FRS: suspension of sentence

Europe lacks demand again, but not money, as the IMF credits become excessive for the European taxpayers

All assets nominated in GBP and pound continues to remain under the serious pressure of sellers. Europe lacks demand again, but not money. The Yellen is quieter - than investors are more nervous. Chances to increase of the American rate before fall decrease with every day.

Scheduled meeting of FOMC: most likely, bulls on dollar will be disappointed - even if performances of the FRS`s lady will be more tough, dollar just have to fall in anticipation of the decision concerning monetary policy. So on Wednesday we wait for high volatility even in case of an invariable rate. It is logical to assume that Yellen is afraid of increase of a rate till the end of elections. Taking into account last NFP and the forthcoming referendum of Britain chances of FRS rate increase at a meeting on June 15 are almost equal to zero. Nervousness of the markets creates steady demand for some assets, in particular, yen, the German and American bonds that leads to the speculative growth of profitability.

And at the next FRS meeting on July 27 rates can be raised only subject to the June statistics will be higher than 150K (with review of May data - upward, of cause!), Britain will remain in the EU and oil thanks to it will remain in a zone of the current levels. But to plan this event for July, according to the communique of G20, FRS is obliged to warn the markets about rate increase in advance, that is to specify it in the accompanying statement at the nearest meeting on June 15. So we are listening attentively and read between lines.

After June 8 ECB have begun to buy up more actively corporate bonds to stimulate inflation growth. Secured bonds and securities on the amount of more than €80 billion are purchased monthly. Now the regulator plans to buy debt securities of European companies of non-bank sector with a rating of the investment grade, but the amount and whose exactly bonds are not clear yet. Reports on these investments will be weekly published, since the middle of July.

Draghi was marked out again. Though at an economic forum in Brussels it`s not accepted to talk much domestic policy, but among traditional fog it has been told even more, than on official press-conference. Several conclusions:

  1. The new credits take away small companies from bankruptcy though under laws of the market they shall give way more successful long ago.
  2. Despite money injection in banks and active measures of stimulation, inflation is not going to grow that categorically does not suit ECB,
  3. The national debt does not decrease, the Governments are able to afford not to be engaged in reforms, expecting only regular tips from ECB.
  4. ECB most successfully encourages speculators, and therefore money does not get to real sector: they leave on the secondary debt and stock market.

Next week the Eurozone publishes revised data on inflation. It is not enough statements for allowances for new workplaces and a labor productivity, and therefore chances of the further APP expansion and decrease in rates in a negative zone are rather high. The regulator not ready to recognize its mistakes yet, new ideas are not heard yet.

The IMF credits become excessive for the European taxpayers - the help to Greece, Ireland and Portugal has already constituted more than €9 billion and is excess expenses. Nevertheless, Ministers of Finance of the Eurozone and the IMF have made the decision on a new tranche of the help in the amount of €10.3 billion ($11.6 billion), moreover - is promised partial simplification of a debt load in exchange for the next Greek measures of austerity and structural reforms. The arrangement with the IMF looks the regular transaction: Germany managed to achieve the next advance payment in exchange for consent to debt write-off which it opposed.

From the other events we note:

  1. According to the Fitch data, general investment losses on government bonds with negative interest rates constitute about $24 billion a year. Main affected: insurance companies, banks, pension funds and money market funds. The bulk of negative papers falls within the share of Japan and the Eurozone that favourably affects Asian assets.
  2. Japan gradually loses war with a deflation. The government of Japan on June 1 on behalf of the prime minister with a reluctance confirms a failure of the budget discipline: increase of the consumption tax is again postponed. Most likely, such measures can reduce the amount of receipts in treasury and return economy to a recession condition.
  3. For the first time after the act in the amount of $15 million for support of applicants in U.S. Presidents from Democratic party George Soros became the hero of the financial press. "It has returned!" - according to Wall Street Journal the live legend of the market shows interest in exchange speculation again. It can become a strong factor of manipulations: market purposes of Soros are based on "bear" expectations and global rates on gold. Family fund Soros Fund Management has sold several weak fluctuating packets of shares and has purchased securities of the gold mining companies.
  4. A stress research, carried-out by Axioma Inc., shows that in case of a Britain exit from the structure of the EU European shares may lose up to 25% of cost, and the investments nominated in pounds can sink more than for 10%. The Independent poll shows the maximum gap between persons interested to leave the EU and their opponents - more than 10%, and therefore risk of disintegration of the EU is obviously not estimated, as George Soros recently warned. There is an active buying up of protective assets, the dollar and yen will grow in the price irrespective of final results.

Except FRS, next week it`s worth paying attention:

  1. On the decision of Bank of Japan - even in case of a hint on expansion of incentives the yen can show stability against risk currencies.
  2. The franc continues to be in demand as a shelter before a referendum in Great Britain, and the Central Bank of Switzerland is hardly ready to weakening of monetary policy, but its protocols should be studied in more detail too. The decision at the Libor rate will be followed by a press-conference.
  3. The bank of England shall confirm the readiness for resolute actions for stabilization of the markets next day on June 24, irrespective of a referendum outcome. Strong influence on dynamics of pound is not expected.

EUR/USD: special attention to level 1.1300 - there is a strong protection of market makers, 1.1320 - purpose for intraday correction. Supports: 1.1232 (strong) - 1.1177 - 1.1150. Resistance: 1.1275 (strong) - 1.1300 - 1.1360 (very strong) - 1.1450 - 1.1500 (the approximate purpose before a meeting of Federal Compulsory Health Insurance Fund). Till Wednesday - wide flat, but interest it is much bigger up.

AUD/USD: Monday in Australia output, correction of levels of Friday is taken already place. Supports: 0.7364 - 0.7355 (strong) - 0.7325. Resistance of 0.7410-0.7458-0.7490-0.7548 (protection of market makers). We keep up with Asian statistics, to Federal Compulsory Health Insurance Fund of the movement up so far in a priority.

Author: Navsher Bartash,
ForexChief Currency strategist