It’s the big one; today sees the release of the US economic growth data for the last quarter of 2010. As we all remember, the UK data was blighted by bad weather but most calculations suggest that even without the snow and ice, the UK economy hardly grew at all in the last three months of the year. Nevertheless, an economy that shrinks by 0.5% while inflation rises to 3.7% is struggling and, according to the Governor of the Bank of England, inflation could rise to 5% in the year ahead so things aren’t set to improve in the immediate future. That certainly explains Sterling’s poor performance over the past week which wasn’t helped by the sharp drop in consumer confidence as reported overnight. This was the worst reading in over a year and the largest one month drop since 1994. Who can blame beleaguered consumers when all the data they see is doom and gloom. This is all great news for Sterling buyers but a bit of a pain in the neck for sellers. David Cameron is in Davos for the World Economic Forum and he is expected to confirm his belief that the UK is starting to make progress and that retaining Britain’s top level credit rating has saved the UK masses of money in lower interest payments. I have no doubt that he is right but those with a better grasp of economics than I will be quantifying that gain against other costs as I write.
But back to the US Dollar; it must be remembered that the US also had a period of poor weather through December so those who forecast a figure of 3.5% growth in Q4 may want to revise their figure down but we are still expecting a much more attractive piece of data than the report we saw from the UK. The US data is calculated slightly differently to the UK figure so we can’t compare like for like exactly but we are expecting a more positive report from America nonetheless. The US Dollar which has been rather poorly supported in the last week may well find its feet today if the report is a good one. I think traders will largely ignore the International Monetary Fund chastising the US, Japan and Brazil for not tightening their belts soon enough if the economy is seen to be growing. Many in the markets are forecasting a rather dramatic response to the US data and a positive one at that. We shall see at 1.30 UK time when the figure is announced.
Japan’s credit rating was cut by one of the agencies last night and that has weakened the Yen slightly. The movement was only slight because the downgrade was due to large scale debt and little cohesive action to reduce it. That is not new news so traders were a tad underwhelmed by the announcement.
Elsewhere the Euro appears to have run out of steam as traders lose the confidence that it will press ahead above $1.36. As has been the case over the last year, just as traders start to get enthusiastic about the Euro, they pinch themselves and realise that the Eurozone is in deep mire and it is impossible to gloss over such fundamental problems. Many well respected commentators still think the Euro project is doomed but no one is quite sure what catalyst or disaster will be the coup de grace. However, we pretty well know we should be looking along the North Mediterranean coast or across the Irish Sea for clues. Or perhaps it will be Germany which finally says aufidersen to the rest of the Eurozone economies and there are many Germans who would love to have Deutschemarks back in their pockets and EU debt off their backs.
Farther afield, the Australian Dollar remains weak after Treasury minister; Wayne Swan outlined more details of the impact of the Queensland Floods. Queensland contributes 19% to the Australian economy so the loss of billions of Dollars worth of coal production and a whole season’s worth of agricultural output will have a medium term effect on the Australian economy. He has already calculated that it will wipe 0.5% off Australian economic growth and most of that effect will be seen in the first quarter of the year. So be ready for Aussie Dollar weakness around the release of the Q1 GDP figure in April. However, Mr Swan is more optimistic in the longer term and that should reassure the longer term traders out there.
And finally, former Miss Canada finalist, Mary-Lu Zahalan-Kennedy, is the first student to graduate with a degree in Beatles Studies. Mary-Lu knows all about the music, the people and the studio sound that the Beatles achieved. Quite what that qualifies her for is not clear and I would guess few English Students would want to spend thirty grand on the course but well done Mary-Lu. I just hope it is more a case of I feel fine than Get Back to where you once belonged. And just remember, love is all you need.
POST GRADUATE QUESTIONS
The graduate with a Science degree asks, "Why does it work?"
The graduate with an Engineering degree asks, "How does it work?"
The graduate with an Accounting degree asks, "How much will it cost?"
The graduate with a Philosophy degree asks, "Do you want fries with that?"
Monday, 31 January 2011
Friday, 28 January 2011
As Sam discussed in yesterday’s report, the Pound had a rough ride after the economy was seen to have shrunk in Quarter 4 but the minutes from the last Bank of England meeting revealed that two of the members wanted an interest rate hike to slow the economy. They wouldn’t have seen the GDP numbers before that meeting so I wonder what their views would be now. I know that Andrew Sentence will still be hawkish buy new member Martin Weale may not be quite so convinced. The governor of the BOE, Mervyn King is in the headlines warning us that we are back to the 1920s as far as thrift and belt tightening is concerned. Thanks Merv; we didn’t know. What with inflated mortgage rates compared to the base rate, higher energy costs, higher food costs, higher transport costs, lower wage rises benefits squeezes and a harsh winter, we all thought things were peachy.
Aaaanyway, the markets’ take on the UK data was that the Pound suffered; falling to the support levels mentioned in the report earlier in the week. However, the Pound has found a bit of respite in the fact that UK interest rates are likely tore main low for an extended period and perhaps the realisation that things aren’t a lot better anywhere else.
Hat perhaps should exclude the Eurozone. Strong figures from Germany seem to be all traders need to encourage them to buy Euros at the moment; hence the Euro - US Dollar rate is at the top of its range and the pound is still struggling to recover against the Euro. Today’s barrage of German inflation figures and the official EU consumer & industrial confidence surveys may well keep that pressure on.
We also get US durable goods and pending home sales data today; both have been influential in recent months and both could be market moving today. US Dollar seller may want to act this morning to avoid any spike in the value later in the day because we think these numbers may well be rather good.
Overnight tonight brings a rash of Japanese data and that is likely to have an effect t on the Australasian Dollars in particular, so anyone with Australian or New Zealand Dollars to buy should be looking at placing an overnight order in the market to see whether they can grab some cheap Dollars in the market turmoil.
However, many traders could be sitting on their hands ahead of tomorrow’s US economic growth data. Remember that some parts of America had blizzards as well during December so a drop in output is highly likely. Whether the impact was as great as the 0.5% cut in growth that has been attributed to the poor UK weather is another matter entirely but be prepared for poor numbers.
In the meantime, a number of newspapers have raised the debate over the football commentators’ sexist comments by suggesting that it seems to be acceptable to be sexist against men but not women these days. Advertisers certainly think so; there’s the one where two women with colds meet in the street to discuss all the things they have to do whilst one is buying pills for her husband who has in bed with a bit of a cold, “Ahh bless” they both say. There is the one where the woman hits the ejector button on her sofa to get rid of her ‘pain’ bloke and countless others which depict men as incapable of doing anything which doesn’t involve football, drinking or eating and men certainly can’t operate domestic equipment in the eyes of the advertisers. The thing is that most blokes laugh at this stuff along with the women the advertisers are aiming to lure with their humour but I kind of think it would be a brave ad man who tried to take the Mickey out a woman for not knowing the offside rule or not being able to drive or park well. I have no scientific way of knowing but I kind of think there would be uproar. It’s an interesting debate don’t you think.
Quote
Nobody will ever win the battle of the sexes. There's too much fraternizing with the enemy.
Henry Kissinger
Aaaanyway, the markets’ take on the UK data was that the Pound suffered; falling to the support levels mentioned in the report earlier in the week. However, the Pound has found a bit of respite in the fact that UK interest rates are likely tore main low for an extended period and perhaps the realisation that things aren’t a lot better anywhere else.
Hat perhaps should exclude the Eurozone. Strong figures from Germany seem to be all traders need to encourage them to buy Euros at the moment; hence the Euro - US Dollar rate is at the top of its range and the pound is still struggling to recover against the Euro. Today’s barrage of German inflation figures and the official EU consumer & industrial confidence surveys may well keep that pressure on.
We also get US durable goods and pending home sales data today; both have been influential in recent months and both could be market moving today. US Dollar seller may want to act this morning to avoid any spike in the value later in the day because we think these numbers may well be rather good.
Overnight tonight brings a rash of Japanese data and that is likely to have an effect t on the Australasian Dollars in particular, so anyone with Australian or New Zealand Dollars to buy should be looking at placing an overnight order in the market to see whether they can grab some cheap Dollars in the market turmoil.
However, many traders could be sitting on their hands ahead of tomorrow’s US economic growth data. Remember that some parts of America had blizzards as well during December so a drop in output is highly likely. Whether the impact was as great as the 0.5% cut in growth that has been attributed to the poor UK weather is another matter entirely but be prepared for poor numbers.
In the meantime, a number of newspapers have raised the debate over the football commentators’ sexist comments by suggesting that it seems to be acceptable to be sexist against men but not women these days. Advertisers certainly think so; there’s the one where two women with colds meet in the street to discuss all the things they have to do whilst one is buying pills for her husband who has in bed with a bit of a cold, “Ahh bless” they both say. There is the one where the woman hits the ejector button on her sofa to get rid of her ‘pain’ bloke and countless others which depict men as incapable of doing anything which doesn’t involve football, drinking or eating and men certainly can’t operate domestic equipment in the eyes of the advertisers. The thing is that most blokes laugh at this stuff along with the women the advertisers are aiming to lure with their humour but I kind of think it would be a brave ad man who tried to take the Mickey out a woman for not knowing the offside rule or not being able to drive or park well. I have no scientific way of knowing but I kind of think there would be uproar. It’s an interesting debate don’t you think.
Quote
Nobody will ever win the battle of the sexes. There's too much fraternizing with the enemy.
Henry Kissinger
Wednesday, 26 January 2011
There was only one story in the markets yesterday and that was the very disappointing UK Q4 GDP release. The proud pound took an absolute thrashing after an extremely poor Q4 GDP figure shocked even the most pessimistic of forecasters.
In Q3 UK growth was recorded at +0.7% and prior to last week’s soft -0.8% UK December retail sales figure, was expected to come in around +0.5% for this preliminary number. It was clear that the snow in December would have had a negative impact on the high street so analysts revised their numbers down with the range of expectations sitting between +0.1% and +0.5%. Not in my wildest dreams would I have expected growth to have contracted by -0.5%. The government was quick to excuse the fall in growth by blaming Decembers weather. However when the negative impact of the snow is stripped out, growth is still non-existent at 0.0%, well below the initial +0.5% forecast.
It could have been much worse for sterling which fell less than 2 cents against the US dollar and less than a cent against the Euro following one of the biggest upsets I can remember in the markets.
We had expected the soaring UK inflation figures to eventually force the Bank of England’s hand in the first half of this year. Their credibility has been shot to pieces as CPI inflation sits well above the 2% target in 52 of the past 66 months. This dreadful growth figure now means a rate hike remains very much on ice until later this year.
