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• Uncertain futures are in oversupply.
• Can we pay in Euros?
• The mixed bag of economic intervention

An uncertain future, a lack of forward momentum and risk neutral policy mandates, no, we’re not talking about Australian politics but the current state of the US economy. For the last four weeks we’ve been focused on the green shoots of economic recovery in the US, and recently we’ve been rewarded with the ‘fits & starts’ of positive data emerging from the economic abyss. We’ve watched as the Fed decided to keep the training wheels firmly affixed to credit markets by adopting Mid-strength Quantitative Easing and going into this week we were ready for the tide to continue turning for the US economy. Unfortunately however, the data has been unforgiving with the net jobless figures in the US getting marginally worse and Housing, Manufacturing and Consumer Confidence data all coming out worse than expected. These results have ensured that the macro-driven, equity market matadors have sufficiently tamed any bulls roaming the market and investors have rushed funds out of high-growth correlated currencies such as the local unit and into the JPY and USD.

Europe is emerging not so much as an economic basket case but more of a region under siege from underperforming economies and precarious sovereign debt yields. Last week, the Euro was sent into a tailspin off the back of comments made by ECB member Axel Weber who noted that the central bank would be providing support to European banks beyond 2010 which undermined confidence in the single currency. It was no doubt one of many economic statements made by Weber last week, however the market was fixated on its importance and as a result the AUDEUR cross performed particularly well

Around the world, various strategies utilised to manage economic performance and of late, there has been growing speculation on whether Japan’s central bank will intervene in the currencies current 15 year high against the Greenback. This strong Yen has a detrimental impact on the margins of Japan’s outward-looking, export-led economy with the revenue from Japanese cars and cameras significantly undermined, when repatriated, by a higher Yen. In Australia, Deputy Governor Ric Batellino shed some light on our own measures to manage economic performance by highlighting the current position of the RBA on future rate hikes. Any participant at the Moreton Bay Regional Council last week would have heard how they “expect that [inflation] will stay around its current rate for the next year or so but, after that, upward pressure on inflation is again likely to emerge with a strongly growing economy.” He also acknowledged the current performance of the local unit and that “there are obviously going to be some industries that find it harder going with that exchange rate”. This provides some new colour on the local unit, and highlights how future interest rates are unlikely to happen soon, considering the stagnant level of inflation, a key driver of last year’s stellar gains.

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