March lows in the S&P 500 has resulted in 30 S&P points– thus far.
And volatility is picking up across markets and that’s a sign that risk appetite is waning and protection is being sought.
Credit default swaps on soveriegn debt are starting to move aggressively higher. This chart shows the recent bounce in the UK CDS market (in white) implying increased perception of risk. And it shows the relationship credit default swaps have had with the pound (which is shown inverse in this chart in green). This spike in UK CDS market could be a precursor for a steep fall in the pound (rise in this inverse chart).
{ 3 comments… read them below or add one }
You are nuts if you don’t see inflation.My definition of inflation is a devaluation of the currency against goods and services.In just the last month 2 of the largest food companies announced better earnings due to price increases.Anyone shopping in supermarkets for food has seen what is happening.There has been major product downsizing in supermarkets,along with higher prices and reduced coupons/discounts for just about all items,if you take the time to observe the real world.Company costs for employee health care rose about 10% in 2008 and are expected to rise about the same percentage in 2009 and 2010. think one problem you have is you believe govt statistics without verifiying the facts yourself.Maybe you’re too rich are too lazy to see what’s going on.It’s a fact that govt has changed the methods used to calculate inflation.The govt has no choice but to lie about inflation to keep the game going.They are desperate to save the Titanic from sinking during thier administration.Current real inflation is much higher than reported by govt.I have to thank you and others like you for keeping many investors in the dark,allowing me to accumulate real assets,like gold miners and other commodity producers cheaper than I could if everyone knew the real truth about inflation and the future for the U.S. Dollar.In a country in decline,who’ govt is going bankrupt,like the U.S.,it’s common stock(it’s currency) will decline.Every bankrupt country in history has suffered a declining currency.If you know of one exception please post it.
Subject: Re: Why “BRIC” Posturing Against the Dollar Just Doesn’t Add Up
Bryan,
yIn your Money & Maerkets piece on 6/22/09 you show us a Bloomberg Chart of the dollar that clearly shows that the dollar is way below the moving average.
How can you say the US Dollar is in an uptrend????
Unless you are a very short term trader – this 14% rally from the lows of last year is at best a bear market rally.
Larry Edelson and many others disagree with you.
Arnie Socol
Real Asset subscriber
Former Safe Money subscriber
Bryan,
I love your articles. I like your graphs. I was trying to make my own graphs in Excel.
Do you know how to make numbers appear to the right of the graph instead of to the left side, y-axis?
Also do you know how to make one y-axis on left with its line and one y-axis on the right side with its own line? eg- trying to compare growth of family sizey (y-axis), and growth of income (y-axis), over the years (x-axis).