The minutes from this month’s Bank of England meeting have just been released and show that another member Weale joined Andrew Sentence in voting for a rate hike. This is now old news however as none of the members would have known about yesterdays GDP number and may have voted differently had they known.
In a speech last night Bank of England Governor Mervyn King said he saw inflation rising to 4-5% in the coming months. He remains unconcerned however as his crystal ball shows the determinants of inflation falling back sharply and CPI to return to the target level. Really there are two scenarios required for inflation to fall as sharply as King suggests is possible. The first is for the UK economy to fall off a cliff back into deep recession. Demand would fall back to minuscule levels. The second (and more likely) is the economies of China and other emerging nations slowing down thereby reducing their demand for commodities. This insatiable demand for food and other commodities is what is keeping non-core CPI at such elevated levels.
Last night President Obama delivered the State of the Union Address with the main points being - A freeze on annual domestic spending for the next 5-years, no extension of the tax cuts to the wealthiest 2%, eliminating the billions given to oil companies and simplification of the corporate tax system to eliminate tax loopholes and reduce the tax rate.
Tonight we get the US Federal Reserve rate decision where 0.00-0.25% interest rates and US$600bn asset purchases are expected to be left unchanged. We may see a subtle improvement in the FOMC’s view of the US economic outlook.
The Reserve Bank of New Zealand is likely to leave interest rates on hold at 3.00% tonight. We expect another dovish assessment of the NZ economy given the disappointing data of late.
Ratings agency Fitch has said that a NZ sovereign downgrade from AA+ was likely without evidence of economic rebalancing. NZ is currently on negative watch. Prime Minister John Key has said the government is considering the part sale of state owned power companies and Air New Zealand to raise funds.
Quote
Fatherhood is pretending the present you love most is soap-on-a-rope. Bill Cosby
In Q3 UK growth was recorded at +0.7% and prior to last week’s soft -0.8% UK December retail sales figure, was expected to come in around +0.5% for this preliminary number. It was clear that the snow in December would have had a negative impact on the high street so analysts revised their numbers down with the range of expectations sitting between +0.1% and +0.5%. Not in my wildest dreams would I have expected growth to have contracted by -0.5%. The government was quick to excuse the fall in growth by blaming Decembers weather. However when the negative impact of the snow is stripped out, growth is still non-existent at 0.0%, well below the initial +0.5% forecast.
It could have been much worse for sterling which fell less than 2 cents against the US dollar and less than a cent against the Euro following one of the biggest upsets I can remember in the markets.
We had expected the soaring UK inflation figures to eventually force the Bank of England’s hand in the first half of this year. Their credibility has been shot to pieces as CPI inflation sits well above the 2% target in 52 of the past 66 months. This dreadful growth figure now means a rate hike remains very much on ice until later this year.
The minutes from this month’s Bank of England meeting have just been released and show that another member Weale joined Andrew Sentence in voting for a rate hike. This is now old news however as none of the members would have known about yesterdays GDP number and may have voted differently had they known.
In a speech last night Bank of England Governor Mervyn King said he saw inflation rising to 4-5% in the coming months. He remains unconcerned however as his crystal ball shows the determinants of inflation falling back sharply and CPI to return to the target level. Really there are two scenarios required for inflation to fall as sharply as King suggests is possible. The first is for the UK economy to fall off a cliff back into deep recession. Demand would fall back to minuscule levels. The second (and more likely) is the economies of China and other emerging nations slowing down thereby reducing their demand for commodities. This insatiable demand for food and other commodities is what is keeping non-core CPI at such elevated levels.
Last night President Obama delivered the State of the Union Address with the main points being - A freeze on annual domestic spending for the next 5-years, no extension of the tax cuts to the wealthiest 2%, eliminating the billions given to oil companies and simplification of the corporate tax system to eliminate tax loopholes and reduce the tax rate.
Tonight we get the US Federal Reserve rate decision where 0.00-0.25% interest rates and US$600bn asset purchases are expected to be left unchanged. We may see a subtle improvement in the FOMC’s view of the US economic outlook.
The Reserve Bank of New Zealand is likely to leave interest rates on hold at 3.00% tonight. We expect another dovish assessment of the NZ economy given the disappointing data of late.
Ratings agency Fitch has said that a NZ sovereign downgrade from AA+ was likely without evidence of economic rebalancing. NZ is currently on negative watch. Prime Minister John Key has said the government is considering the part sale of state owned power companies and Air New Zealand to raise funds.
Quote
Fatherhood is pretending the present you love most is soap-on-a-rope. Bill Cosby
Monday, 24 January 2011
Last week’s data was lively enough to cause significant volatility. The surprisingly strong UK inflation combined with lacklustre jobs growth and a snow blighted December retail report to keep Sterling traders on their toes. Whilst we are starting to see earlier interest rate hikes factored in for the Pound, the poor employment data may make that happen later than May as so many forecasters have predicted. Sterling ended the week in a better position against the US Dollar and the Australasian Dollars but lost ground against the Euro. This week’s major highlights are the release of the Bank of England minutes and the Quarter 4 economic growth data. Both are potentially trend altering
The Euro’s strength came after a record high in the German business sentiment report and another bout of well received bond auctions. Traders are also expecting today’s industrial orders data to be strong. Even the European Central Bank’s monthly bulletin was more upbeat than many had expected. The result was a recovery in the Euro which picked itself up off the floor but barely made it above the skirting board before sellers came back into the fray. We start this week with the Euro at the top of its recent ranges against the Pound and US Dollar but not managing to break out of those established constraints. Other than business and consumer confidence indices, there isn’t a lot on the Eurozone data diary this week so the influences on the Euro are likely to be external.
The diary does though include the release of the minutes from the last Bank of England meeting which will be minutely examined for signs that their resolve to keep interest rates at record lows may be slipping. We will get the US interest rate decision; no change is forecast here but there may be a bit of coded warning that the loose monetary environment cannot continue forever; in plain speak, interest rates will have to rise and/or the expansion of the money supply will have to be reined in.
Overnight news that Australian producer prices rose slower than expected and a warning from the Australian Treasury Minister, Wayne Swan, that the country faces an enormous impact from the floods, combined to weaken the Australian Dollar this morning. We saw the NZ Dollar follow suit and push above NZ$ 2.10 at the interbank level for the first time in 5 weeks. The Interest rate decision from the Reserve Bank of New Zealand is this week’s major release as far as the Kiwi Dollar is concerned. We don’t expect the RBNZ to move interest rates at this point but they may start to shift in that direction so don’t be surprised if this morning’s top of the range for the Sterling - NZ Dollar exchange rate is the best of the week.
In an interesting aside to the Irish political storm, an online article by a chap called Mike Shedlock suggests Ireland has printed an extra €51 billion backed by so called ‘other assets’ in order to fund support and expansion programs. The problem Ireland’s government faces is that it really doesn’t have other assets worth €51 billion so this money is pure cash expansion. At a time when Irish banks are crying out for further funds but lack the collateral to support such funding, this may well prove to be the undoing of the Irish economy and - dare I say it - another nail in the coffin of the Euro. I suspect the story will grow.
And finally, ex Prime Minister Gordon Brown is now wondering whether his phone calls were also hacked by the News of the World in the scandal that brought down Andy Coulson the first time. It may be an opportune time to stick another knife into the former Tory party head of communications but I don’t think the press needed to hack G Brown did they. Just leave a mike on him when he departs a press conference and he will do all the work for you. Or am I being bigoted?
Deep thoughts on a Monday morning
“The opposite of a correct statement is a false statement. But the opposite of a profound truth may well be another profound truth.”
Niels Bohr
The Euro’s strength came after a record high in the German business sentiment report and another bout of well received bond auctions. Traders are also expecting today’s industrial orders data to be strong. Even the European Central Bank’s monthly bulletin was more upbeat than many had expected. The result was a recovery in the Euro which picked itself up off the floor but barely made it above the skirting board before sellers came back into the fray. We start this week with the Euro at the top of its recent ranges against the Pound and US Dollar but not managing to break out of those established constraints. Other than business and consumer confidence indices, there isn’t a lot on the Eurozone data diary this week so the influences on the Euro are likely to be external.
The diary does though include the release of the minutes from the last Bank of England meeting which will be minutely examined for signs that their resolve to keep interest rates at record lows may be slipping. We will get the US interest rate decision; no change is forecast here but there may be a bit of coded warning that the loose monetary environment cannot continue forever; in plain speak, interest rates will have to rise and/or the expansion of the money supply will have to be reined in.
Overnight news that Australian producer prices rose slower than expected and a warning from the Australian Treasury Minister, Wayne Swan, that the country faces an enormous impact from the floods, combined to weaken the Australian Dollar this morning. We saw the NZ Dollar follow suit and push above NZ$ 2.10 at the interbank level for the first time in 5 weeks. The Interest rate decision from the Reserve Bank of New Zealand is this week’s major release as far as the Kiwi Dollar is concerned. We don’t expect the RBNZ to move interest rates at this point but they may start to shift in that direction so don’t be surprised if this morning’s top of the range for the Sterling - NZ Dollar exchange rate is the best of the week.
In an interesting aside to the Irish political storm, an online article by a chap called Mike Shedlock suggests Ireland has printed an extra €51 billion backed by so called ‘other assets’ in order to fund support and expansion programs. The problem Ireland’s government faces is that it really doesn’t have other assets worth €51 billion so this money is pure cash expansion. At a time when Irish banks are crying out for further funds but lack the collateral to support such funding, this may well prove to be the undoing of the Irish economy and - dare I say it - another nail in the coffin of the Euro. I suspect the story will grow.
And finally, ex Prime Minister Gordon Brown is now wondering whether his phone calls were also hacked by the News of the World in the scandal that brought down Andy Coulson the first time. It may be an opportune time to stick another knife into the former Tory party head of communications but I don’t think the press needed to hack G Brown did they. Just leave a mike on him when he departs a press conference and he will do all the work for you. Or am I being bigoted?
Deep thoughts on a Monday morning
“The opposite of a correct statement is a false statement. But the opposite of a profound truth may well be another profound truth.”
Niels Bohr
Friday, 21 January 2011
“I'll probably never sing in a choir or anything, but it's exciting to talk normally, and I can't wait to eat and drink and swim again." That was the voice of Ms Jensen, a woman who has spent the last decade mute and fed through a tube but who recently underwent surgery to replace her damaged larynx. She is speaking for the 1st time in 11 years and is starting to recovery her senses of smell and taste. If that miraculous medical work having a really positive result doesn’t start your Friday with good feeling, then I don’t know what will.
