Tuesday, May 08, 2007

Is it Shadenfreude?

EUR/USD 1.3533 Hi 1.3622 Low 1.3514
USD/JPY 119.92 Hi 120.16 Low 119.52
AUD/USD 0.8273 Hi 0.8312 Low 0.8242
EUR/JPY 162.30 Hi 163.42 Low 161.89

Well France has replaced the Paternalistic Tall Guy with the Confrontational Short Guy. The Anglo-Saxon press is cheering. Could this be Schadenfreude? Finally the snobby and complacent French get to deal with a political reincarnation of Mrs. Thatcher. Stand by for Winter of Discontent Mark II. It's all been done before. All you need is bolshie Unions and a confrontational politician at the head of a right-wing Government. First the bolshie Unions strike and ensure the maximum discomfort out there in the general populace. Then the right-wing Government takes on the Unions with support from the très annoyed general populace. Then the Unions lose. A that point Corporates get to set the agenda which does not include better working conditions or better public services. But it takes a while. For now France is set for CONFRONTATION. Strikes are already under way.

Of course there is the added bonus that President Sarkozy will a) fall into line with the Foreign Policy of George W. and b) endorse the resuscitation of the European Constitution which the French voted down in 2005. So we are on track for a French Republic which ignores the wishes of the people. This could get interesting. As in violent. After all this is France.

Meanwhile across the Atlantic the Queen of England is visiting, which is a blessed relief for George. Now he gets to go to some garden parties and the only speeches he flubs are ones about history. And no-one expects him to get his history right anyway. So the heat is off. Mixed in with headlines about Iraq, Wolfowitz, Gonzales, the impeachment of Cheney etc. are lots of cheery sound bites about Her Majesty.

And the Stock Market is riding high. That old warmonger, Rupert Murdoch, helped spur the Dow Jones Index to yet another record close last week with his well-timed bid for, er, Dow Jones. So the situation is under control. Although there are challenges ahead.

Central Banks will be reporting in this week. In the U.S. there is a good chance that Bernanke will hold to his recent "anti-inflation" stance tomorrow. That won't be well received. Especially now that it has been confirmed that U.S. growth is slowing and that job growth is suffering. The "market" is still holding out for some relief from good old Bernanke in the way of rate cuts. There could be some disappointment. In the U.K. another rate hike is expected Thursday. Inflation, Central Bank independence and all that. At some point joining the Euro will start to look like the easy way out for the Brits. So expect the interest rate squeeze in Britain to continue. And we get to hear from our old friend, Trichet. No rate hike is expected in the EuroZone this week but we will all get a chance to interpret Mr. Trichet's "codes". "Extreme Vigilance" and a rate hike is a done deal for June.

Despite the rate hike outlook in the EuroZone, the Euro continues to struggle. All the good news is already "in" the market and slightly less exciting news has emerged. And that's without even taking into consideration the potential for social unrest in France. The nice safe trends: buying EURO against JPY and USD both look like they are in trouble with more to come.

But where it could get really interesting is in the USD/JPY. Which is holding valiantly but looking increasingly dented. No sign of panic. But USD/JPY has been the trend of trends for more than a year. When it turns, and it looks like that is happening now, it could do real damage.

OIL 61.50
GOLD 685.50

Commodity prices continue to struggle. All the good news is long gone and despite all the positive "analysis" the outlook for the global economy remains clouded. More downside is on it's way.

GOLD has been bouncing around a lot lately. But it hasn't broken to the upside. Neither has it broken to the downside. With the USD in recovery mode against the EURO and given the weakness in commodities generally, unless we have a break out in GEOPOLITICAL mayhem (always possible) or a significant fall in the USD index, the risks for GOLD for now remain to the downside. This is not a longer term trend, but it's a trend nevertheless.

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