It seems fanciful to accept that global equity markets had been restrained for a decade for fear that Osama bin Laden might pull off another terror attack somewhere around the globe. The world economy has lived through two recessions since 9/11 while the dossier on Al-Qaeda has been expanded to help us better understand that this hydra-like organization is nothing more than unit after unit of tooled-up religious zealots. The early lift to trading on news of the death of bin Laden seems nothing more than a red herring whose disappearance could quickly and easily reverse sentiment within moments. Already the boost to the Asian dollar’s value is fading.
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U.S. Dollar – A couple of recessions later, a change in the political leadership in the world’s largest economic power and sweeping change of power in the political make-up of North Africa and the Middle East probably have more meaning to the price of oil and the pricing of risk premiums than does the U.S. closure over bin Laden and his efficient burial at sea. Dealers were fast to embrace the dollar after the Sunday night news broke. One investor said that U.S. forces would now be faster to leave Afghanistan leaving it with a reduced budget outlay. Another noted the lower threat to oil supplies. Of course neither event has any bearing on the plight of Colonel Qadaffi in trying to maintain power in Libya, Africa’s foremost oil supplier and most logical reason for the last $10.00 rise in the price of crude oil. The dollar managed to rebound from a low at 72.81 where it traded before the news overnight to as high as 73.29. April proved the worst performance in seven months for the greenback while on an index basis the dollar is at its weakest since July 2008. Later on Monday the April ISM is expected to show a slowing in the pace of manufacturing activity to 59.5 from 61.2.
Euro – As the dollar flexed its muscles over the course of the European morning the single currency lost ground. However, the euro has rebounded on the heels of an unexpected firming in the pace of manufacturing expansion. Currently the unit buys $1.4841. Earlier the Eurozone PMI manufacturing index increased to 58.0 after 57.5 with France and Germany leading the expansion. Data for Italy, however, deteriorated. The euro also rose against the Japanese yen to buy ¥120.83 and rose against the British pound to buy 88.91 pence.
British pound – Britain remains closed for a holiday, while forex dealers took the argument over a stronger dollar to cheapen the pound, which slipped to $1.6650 at one point overnight. A Hometrack housing survey showed that home values were unchanged in April as 22% more would-be buyers registered with realtors in what some claim is a sign that the market has cheapened enough. Fewer Britons predict that home prices will be lower in one year’s time than at the start of the year.
Japanese yen –Over the weekend Bank of Japan’s Shirakawa called the outlook for Japan’s economy “severe” in light of the earthquake and its trail of destruction. The government today approved a ¥4 trillion ($49 billion) recovery package to help the nation rebuild from the wreckage. The yen initially rose to ¥81.00 against the dollar as negative thoughts surrounding the nation manifested in rising risk aversion, but the bin Laden news changed the landscape helping the dollar recover to ¥81.45. Further negative domestic news saw March wages decline 0.4% for the first such drop in 13 months, while vehicle sales slumped by 51% on a yearly basis in the aftermath of the spate of natural and manmade disasters.
Canadian dollar – One might expect that the commodity dollars would be flying in light of a buoyant pre-market session for U.S. index futures. Yet neither the Aussie nor Canadian is feeling the benefit. Canada today faces elections, which partially accounts for why the unit is struggling. However, the widening yield theory that often supports the loonie took a couple of dents last week in the form of a report showing weaker-than-forecast U.S. growth while the Canadian economy unexpectedly shrank in February. The Canadian dollar is a little softer on Monday buying $1.0502 U.S. cents.
Aussie dollar – The Aussie rose to $1.1011 in early Asian trading before the announced death of bin Laden only to lose almost a cent as his body was speedily buried at sea by U.S. forces. The Reserve bank meets Tuesday to discuss monetary policy with a chorus of unchanged views keeping the Aussie in check for now. Dealers still believe that it’s more likely that the domestic central bank will lift rates again before year-end than the Federal Reserve will do the same in the U.S. That view tends to keep the Aussie uplifted especially when strong economic winds fill its sails.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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