There was nothing anywhere near as miraculous going on in the financial markets; it was more like another day and another facet in this frustratingly sluggish UK recovery. The Confederation of British Industry released its Industrial Trends survey yesterday and both the domestic and export sectors were negative. Sterling was already struggling against a recovering Euro bit had been doing rather well against the US Dollar. Yesterday Morning saw the Pound take a break while we awaited the release of the European Central Bank’s Monthly bulletin. It was essentially the same as the previous month except there was a nod towards the potential for moderate improvements in growth.
The result of all these factors was that the Pound made a moderate recovery against all but the Euro through the latter part of the Day and the Euro was in fairly good form against the US Dollar and other currencies. Sterling is still relatively well supported after this week’s sharp inflation rise and the prospects for higher interest rates before the end of the 1st half of the year.
The European news was dominated by the debate amongst EU finance ministers over the longer term plans to ensure financial support for struggling Eurozone members. They seem to have done enough to calm frazzled nerves amongst Euro traders and the strength of the euro in recent days supports that view. If today’s German IFO business sentiment surveys are supportive, and they probably will be judging from recent German data, then we may well end the week with a strengthening Euro. I know that is not what Euro buyers want to hear but I did highlight the technical resistance to further rises a few days ago and that top, around €1.20 appears to have done its job. €1.15 could well be on the cards in the interbank market in the next few days.
Elsewhere, the Australian and New Zealand Dollars both weakened yesterday as commodities slipped and as the effects of a Chinese slowdown start to be factored into the value of these currencies. The Kiwi dollar ought in fact to have strengthened because the overnight news was an improvement in both retail sales and in business sentiment but the importance of Australia and China as export markets (when China is also Australia’s major export market) was clearly an overwhelming force.
The Canadian Dollar lost some ground yesterday as well alongside the US Dollar (the USA is Canada’s major export market) and ahead of today’s retail sales data which is forecast to have weakened somewhat. Here is a chance of further Canadian Dollar weakness in the next 2 hours so those with Canadian Dollars to buy may want to place automated orders to ensure they capture the best of the American trading hours as well.
The South African rand lost a bit of ground yesterday as well after the South Africa Reserve Bank decided to keep the base interest rate on hold at 5.5%. The move was largely in line with expectations but it does put off the chance of an interest rate hike for another three months or so.
And finally, I am still a big fan of the Monty Python movies and there is a scene in The Holy Grail when the king boasts that “They said we couldn’t build a castle on t’swamp but we did....... it sank”. Sadly, the same could be said of The World. I don’t mean the whole world where we all live but The World made of man-made sand islands off the coast of Dubai. It looks like a marvel of engineering but it appears to be slipping back into the sea while the channels between the islands are silting up and the multi-million dollar properties that is supports could well slip back into the sea as well. It’s odd isn’t it that Venice was made in much the same way, built on logs and rocks but that is still there centuries later. The World is barely a decade old. They don’t make ‘em like they used to do they!
Have a great weekend everyone.
Quote
There are only two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle.
Albert Einstein
There was nothing anywhere near as miraculous going on in the financial markets; it was more like another day and another facet in this frustratingly sluggish UK recovery. The Confederation of British Industry released its Industrial Trends survey yesterday and both the domestic and export sectors were negative. Sterling was already struggling against a recovering Euro bit had been doing rather well against the US Dollar. Yesterday Morning saw the Pound take a break while we awaited the release of the European Central Bank’s Monthly bulletin. It was essentially the same as the previous month except there was a nod towards the potential for moderate improvements in growth.
The result of all these factors was that the Pound made a moderate recovery against all but the Euro through the latter part of the Day and the Euro was in fairly good form against the US Dollar and other currencies. Sterling is still relatively well supported after this week’s sharp inflation rise and the prospects for higher interest rates before the end of the 1st half of the year.
The European news was dominated by the debate amongst EU finance ministers over the longer term plans to ensure financial support for struggling Eurozone members. They seem to have done enough to calm frazzled nerves amongst Euro traders and the strength of the euro in recent days supports that view. If today’s German IFO business sentiment surveys are supportive, and they probably will be judging from recent German data, then we may well end the week with a strengthening Euro. I know that is not what Euro buyers want to hear but I did highlight the technical resistance to further rises a few days ago and that top, around €1.20 appears to have done its job. €1.15 could well be on the cards in the interbank market in the next few days.
Elsewhere, the Australian and New Zealand Dollars both weakened yesterday as commodities slipped and as the effects of a Chinese slowdown start to be factored into the value of these currencies. The Kiwi dollar ought in fact to have strengthened because the overnight news was an improvement in both retail sales and in business sentiment but the importance of Australia and China as export markets (when China is also Australia’s major export market) was clearly an overwhelming force.
The Canadian Dollar lost some ground yesterday as well alongside the US Dollar (the USA is Canada’s major export market) and ahead of today’s retail sales data which is forecast to have weakened somewhat. Here is a chance of further Canadian Dollar weakness in the next 2 hours so those with Canadian Dollars to buy may want to place automated orders to ensure they capture the best of the American trading hours as well.
The South African rand lost a bit of ground yesterday as well after the South Africa Reserve Bank decided to keep the base interest rate on hold at 5.5%. The move was largely in line with expectations but it does put off the chance of an interest rate hike for another three months or so.
And finally, I am still a big fan of the Monty Python movies and there is a scene in The Holy Grail when the king boasts that “They said we couldn’t build a castle on t’swamp but we did....... it sank”. Sadly, the same could be said of The World. I don’t mean the whole world where we all live but The World made of man-made sand islands off the coast of Dubai. It looks like a marvel of engineering but it appears to be slipping back into the sea while the channels between the islands are silting up and the multi-million dollar properties that is supports could well slip back into the sea as well. It’s odd isn’t it that Venice was made in much the same way, built on logs and rocks but that is still there centuries later. The World is barely a decade old. They don’t make ‘em like they used to do they!
Have a great weekend everyone.
Quote
There are only two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle.
Albert Einstein
Thursday, 20 January 2011
A couple of things happened yesterday that moved the markets. Firstly, the Euro had a good day in which traders largely ignored concerns over Greek default rumours but instead focussed on the success of the Portuguese government debt auction. That was well received by the markets and the Euro strengthened as a result. Secondly, the US Dollar had a bad day at the office as traders prepared for last night’s release of the Chinese economic growth data. Views were mixed as to the likely impact of positive or negative data but the initial decision was clearly to be short of US Dollars going into the release.
The net effect of these factors was a weak US Dollar and a small scale rally in the Euro against both the Pound and the US Dollar. Sterling didn’t have a particularly bad day but it did drop against the Euro. This was after a mixed set of UK unemployment data. The number claiming unemployment benefits didn’t alter significantly and the headline unemployed rate was static at 7.9% but the report disappointed analysts who were expecting an economy in the early stages of recovery to post larger employment growth numbers.
In the Euro end of these exchange rates, the markets have been surprised that the EU finance ministers who have been meeting this week were not able to agree a specific set of measures to amend the European Financial Stability Facility; Europe’s financial support package for troubled economies. They really shouldn’t have been surprised; the countries with funds to put into the scheme have a certain set of requirements and those who might draw from the pot have a completely different set. Battle lines are drawn but the lines are a tad blurry and the negotiations will continue.
Anyway, back to those eagerly anticipated Chinese numbers, well the Chinese economy grew at a stratospheric 10.3% in the year to the last quarter of 2010. That was well above expectation and heaps even more emphasis on President Hu’s visit to Washington to see if the US and China can work better together. I am sure there were wry smiles in China when President Obama, the President of a country only a couple of centuries old, suggested China, a country with millennia of documented history and culture, could ‘evolve’. He was talking about human rights and the point is a valid one but I am sure the Chinese authorities won’t have liked the suggestion that they are yet to evolve. Either way, the US administration would appear to be far more focussed on improving US trade with China than getting bogged down on matters of human rights.
In the end though, China is expected to make further attempts to slow its economy and perhaps even to allow the Yuan to strengthen.... a little. The former is bad for those countries which see China as an existing or potential export market and the latter is good news. In the short term, exporters to China like Australia and New Zealand saw their currencies weaken on the news.
Elsewhere, another commodity-reliant economy saw its currency weaken for yet another day. Traders are wary of how well Canada will perform if the US economy doesn’t start growing more robustly and the fact that the Canadian Dollar had become stronger than the US Dollar (the other side of parity you might say) doesn’t help exports.
That was about that for yesterday. This morning brings German producer price indices, the European Central Bank’s monthly bulletin, the Confederation of British Industry industrial trends survey and housing and manufacturing data from the US. Sterling is unlikely to be significantly affected by the data because tomorrow’s retail sales numbers will be more influential. However, the EU and US releases will be watched closely and these could prove to be the major driving factors of the day.
I’ll finish on a story that says caring service is alive and well. A man travelling across America to see his terminally ill grandson before his life support machine was switched off was held up in security and would have missed the flight but for the fact that the Southwest Airlines pilot, who had heard about the reason for his trip, refused to depart until the man was located, cleared security and boarded. The chap apparently arrived 12 minutes after the plane’s scheduled departure time breathless from running and carrying his shoes which he took off for the security check. It may sound like the opening sequence of some kind of black humour road trip movie but it is, as far as I can tell true. Does it restore your faith in human nature?
Quote
The good news is that, according to the Obama administration, the rich will pay for everything. The bad news is that, according to the Obama administration, you’re rich.
P J O’Rourke
The net effect of these factors was a weak US Dollar and a small scale rally in the Euro against both the Pound and the US Dollar. Sterling didn’t have a particularly bad day but it did drop against the Euro. This was after a mixed set of UK unemployment data. The number claiming unemployment benefits didn’t alter significantly and the headline unemployed rate was static at 7.9% but the report disappointed analysts who were expecting an economy in the early stages of recovery to post larger employment growth numbers.
In the Euro end of these exchange rates, the markets have been surprised that the EU finance ministers who have been meeting this week were not able to agree a specific set of measures to amend the European Financial Stability Facility; Europe’s financial support package for troubled economies. They really shouldn’t have been surprised; the countries with funds to put into the scheme have a certain set of requirements and those who might draw from the pot have a completely different set. Battle lines are drawn but the lines are a tad blurry and the negotiations will continue.
Anyway, back to those eagerly anticipated Chinese numbers, well the Chinese economy grew at a stratospheric 10.3% in the year to the last quarter of 2010. That was well above expectation and heaps even more emphasis on President Hu’s visit to Washington to see if the US and China can work better together. I am sure there were wry smiles in China when President Obama, the President of a country only a couple of centuries old, suggested China, a country with millennia of documented history and culture, could ‘evolve’. He was talking about human rights and the point is a valid one but I am sure the Chinese authorities won’t have liked the suggestion that they are yet to evolve. Either way, the US administration would appear to be far more focussed on improving US trade with China than getting bogged down on matters of human rights.
In the end though, China is expected to make further attempts to slow its economy and perhaps even to allow the Yuan to strengthen.... a little. The former is bad for those countries which see China as an existing or potential export market and the latter is good news. In the short term, exporters to China like Australia and New Zealand saw their currencies weaken on the news.
Elsewhere, another commodity-reliant economy saw its currency weaken for yet another day. Traders are wary of how well Canada will perform if the US economy doesn’t start growing more robustly and the fact that the Canadian Dollar had become stronger than the US Dollar (the other side of parity you might say) doesn’t help exports.
That was about that for yesterday. This morning brings German producer price indices, the European Central Bank’s monthly bulletin, the Confederation of British Industry industrial trends survey and housing and manufacturing data from the US. Sterling is unlikely to be significantly affected by the data because tomorrow’s retail sales numbers will be more influential. However, the EU and US releases will be watched closely and these could prove to be the major driving factors of the day.
I’ll finish on a story that says caring service is alive and well. A man travelling across America to see his terminally ill grandson before his life support machine was switched off was held up in security and would have missed the flight but for the fact that the Southwest Airlines pilot, who had heard about the reason for his trip, refused to depart until the man was located, cleared security and boarded. The chap apparently arrived 12 minutes after the plane’s scheduled departure time breathless from running and carrying his shoes which he took off for the security check. It may sound like the opening sequence of some kind of black humour road trip movie but it is, as far as I can tell true. Does it restore your faith in human nature?
Quote
The good news is that, according to the Obama administration, the rich will pay for everything. The bad news is that, according to the Obama administration, you’re rich.
P J O’Rourke
Wednesday, 19 January 2011
I am sure you have read by now that UK inflation leapt up to 3.7% on the government’s preferred CPI measure; that’s the largest jump since the rate of inflation has been measured in this way and a full 1.7% above the Bank of England’s central target rate. In normal times that kind of news would cause an equally impressive rally in the value of the Pound but, so constrained are the BOE by poor growth that the reaction was rather muted. We did see a small scale rise in the value of the Pound against the US Dollar and a similarly limp rise against the Euro but the Pound as petty languid other than this. I guess the problem is that no one can see the BOE hiking interest rates to temper inflation in the short term so sterling does have the sort of lure it might otherwise have. We get the UK employment data this morning and a poor reading here is likely to undo any positive movement the Pound experienced yesterday. However, jobs growth could well result in the Pound making further gains. All eyes on the newswires at 9.30 UK time.
The other news was a marked jump in German business confidence which, as I have mentioned many times, was just another example of how at odds the various members of the Eurozone are with each other. Greece, Ireland, Belgium, Portugal, Spain and Italy are all suspected of being on the brink of a financial abyss and would certainly be in deep water without the funds and support that the EU and International Monetary Fund have put at their disposal. So the question is whether there will ever be a chance for the funding to be reduced without an unavoidable collapse of some of these vulnerable states. I don’t have an answer but I am still amazed by how resilient the Euro has been. Germany may be by far the largest economy in the Eurozone but it surely cannot carry the rest of the economic bloc without some respite and German tax payers will punish the government severely if this situation isn’t improving by the next election. I have a feeling the sword of Damocles is swinging ever lower for the Euro and if you look at the countries mentioned above, the first cut will be felt in one of those.
The US Dollar had a less exciting day. Traders were back from their Bank holiday and perhaps still a bit bleary eyed but the improvement in the empire state manufacturing index and sanguine housing data were not enough to cause any major move in the US Dollar which actually weakened against the Euro and Sterling.
Elsewhere, the Bank of Canada’s decision to leave the base rate on hold at 1% was greeted with a selloff in the currency. The BOC made it quite clear that there was little chance of an early hike in interest rates and spoke in very measured tones about the uncertainty of the global recovery and the damage that the very strong Canadian Dollar was doing to export income. Sterling failed to push above recent ranges against the Canadian Dollar but is near the top of the range this morning.
The Australasian Dollars are very mixed as traders try to weigh the advantage they hold in terms of interest rate yield against the risks posed by the flood related drop in Australian output and the slowdown that the Chinese authorities are trying to induce. At the moment, the Aussie and Kiwi dollars are managing to avoid a collapse but that is not to say it won’t happen. I tend to think we will see another period of strength in these currencies before any major decline. NZ inflation data is due for release this evening and any reading above 2.3% will be positive for the NZ Dollar because the reserve Bank of New Zealand has the capacity to raise interest rates to temper inflation; a luxury the Bank of England seems not to have.
And finally, if you have plans to tell your loved one how you feel on St Valentine’s Day, just don’t take him/her to Iran for a romantic weekend to do it. Iran has banned production of Valentine’s Day cards and gifts because it sees the day as symptomatic of the spread of western culture. Now of all the decadent things that western culture has inflicted on the world, you would have thought something as innocent as a day devoted to the celebration of love would be exempt from Iranian bile but perhaps not. Or perhaps they just missed the point.
Currency - GBP / Australian Dollar
It isn’t hard to see the main influence on the Australian Dollar right now. There are billions of gallons of it all over Queensland in places that just should not be wet. Estimates of A$13 billion cost to the economy, of a drop in economic growth of as much as 1% and of months and perhaps years of clearing up are not good for anyone. Sadly, such bad news was bound to have a negative impact on the Australian Dollar and that is precisely what we have seen. Short term, I think we have seen the high in the Sterling - Australian Dollar rate but in the longer term, I do believe we will see another test of A$ 1.60 and perhaps a break above that level. If you need to buy Australian Dollars, I guess it just depends on your time frames and your attitude to risk as to whether you wait for the hoped for rally or you cut the risk and trade here.
Currency - GBP / Canadian Dollar
The Bank of Canada decided to leave the Canadian Base rate alone at 1.0% when their monetary policy committee met today. In the statement they issued, they commented on the improving tone of the economy but warned that the strength of the Canadian Dollar was undoing all the positive effects of increasing exports and rising commodity revenues. You could perhaps say that their commentary was less negative than previous reports but it certainly wasn’t positive and still had the foreboding air of a central bank that is not yet convinced the economy is out of the woods. The Canadian Dollar weakened on the announcement and remains a tad weaker at the close of business in the UK. Wednesday brings the more detailed Monetary Policy report from the BOC so we will be expecting a little more volatility in the next 48 hours. Obviously, events in America will also have an effect and the floods in Australia are directly impacting on the value of commodities, so eye sin the back side and top of your head would be very useful. Alternatively, let us know what you need to achieve and we will do the watching for you.
Currency - GBP / Euro
The reports I have been writing on the Euro are a bit like stuck records because all the same influences are still in play. Debt ratings, fears over the peripheral Eurozone states, pressure on the European Central Bank to tighten monetary policy and the disparity between outstanding German economic performance and the more laggardly performance of the rest of the Eurozone are all factors in the minds of traders. Nevertheless, the fact that China and Japan have both supported recent bond auctions within the EZ does lend the Euro an air of solidity which it probably doesn’t deserve. The Euro is at the weaker end of its range against the Pound but doing rather better against the struggling US Dollar and that is a situation that could continue if we fail to see the claims of an improved EU cohesion over debt management followed through into solid action. The fact that UK inflation pushed to 3.7% on the CPI measure failed to boost Sterling because the Bank of England cannot afford to hike interest rates as they perhaps should and would do if inflation were this high in a normal market environment.
Currency - GBP / New Zealand Dollar
Queensland’s plight and China’s slowdown are the major themes for the New Zealand Dollar because NZ exports heavily to both countries. Any drop in demand is bad news for the Kiwi economy. So it is not perhaps so surprising that the NZ Dollar has, at long last, finally stepped back from a pattern of unabated strength. Weakness in the US Dollar is generally a sign of strength in the Australasian currencies and, you have to consider that, were it not for the fall in the value of the US Dollar, the Sterling - NZ Dollar rate would be higher. Sadly, I think we have to view this bounce in the Sterling - NZ dollar rate as a short term correction rather than a permanent change of direction. The poor demand issues are now factored in and yet the GBP-NZD exchange rate has still not managed more than a 7 cent rise from the December low. Quite what it is going to take to change the direction f this pair is very uncertain but for the short term, taking advantage at NZ4 2.05 and above is the obvious choice.
Currency - GBP / US Dollar
Positive reaction to the EU bond auctions and nervousness over the disparity between consumer and manufacturing recovery in the US are the major themes in the Sterling - USD exchange rate. From a UK perspective, we are seeing constrained support for the Pound without the follow through that an exuberant market would deliver. From a US Dollar perspective, we are seeing improving manufacturing and industrial numbers but nothing anywhere near as positive from the labour market or retail end. Unless US consumers start to feel confident again, the US economy is always going to struggle to recover. Nevertheless, the US Dollar is the most liquid currency in the world and it takes a lot to persuade traders to sell the US Dollar for any sustained period. Sterling struggles to make any gains above $1.60 and the Euro struggles above $1.34. While those resistance levels cap these exchange rates, we have to respect then as market toppers and trade accordingly.
A quote for the Iranian leadership – just to set the record straight
"Love is a temporary madness. It erupts like an earthquake and then subsides. And when it subsides you have to make a decision. You have to work out whether your roots have become so entwined together that it is inconceivable that you should ever part. Because this is what love is. Love is not breathlessness, it is not excitement, it is not the promulgation of promises of eternal passion. That is just being "in love" which any of us can convince ourselves we are. Love itself is what is left over when being in love has burned away, and this is both an art and a fortunate accident. Your mother and I had it, we had roots that grew towards each other underground, and when all the pretty blossoms had fallen from our branches we found that we were one tree and not two."
St. Augustine
The other news was a marked jump in German business confidence which, as I have mentioned many times, was just another example of how at odds the various members of the Eurozone are with each other. Greece, Ireland, Belgium, Portugal, Spain and Italy are all suspected of being on the brink of a financial abyss and would certainly be in deep water without the funds and support that the EU and International Monetary Fund have put at their disposal. So the question is whether there will ever be a chance for the funding to be reduced without an unavoidable collapse of some of these vulnerable states. I don’t have an answer but I am still amazed by how resilient the Euro has been. Germany may be by far the largest economy in the Eurozone but it surely cannot carry the rest of the economic bloc without some respite and German tax payers will punish the government severely if this situation isn’t improving by the next election. I have a feeling the sword of Damocles is swinging ever lower for the Euro and if you look at the countries mentioned above, the first cut will be felt in one of those.
The US Dollar had a less exciting day. Traders were back from their Bank holiday and perhaps still a bit bleary eyed but the improvement in the empire state manufacturing index and sanguine housing data were not enough to cause any major move in the US Dollar which actually weakened against the Euro and Sterling.
Elsewhere, the Bank of Canada’s decision to leave the base rate on hold at 1% was greeted with a selloff in the currency. The BOC made it quite clear that there was little chance of an early hike in interest rates and spoke in very measured tones about the uncertainty of the global recovery and the damage that the very strong Canadian Dollar was doing to export income. Sterling failed to push above recent ranges against the Canadian Dollar but is near the top of the range this morning.
The Australasian Dollars are very mixed as traders try to weigh the advantage they hold in terms of interest rate yield against the risks posed by the flood related drop in Australian output and the slowdown that the Chinese authorities are trying to induce. At the moment, the Aussie and Kiwi dollars are managing to avoid a collapse but that is not to say it won’t happen. I tend to think we will see another period of strength in these currencies before any major decline. NZ inflation data is due for release this evening and any reading above 2.3% will be positive for the NZ Dollar because the reserve Bank of New Zealand has the capacity to raise interest rates to temper inflation; a luxury the Bank of England seems not to have.
And finally, if you have plans to tell your loved one how you feel on St Valentine’s Day, just don’t take him/her to Iran for a romantic weekend to do it. Iran has banned production of Valentine’s Day cards and gifts because it sees the day as symptomatic of the spread of western culture. Now of all the decadent things that western culture has inflicted on the world, you would have thought something as innocent as a day devoted to the celebration of love would be exempt from Iranian bile but perhaps not. Or perhaps they just missed the point.
Currency - GBP / Australian Dollar
It isn’t hard to see the main influence on the Australian Dollar right now. There are billions of gallons of it all over Queensland in places that just should not be wet. Estimates of A$13 billion cost to the economy, of a drop in economic growth of as much as 1% and of months and perhaps years of clearing up are not good for anyone. Sadly, such bad news was bound to have a negative impact on the Australian Dollar and that is precisely what we have seen. Short term, I think we have seen the high in the Sterling - Australian Dollar rate but in the longer term, I do believe we will see another test of A$ 1.60 and perhaps a break above that level. If you need to buy Australian Dollars, I guess it just depends on your time frames and your attitude to risk as to whether you wait for the hoped for rally or you cut the risk and trade here.
Currency - GBP / Canadian Dollar
The Bank of Canada decided to leave the Canadian Base rate alone at 1.0% when their monetary policy committee met today. In the statement they issued, they commented on the improving tone of the economy but warned that the strength of the Canadian Dollar was undoing all the positive effects of increasing exports and rising commodity revenues. You could perhaps say that their commentary was less negative than previous reports but it certainly wasn’t positive and still had the foreboding air of a central bank that is not yet convinced the economy is out of the woods. The Canadian Dollar weakened on the announcement and remains a tad weaker at the close of business in the UK. Wednesday brings the more detailed Monetary Policy report from the BOC so we will be expecting a little more volatility in the next 48 hours. Obviously, events in America will also have an effect and the floods in Australia are directly impacting on the value of commodities, so eye sin the back side and top of your head would be very useful. Alternatively, let us know what you need to achieve and we will do the watching for you.
Currency - GBP / Euro
The reports I have been writing on the Euro are a bit like stuck records because all the same influences are still in play. Debt ratings, fears over the peripheral Eurozone states, pressure on the European Central Bank to tighten monetary policy and the disparity between outstanding German economic performance and the more laggardly performance of the rest of the Eurozone are all factors in the minds of traders. Nevertheless, the fact that China and Japan have both supported recent bond auctions within the EZ does lend the Euro an air of solidity which it probably doesn’t deserve. The Euro is at the weaker end of its range against the Pound but doing rather better against the struggling US Dollar and that is a situation that could continue if we fail to see the claims of an improved EU cohesion over debt management followed through into solid action. The fact that UK inflation pushed to 3.7% on the CPI measure failed to boost Sterling because the Bank of England cannot afford to hike interest rates as they perhaps should and would do if inflation were this high in a normal market environment.
Currency - GBP / New Zealand Dollar
Queensland’s plight and China’s slowdown are the major themes for the New Zealand Dollar because NZ exports heavily to both countries. Any drop in demand is bad news for the Kiwi economy. So it is not perhaps so surprising that the NZ Dollar has, at long last, finally stepped back from a pattern of unabated strength. Weakness in the US Dollar is generally a sign of strength in the Australasian currencies and, you have to consider that, were it not for the fall in the value of the US Dollar, the Sterling - NZ Dollar rate would be higher. Sadly, I think we have to view this bounce in the Sterling - NZ dollar rate as a short term correction rather than a permanent change of direction. The poor demand issues are now factored in and yet the GBP-NZD exchange rate has still not managed more than a 7 cent rise from the December low. Quite what it is going to take to change the direction f this pair is very uncertain but for the short term, taking advantage at NZ4 2.05 and above is the obvious choice.
Currency - GBP / US Dollar
Positive reaction to the EU bond auctions and nervousness over the disparity between consumer and manufacturing recovery in the US are the major themes in the Sterling - USD exchange rate. From a UK perspective, we are seeing constrained support for the Pound without the follow through that an exuberant market would deliver. From a US Dollar perspective, we are seeing improving manufacturing and industrial numbers but nothing anywhere near as positive from the labour market or retail end. Unless US consumers start to feel confident again, the US economy is always going to struggle to recover. Nevertheless, the US Dollar is the most liquid currency in the world and it takes a lot to persuade traders to sell the US Dollar for any sustained period. Sterling struggles to make any gains above $1.60 and the Euro struggles above $1.34. While those resistance levels cap these exchange rates, we have to respect then as market toppers and trade accordingly.
A quote for the Iranian leadership – just to set the record straight
"Love is a temporary madness. It erupts like an earthquake and then subsides. And when it subsides you have to make a decision. You have to work out whether your roots have become so entwined together that it is inconceivable that you should ever part. Because this is what love is. Love is not breathlessness, it is not excitement, it is not the promulgation of promises of eternal passion. That is just being "in love" which any of us can convince ourselves we are. Love itself is what is left over when being in love has burned away, and this is both an art and a fortunate accident. Your mother and I had it, we had roots that grew towards each other underground, and when all the pretty blossoms had fallen from our branches we found that we were one tree and not two."
St. Augustine
Tuesday, 18 January 2011
So Ricky Gervais has won again; his acerbic taunts towards the primped and preened stars at the Golden Globes clearly ruffled a few feathers and there can be no doubt they upset a few of the glitterati but everyone is talking about it; probably as much as the Colin Firth win, and that, as far as I can tell, is all Ricky Gervais ever wants.
A quiet day for data and a closed session for the US public holiday meant the markets were generally quite muted yesterday. However, the devil finds work for idle hands as they say and traders were definitely idle. The work they found to do was to sell the US Dollar which retreated against the Pound to the highest level we have seen in two months.
The Pound’s advance had a lot to do with this morning’s release of the UK inflation data. After a series of commodity price rises and higher producer price inflation, we expect the inflation number to have risen to 3.6% or thereabouts and that does reignite the debate over just what the Bank of England’s monetary policy is based on because it cannot still be an inflation only remit when their task is supposed to be about maintaining inflation at or near 2%; they are consistently failing in that endeavour. However no one is expecting any hike in UK interest rates before May. Nevertheless, if the BOE is expected to raise rates before the US Fed and the ECB, then Sterling could well strengthen further.
Sterling also gained ground against the Euro in spite of a growing feeling that the Eurozone Finance Ministers will agree measures to expand their financial support package and allay fears over the default of any of the peripheral economies of the Eurozone. Having said that, this morning’s rumour mill suggests the agreement is less comprehensive than that and that we may see a euro sell off because traders will be disappointed by the result. We also get the German ZEW survey of business confidence today and that is likely to highlight the two-speed nature of the Eurozone with
There is plenty going on in Canada this week as well though with the Bank of Canada’s interest rate decision today and their monetary policy report tomorrow. No change is forecast on interest rates and many traders will largely ignore today’s event as they wait for the more detailed assessment of the Canadian economy due tomorrow. In the meantime, oil prices are very volatile and the US Dollar likewise so the Canadian Dollar is being buffeted a tad.
And finally two stories seemed to arrive with a certain degree of synergy; Mrs Trabelsi, the wife of the former Tunisian President is reported to have made a withdrawal of £38 million in gold bars from Tunisia’s central bank before fleeing the country. No one seems at all surprised by the event after years of avarice and showy wealth at the country’s expense but it is a salutary tale. Thankfully though, just as this story broke, we also heard that a former Swiss bank employee has passed CDs to wikileaks detailing all manner of tax evasion by customers of the Swiss bank. Perhaps Mrs Trabelsi’s stolen gold will be found after all.
Quotes
“It's the one thing I actively don't like: just being recognized.”
Ricky Gervais
“She said, 'I'm your biggest fan,' and I said, 'Who are you?' She said, 'Paris Hilton.'”
Ricky Gervais
A quiet day for data and a closed session for the US public holiday meant the markets were generally quite muted yesterday. However, the devil finds work for idle hands as they say and traders were definitely idle. The work they found to do was to sell the US Dollar which retreated against the Pound to the highest level we have seen in two months.
The Pound’s advance had a lot to do with this morning’s release of the UK inflation data. After a series of commodity price rises and higher producer price inflation, we expect the inflation number to have risen to 3.6% or thereabouts and that does reignite the debate over just what the Bank of England’s monetary policy is based on because it cannot still be an inflation only remit when their task is supposed to be about maintaining inflation at or near 2%; they are consistently failing in that endeavour. However no one is expecting any hike in UK interest rates before May. Nevertheless, if the BOE is expected to raise rates before the US Fed and the ECB, then Sterling could well strengthen further.
Sterling also gained ground against the Euro in spite of a growing feeling that the Eurozone Finance Ministers will agree measures to expand their financial support package and allay fears over the default of any of the peripheral economies of the Eurozone. Having said that, this morning’s rumour mill suggests the agreement is less comprehensive than that and that we may see a euro sell off because traders will be disappointed by the result. We also get the German ZEW survey of business confidence today and that is likely to highlight the two-speed nature of the Eurozone with
There is plenty going on in Canada this week as well though with the Bank of Canada’s interest rate decision today and their monetary policy report tomorrow. No change is forecast on interest rates and many traders will largely ignore today’s event as they wait for the more detailed assessment of the Canadian economy due tomorrow. In the meantime, oil prices are very volatile and the US Dollar likewise so the Canadian Dollar is being buffeted a tad.
And finally two stories seemed to arrive with a certain degree of synergy; Mrs Trabelsi, the wife of the former Tunisian President is reported to have made a withdrawal of £38 million in gold bars from Tunisia’s central bank before fleeing the country. No one seems at all surprised by the event after years of avarice and showy wealth at the country’s expense but it is a salutary tale. Thankfully though, just as this story broke, we also heard that a former Swiss bank employee has passed CDs to wikileaks detailing all manner of tax evasion by customers of the Swiss bank. Perhaps Mrs Trabelsi’s stolen gold will be found after all.
Quotes
“It's the one thing I actively don't like: just being recognized.”
Ricky Gervais
“She said, 'I'm your biggest fan,' and I said, 'Who are you?' She said, 'Paris Hilton.'”
Ricky Gervais
Monday, 17 January 2011
The Dollar had its worst week in 4 months last week as it erased all the gains of the previous week and we are back to the same values as hose we saw at the turn of the year. It brings into question the initial enthusiasm for the USD at the start of the year and poses the question, what next?
Well the answer to that for today is ‘not a lot’ as the US markets are closed for Martin Luther King Day. That also means few other markets will be operating at full capacity and trading will be light. Light doesn’t mean dead though because volatility is often the characteristic of quiet markets. There are a number of US Dollar related data releases this week; though most influential for the USD and all other markets for that matter will be keen to see the Chinese economic growth data for the last quarter of 2010. In fact that kind of overshadows most data releases of the week.
China has purportedly been trying to slow its economy for the last 6 months or so and there is a feeling that they are succeeding to some degree. Certainly the last set of trade balance data would suggest imports are down. That has implications for suppliers like Australia and New Zealand and for the commodity markets as well. That data is due on Thursday.
China’s performance and business confidence in China has implications for the Eurozone as well; the EU is a large scale importer from China and recent moves by the Chinese authorities to boost their EU bond holdings have underpinned the recent Portuguese and Spanish bond auctions. The financial links are plain to see but, whilst China and Japan are investing in EU debt, the far eastern states are openly expressing concerns about the stability of the Eurozone and the Bank of Japan Governor Masaaki Shirakawa has been quoted as saying European financial markets remain unstable due to the continuing debt crisis. Credit ratings agency, Fitch clearly agrees after they cut Greece’s sovereign debt rating to BB+; a level commonly referred to as ‘Junk’. That can’t be good for relations within the EU finance ministers who are meeting this week to discuss just such issues. The disparity between the strength of certain members of the currency sharing bloc couldn’t be better highlighted than this move by Fitch at a time when Germany’s regional governments are starting to upgrade their growth forecasts for this year and next.
Sterling had a mixed week last week; tugged along by its approximate alignment with the EU; Britain’s largest trading partner, but rattled by continuing concern over the potential for damage caused by the UK government spending cuts and the January 4th VAT rise. This week brings plenty to keep Sterling traders busy. The Pound has touched both the top and bottom of its recent trading ranges in the space of a week so another volatile week would not be a surprise. So both tomorrow’s release of the December inflation report and the release of employment data on Wednesday have the potential to be market moving events.
Elsewhere, fluctuating commodity markets are causing volatility in the Australian, New Zealand and Canadian Dollars as well as the South African Rand. All four currencies have weakened a little in the last week and Sterling is pressing each against the top of its trading range. If the UK data is positive this week, we could be on the cusp of a proper advance in the Pound but it is too early to be counting unhatched chickens just yet. Let’s see what tomorrow’s UK inflation data holds.
Meanwhile, violence on the streets of Tunis, landslides in Brazil, floods in Queensland, and what do the news papers focus on; Colin Firth getting a special trophy, Katie Price falling out with yet another hapless fool and Helena Bonham Carter wearing odd shoes.
Of course they should have been reporting on the news that the Italian parliament has decreed that Italian is the official language of Italy. That might not sound controversial but 75 members of parliament voted against it; mainly because they speak Venetian and not Italian. I don’t think anyone is going to make them change though.
Quote
"Advertising may be described as the science of arresting human intelligence long enough to get money from it."
Stephen Leacock
Well the answer to that for today is ‘not a lot’ as the US markets are closed for Martin Luther King Day. That also means few other markets will be operating at full capacity and trading will be light. Light doesn’t mean dead though because volatility is often the characteristic of quiet markets. There are a number of US Dollar related data releases this week; though most influential for the USD and all other markets for that matter will be keen to see the Chinese economic growth data for the last quarter of 2010. In fact that kind of overshadows most data releases of the week.
China has purportedly been trying to slow its economy for the last 6 months or so and there is a feeling that they are succeeding to some degree. Certainly the last set of trade balance data would suggest imports are down. That has implications for suppliers like Australia and New Zealand and for the commodity markets as well. That data is due on Thursday.
China’s performance and business confidence in China has implications for the Eurozone as well; the EU is a large scale importer from China and recent moves by the Chinese authorities to boost their EU bond holdings have underpinned the recent Portuguese and Spanish bond auctions. The financial links are plain to see but, whilst China and Japan are investing in EU debt, the far eastern states are openly expressing concerns about the stability of the Eurozone and the Bank of Japan Governor Masaaki Shirakawa has been quoted as saying European financial markets remain unstable due to the continuing debt crisis. Credit ratings agency, Fitch clearly agrees after they cut Greece’s sovereign debt rating to BB+; a level commonly referred to as ‘Junk’. That can’t be good for relations within the EU finance ministers who are meeting this week to discuss just such issues. The disparity between the strength of certain members of the currency sharing bloc couldn’t be better highlighted than this move by Fitch at a time when Germany’s regional governments are starting to upgrade their growth forecasts for this year and next.
Sterling had a mixed week last week; tugged along by its approximate alignment with the EU; Britain’s largest trading partner, but rattled by continuing concern over the potential for damage caused by the UK government spending cuts and the January 4th VAT rise. This week brings plenty to keep Sterling traders busy. The Pound has touched both the top and bottom of its recent trading ranges in the space of a week so another volatile week would not be a surprise. So both tomorrow’s release of the December inflation report and the release of employment data on Wednesday have the potential to be market moving events.
Elsewhere, fluctuating commodity markets are causing volatility in the Australian, New Zealand and Canadian Dollars as well as the South African Rand. All four currencies have weakened a little in the last week and Sterling is pressing each against the top of its trading range. If the UK data is positive this week, we could be on the cusp of a proper advance in the Pound but it is too early to be counting unhatched chickens just yet. Let’s see what tomorrow’s UK inflation data holds.
Meanwhile, violence on the streets of Tunis, landslides in Brazil, floods in Queensland, and what do the news papers focus on; Colin Firth getting a special trophy, Katie Price falling out with yet another hapless fool and Helena Bonham Carter wearing odd shoes.
Of course they should have been reporting on the news that the Italian parliament has decreed that Italian is the official language of Italy. That might not sound controversial but 75 members of parliament voted against it; mainly because they speak Venetian and not Italian. I don’t think anyone is going to make them change though.
Quote
"Advertising may be described as the science of arresting human intelligence long enough to get money from it."
Stephen Leacock
Sunday, 16 January 2011
Yesterday brought a lot of ‘to be expected’ news. Labour retained their safe seat in Oldham East, the Bank of England and the European Central Bank did what was expected of them and left their base interest rates on hold at 0.5% and 1.0% respectively and neither added anything to their fiscal stimulus packages. I guess that would generally mean status quo is maintained so leave the exchange rates alone but you may have noticed, the Pound is weaker this morning and the Euro a little stronger but Sterling has gained ground against the US Dollar.
The reasons for this have little to do with these central bank decisions. Sterling’s weakness even happened after the UK manufacturing sector was shown to have grown above expectation; a factor that should certainly have buoyed the Pound. However, the day started with a fair amount of trepidation ahead of a Spanish government bond auction. As soon though as the auction was shown to be oversubscribed, the relief was palpable and the Euro strengthened. There is every chance this rally could be short lived though as it is largely based rhetoric. Those with Euros to sell may want to make the most of this dip because one good auction does not a recovery make. That probably sounded like a better misquote in my head than it looks on paper; it reads like Yoda has taken over the report writing but I am sure you get the point. Nonetheless, the ECB’s statement is most notable for the tone of impending change. They suggest things are ‘still’ on track and interest rates are ‘still’ appropriate which would perhaps suggest there may be room for change in a shortening time frame. We know we are entering a period of flux and that brings volatility so tin hats at the ready.
The Bank of England is still taking flak for its apparent lack of concern over inflation even though it has remained above their 2% target for the last three years and has been above their target for pretty much the whole life of the BOE’s independence. They obviously don’t issue any kind of statement on the day of their decision unless they change something so we will get their views in a fortnight’s time. BOE Governor, Mervyn King is infamous as a weakener of the Pound every time he speaks so allowing people to assume the bank is sanguine about inflation serves his purpose admirably but there comes a time when even the most dovish central banker has to better manage expectations and this is starting t be the situation for Mr King.
As for the rest of the world; US employment data showed an expected rise in weekly jobless claims. The early part of the New Year is generally a bad time for job losses. Also, America’s trade gap with the rest of the word narrowed. The only trading relationship that bucked the trend was the one with China but we all know how rapid Chinese output is; it’s enough to make the Chinese authorities attempt to slow things down and that has a whole range of repercussions. Nevertheless, traders sort of ignored this upbeat data and the US Dollar lost a lot of ground against the Euro in particular as the European Central Bank started to mention inflation and the crowd went wild. The correction in the Euro-US Dollar rate took us back to the top of the existing trading range but no further. So in spite of the reporting in some papers which looks like it was written someone who breakfasted on skittles and cola, the move was not that earth moving.
Weakness in the US Dollar also had a knock on effect on the Canadian Dollar which lost a little ground. Had the Pound been better supported we may well have seen a rally in the Sterling - Canadian Dollar exchange rate but the effect was a tad muted.
Today’s main news releases are the UK Producer Price Inflation figures and then it is all about the US data with Consumer Price Inflation, December Retail Sales, Industrial Production and the business confidence survey from the University of Michigan. It’s plenty to be getting on with so I will let you go and do just that.
Have a great weekend. I’ll leave you with a story that proves just how wily foxes can be. A hunter in Belarus had shot and injured a fox; he approached the animal and tried to finish him off with the butt of his rifle but the foxed wriggled free and in the ensuing struggle, managed to pull the trigger of the hunter’s rifle, wounding him in the leg before making good his escape. Boom boom is I think a fitting end to that story.
Currency - GBP / Australian Dollar
As well as suffering the worst floods in centuries with all the financial, personal and social repercussions that entails, Australia is suffering on the economic front as well. China’s clear plan to slow their economy is having an effect as shown in their import figures. The fact that China is Australia’s largest export market makes this a major issue for Australian exporters and the fact that Australia’s trade surplus shrank more than expected would suggest the pinch is being felt already. So after nearly two and a half years of almost unhindered Australian Dollar strength, could this be the turning point? Well we have to put this into context. The Australian Dollar has gained from A$ 2.70 in September 2008 to barely A$ 1.50 as we saw just two weeks ago. The bounce we have seen has taken us 8 cents higher and even if we saw a push up to A$ 1.66, we would still be in the same downward trend channel we have been in for over two years. That might make depressing reading but it does serve to let us know that in spite of all the hype, the Australian Dollar is still much stronger than Sterling and, as yet, hasn’t changed direction. Those who need to buy Australian Dollars and are hankering after the good old days of A$ 1.70, A$ 1.80 or more are a very long way from those figures and sadly have to contend with a more narrow range and lower expectations. The only slim caveat to that last comment is that estimates vary but there is a feeling that these dreadful floods could knock 1% off the Australian economic growth (GDP) data and that is a massive figure if it is true.
Currency - GBP / Canadian Dollar
The damage being done to Australian mining and agriculture by the devastating floods is manifesting itself in higher coal and agricultural produce prices in the commodities markets and in demand for output of these products from the countries which can still produce; hence the advance and stubborn strength in the Canadian Dollar. That is compounded by a more upbeat feeling about Canada’s major export market, the USA which is also causing a stronger US Dollar and therefore further strength in the Canadian Dollar which does tend to edgily shadow the USD. You can see from the chart above that the downtrend see in November and December is still intact and the Sterling - Canadian Dollar exchange rate remains near the bottom of its trading range. In fact this pair is still at levels not seen since 1985 and well below the important C$1.60 level which marks the support that has been seen in this exchange rate for the last 30 years or more. It’s not pretty reading for those needing to buy Canadian Dollars and unless Sterling can break free from these narrow and depressed levels, there is still a chance we will get to the low last seen in the first quarter of 1985 and that is C$1.36. Gulp. Managing the risk of such a move is not as complicated as you might think though so please speak with your Halo Financial Consultant about a plan that will suit you particular needs.
Currency - GBP / Euro
Sterling has failed to make substantial headway against the Euro in spite of all manner of poor news and data from the Eurozone. The Euro has failed to fall off a cliff in spite of good news coming from the US and weak data from all but Germany within the Eurozone itself. What is supporting the shared currency? Well Japanese and Chinese central banks are buying Euro bonds and it seems traders and investors are just a little scared of being too short of the 2nd most liquid currency on the planet. So the Pound is testing but failing to breach the all important €1.20 level and may just fail again at this trend line resistance as it did back in September and twice in December. As you can see from the lower portion of the chart above, the pound is certainly overbought and the trend line support for Sterling is all the way back down at €1.15 so I have a warning to those who see this move and immediately ask whether it can make it to €1.25. The last time we were answering that question; those who didn’t manage the risk of a decline were looking at 1.15 levels within two weeks. If you have enough time on your hands, there is always the possibility that this rally will continue but we are overdue a correction and that could be costly for those with a short term requirement.
Currency - GBP / New Zealand Dollar
The Pound has finally made a little headway against the New Zealand Dollar. That is a pretty hollow victory though when you consider what New Zealand is having to contend with. Their major export markets are Australia and China. Australia is suffering the worst flood in over 120 years across Queensland; some of the most important mining and agriculture regions in the country. Estimates vary but it is felt that this could cost the Australian economy something like A$13 billion. At the same time, China is slowing its growth and that slows the pace of Chinese imports. No wonder NZ output is in light demand and no wonder traders are wary of the Kiwi Dollar. However, Sterling is also still very poorly supported. To put it into context, the recent rally from NZ$ 1.98 at the end of December to NZ$2.05 as I write is barely 6 percent of the fall we saw over the previous 2 years. It’s a start but it may prove to be yet another false dawn after umpteen previous false dawns in the past 18 months or so. A push above NZ$ 2.10 would be significant and would open the chance of a push to NZ$ 2.16 but until that barrier breaks, we have to assume the worst and prepare for yet another push to fresh 30 year lows. That may sound pessimistic but if you cover the risk and the best outcome occurs, you’ve lost nothing. Do nothing and you could lose everything.
Currency - GBP / South African Rand
The chart above shows what we technical analysts would call a V bottom. The Sterling - South African rand exchange rate dived from R10.96 or thereabouts and hit R10.197 before bouncing just as sharply to the current level. A push up to R10.80 is very likely as is a recovery all the way back to R10.96 but this pair has become pretty overbought in the interim so don’t be surprised if we get a sudden pull back when traders decide to take profit on the move. Fundamentally, Sterling is recovering as we can see in other Sterling related charts and the Rand, which had been riding high on commodity prices and gold in particular is slipping as those precious metals and safe haven assets like gold start to slip. South African business confidence has also slipped and the South African Reserve Bank has apparently been selling the Rand in order to buy other currencies for its reserves in an attempt to weaken their own currency which they say is too strong. Certainly a strong Rand does damage exports incomes but whether the SARB has sufficient funds to be able to weaken the rand in the medium term is open to debate. In the meantime, we will continue to look to R10.96 as a target and await any further developments from South Africa.
Currency - GBP / US Dollar
Sterling has been trading in a relatively tight pattern against the US Dollar but that changed yesterday when the Pound finally pushed above the downward trend that has dominated this pair since the beginning of November. The Pound’s advance is in keeping with Sterling strength against other currencies but it was helped by the uncertain nature of US data and the fear that the US Federal Reserve’s upbeat mood was not reflective of the real state of play. US data has been very mixed. We have seen positive manufacturing and production data, commodity prices and therefore raw material prices have been quite inflationary but consumer data and US housing market news has been far less encouraging. As consumers account for the vast majority of US economic activity, a recovery without consumer confidence is rather hollow. What should happen now is a push to $1.5825 and either before or after that is achieved, we should see a fall back to $1.56; the top of the previous trading range which now forms the bottom of this one. If $1.56 hold this pair up, then we could well see a push to $1.59 and onwards but not yet.
Quote
"I was walking down fifth avenue today and I found a wallet, and I was gonna keep it, rather than return it, but I thought: well, if I lost a hundred and fifty dollars, how would I feel? And I realized I would want to be taught a lesson."
Emo Philips.
The reasons for this have little to do with these central bank decisions. Sterling’s weakness even happened after the UK manufacturing sector was shown to have grown above expectation; a factor that should certainly have buoyed the Pound. However, the day started with a fair amount of trepidation ahead of a Spanish government bond auction. As soon though as the auction was shown to be oversubscribed, the relief was palpable and the Euro strengthened. There is every chance this rally could be short lived though as it is largely based rhetoric. Those with Euros to sell may want to make the most of this dip because one good auction does not a recovery make. That probably sounded like a better misquote in my head than it looks on paper; it reads like Yoda has taken over the report writing but I am sure you get the point. Nonetheless, the ECB’s statement is most notable for the tone of impending change. They suggest things are ‘still’ on track and interest rates are ‘still’ appropriate which would perhaps suggest there may be room for change in a shortening time frame. We know we are entering a period of flux and that brings volatility so tin hats at the ready.
The Bank of England is still taking flak for its apparent lack of concern over inflation even though it has remained above their 2% target for the last three years and has been above their target for pretty much the whole life of the BOE’s independence. They obviously don’t issue any kind of statement on the day of their decision unless they change something so we will get their views in a fortnight’s time. BOE Governor, Mervyn King is infamous as a weakener of the Pound every time he speaks so allowing people to assume the bank is sanguine about inflation serves his purpose admirably but there comes a time when even the most dovish central banker has to better manage expectations and this is starting t be the situation for Mr King.
As for the rest of the world; US employment data showed an expected rise in weekly jobless claims. The early part of the New Year is generally a bad time for job losses. Also, America’s trade gap with the rest of the word narrowed. The only trading relationship that bucked the trend was the one with China but we all know how rapid Chinese output is; it’s enough to make the Chinese authorities attempt to slow things down and that has a whole range of repercussions. Nevertheless, traders sort of ignored this upbeat data and the US Dollar lost a lot of ground against the Euro in particular as the European Central Bank started to mention inflation and the crowd went wild. The correction in the Euro-US Dollar rate took us back to the top of the existing trading range but no further. So in spite of the reporting in some papers which looks like it was written someone who breakfasted on skittles and cola, the move was not that earth moving.
Weakness in the US Dollar also had a knock on effect on the Canadian Dollar which lost a little ground. Had the Pound been better supported we may well have seen a rally in the Sterling - Canadian Dollar exchange rate but the effect was a tad muted.
Today’s main news releases are the UK Producer Price Inflation figures and then it is all about the US data with Consumer Price Inflation, December Retail Sales, Industrial Production and the business confidence survey from the University of Michigan. It’s plenty to be getting on with so I will let you go and do just that.
Have a great weekend. I’ll leave you with a story that proves just how wily foxes can be. A hunter in Belarus had shot and injured a fox; he approached the animal and tried to finish him off with the butt of his rifle but the foxed wriggled free and in the ensuing struggle, managed to pull the trigger of the hunter’s rifle, wounding him in the leg before making good his escape. Boom boom is I think a fitting end to that story.
Currency - GBP / Australian Dollar
As well as suffering the worst floods in centuries with all the financial, personal and social repercussions that entails, Australia is suffering on the economic front as well. China’s clear plan to slow their economy is having an effect as shown in their import figures. The fact that China is Australia’s largest export market makes this a major issue for Australian exporters and the fact that Australia’s trade surplus shrank more than expected would suggest the pinch is being felt already. So after nearly two and a half years of almost unhindered Australian Dollar strength, could this be the turning point? Well we have to put this into context. The Australian Dollar has gained from A$ 2.70 in September 2008 to barely A$ 1.50 as we saw just two weeks ago. The bounce we have seen has taken us 8 cents higher and even if we saw a push up to A$ 1.66, we would still be in the same downward trend channel we have been in for over two years. That might make depressing reading but it does serve to let us know that in spite of all the hype, the Australian Dollar is still much stronger than Sterling and, as yet, hasn’t changed direction. Those who need to buy Australian Dollars and are hankering after the good old days of A$ 1.70, A$ 1.80 or more are a very long way from those figures and sadly have to contend with a more narrow range and lower expectations. The only slim caveat to that last comment is that estimates vary but there is a feeling that these dreadful floods could knock 1% off the Australian economic growth (GDP) data and that is a massive figure if it is true.
Currency - GBP / Canadian Dollar
The damage being done to Australian mining and agriculture by the devastating floods is manifesting itself in higher coal and agricultural produce prices in the commodities markets and in demand for output of these products from the countries which can still produce; hence the advance and stubborn strength in the Canadian Dollar. That is compounded by a more upbeat feeling about Canada’s major export market, the USA which is also causing a stronger US Dollar and therefore further strength in the Canadian Dollar which does tend to edgily shadow the USD. You can see from the chart above that the downtrend see in November and December is still intact and the Sterling - Canadian Dollar exchange rate remains near the bottom of its trading range. In fact this pair is still at levels not seen since 1985 and well below the important C$1.60 level which marks the support that has been seen in this exchange rate for the last 30 years or more. It’s not pretty reading for those needing to buy Canadian Dollars and unless Sterling can break free from these narrow and depressed levels, there is still a chance we will get to the low last seen in the first quarter of 1985 and that is C$1.36. Gulp. Managing the risk of such a move is not as complicated as you might think though so please speak with your Halo Financial Consultant about a plan that will suit you particular needs.
Currency - GBP / Euro
Sterling has failed to make substantial headway against the Euro in spite of all manner of poor news and data from the Eurozone. The Euro has failed to fall off a cliff in spite of good news coming from the US and weak data from all but Germany within the Eurozone itself. What is supporting the shared currency? Well Japanese and Chinese central banks are buying Euro bonds and it seems traders and investors are just a little scared of being too short of the 2nd most liquid currency on the planet. So the Pound is testing but failing to breach the all important €1.20 level and may just fail again at this trend line resistance as it did back in September and twice in December. As you can see from the lower portion of the chart above, the pound is certainly overbought and the trend line support for Sterling is all the way back down at €1.15 so I have a warning to those who see this move and immediately ask whether it can make it to €1.25. The last time we were answering that question; those who didn’t manage the risk of a decline were looking at 1.15 levels within two weeks. If you have enough time on your hands, there is always the possibility that this rally will continue but we are overdue a correction and that could be costly for those with a short term requirement.
Currency - GBP / New Zealand Dollar
The Pound has finally made a little headway against the New Zealand Dollar. That is a pretty hollow victory though when you consider what New Zealand is having to contend with. Their major export markets are Australia and China. Australia is suffering the worst flood in over 120 years across Queensland; some of the most important mining and agriculture regions in the country. Estimates vary but it is felt that this could cost the Australian economy something like A$13 billion. At the same time, China is slowing its growth and that slows the pace of Chinese imports. No wonder NZ output is in light demand and no wonder traders are wary of the Kiwi Dollar. However, Sterling is also still very poorly supported. To put it into context, the recent rally from NZ$ 1.98 at the end of December to NZ$2.05 as I write is barely 6 percent of the fall we saw over the previous 2 years. It’s a start but it may prove to be yet another false dawn after umpteen previous false dawns in the past 18 months or so. A push above NZ$ 2.10 would be significant and would open the chance of a push to NZ$ 2.16 but until that barrier breaks, we have to assume the worst and prepare for yet another push to fresh 30 year lows. That may sound pessimistic but if you cover the risk and the best outcome occurs, you’ve lost nothing. Do nothing and you could lose everything.
Currency - GBP / South African Rand
The chart above shows what we technical analysts would call a V bottom. The Sterling - South African rand exchange rate dived from R10.96 or thereabouts and hit R10.197 before bouncing just as sharply to the current level. A push up to R10.80 is very likely as is a recovery all the way back to R10.96 but this pair has become pretty overbought in the interim so don’t be surprised if we get a sudden pull back when traders decide to take profit on the move. Fundamentally, Sterling is recovering as we can see in other Sterling related charts and the Rand, which had been riding high on commodity prices and gold in particular is slipping as those precious metals and safe haven assets like gold start to slip. South African business confidence has also slipped and the South African Reserve Bank has apparently been selling the Rand in order to buy other currencies for its reserves in an attempt to weaken their own currency which they say is too strong. Certainly a strong Rand does damage exports incomes but whether the SARB has sufficient funds to be able to weaken the rand in the medium term is open to debate. In the meantime, we will continue to look to R10.96 as a target and await any further developments from South Africa.
Currency - GBP / US Dollar
Sterling has been trading in a relatively tight pattern against the US Dollar but that changed yesterday when the Pound finally pushed above the downward trend that has dominated this pair since the beginning of November. The Pound’s advance is in keeping with Sterling strength against other currencies but it was helped by the uncertain nature of US data and the fear that the US Federal Reserve’s upbeat mood was not reflective of the real state of play. US data has been very mixed. We have seen positive manufacturing and production data, commodity prices and therefore raw material prices have been quite inflationary but consumer data and US housing market news has been far less encouraging. As consumers account for the vast majority of US economic activity, a recovery without consumer confidence is rather hollow. What should happen now is a push to $1.5825 and either before or after that is achieved, we should see a fall back to $1.56; the top of the previous trading range which now forms the bottom of this one. If $1.56 hold this pair up, then we could well see a push to $1.59 and onwards but not yet.
Quote
"I was walking down fifth avenue today and I found a wallet, and I was gonna keep it, rather than return it, but I thought: well, if I lost a hundred and fifty dollars, how would I feel? And I realized I would want to be taught a lesson."
Emo Philips.
Friday, 14 January 2011
Thursday, 13 January 2011
Isn’t it bizarre how news channels prioritise things. The Australian floods are desperately sad to see and the news is quite rightly all over the press; front page stories on most websites and newswires. However more than 250 people died in floods and landslides in Brazil yesterday after a month’s worth of rain fell in one day and yet that barely made the third or fourth page in most newspapers. I don’t have a clever quip to add to this; it just seems to be a peculiarity of the way the press views the world through eyes that they think we share.
Away from the sad stories of lives lost or irrevocably changed, the news doesn’t get a lot more light hearted I can tell you. Estimates vary but the Australian floods could cause a drop of as much as 1% in Australia’s economic growth and could cost A$13 billion in lost economic activity. Oddly, the Australian Dollar is still relatively strong. It may seem odd to wish for the currency to be sold off at a time like this; kind of kicking a country when it is down, but a weaker Aussie Dollar would be very welcome to Australian exporters and would help boost the economy so bring it on.
Australia’s problems ought also to be negative for the New Zealand Dollar; Australia is, after all, New Zealand’s largest export market. However both Australia and New Zealand offer very high interest rate yields and that is still supporting their currencies. However, this morning’s poor Australian employment data may well keep the Aussie Dollar on the back foot through the next few days.
Elsewhere, the positive data came from Germany where economic growth was up 3.6% on the year; the fast growth rate since East and West Germany reunited. However, we do have to remember this is a year on year figure and 2009/2010 was a period of dark days for most of Europe in the aftermath of the credit crunch. That perhaps explains why the Euro reaction was muted. Against the Pound and US Dollar, the Euro remains in the same tight ranges it has been in all week. Today brings the interest rate decision from the European Central Bank although no change is forecast in either the base rate or the level of cash expansion in the Eurozone economy. Traders were on tenterhooks yesterday ahead of a Portuguese bond auction but in the end, despite having to pay upwards of 6.7%, the Portuguese authorities will be happy with the take up, especially amongst overseas buyers. Spain is in a similar position today so the same nervousness will be felt around the markets. What is interesting is the pressure being demonstrated by EU leaders towards the UK to help support the Eurozone as it tries to emerge from recession and as it tries to sand bag the holes in its disparate economies. In a speech which will be delivered by French Prime Minister Francois Fillon (I know what you are thinking but Sarkozy is the President. It’s easy to forget the French have a PM as well) The French PM will suggest that it is in Britain’s interests to ensure stability in the Euro or it would have repercussions for the UK economy. ‘Nice economy you’ve got here Mr Cameron. It would be a shame if summink was to ‘appen to it or if it was to collapse or suchlike. For the right ...consideration.... shall we say....me and my....associates in Europe can make sure it doesn’t ‘appen. Do we understand eachuvver?’ Or words to that effect.
But the UK has enough of its own problems; figures released on Wednesday showed the UK trade deficit hit a record high in November and the Bank of England is under a lot of pressure as they meet to set UK interest rates. Their apparent abandonment of inflation concerns in favour of growth focus is the subject of much debate. I have no doubt that they will continue with their policy of 0.5% interest rates today and make no moves to change budget of £200 billion involved in monetary expansion. In fact, it would seem implausible that the BOE would change its emphasis to controlling inflation in this mid-stream environment. Perhaps we will see interest rate hikes in the middle to late period of 2011 but not yet. Sterling is though being supported and should remain quite well sought after for the time being. I just can’t see any particular reason why the Pound would s
Rally significantly from here when there are so many uncertainties in the economy; both domestic and international.
Yesterday finished with the release of the US Federal Reserve’s Beige Book; a report from the regional Federal Reserve Banks which forms part of the next Federal Open Market Committee meeting agenda. The tone was quite subdued but vaguely positive. Given recent positive manufacturing data but poor consumer and housing numbers, the tone was probably about right. The US Dollar hasn’t moved much which is probably a reflection of the markets expectation of a report very much in line with the one they received.
As well as the UK and EU interest rate decisions, today also brings the producer price inflation data from both the UK and the US as well as the US trade deficit figure. With so many factors to contemplate, I can see this being yet another busy day.
Let’s be careful out there. I’ll leave you with a joke for everyone in IT departments around everywhere.
There are 10 types of people in the world, those who like binary and those who don’t.
Quote
"As fighting in Iraq intensified, President Bush delivered his supplemental war budget to Congress. The money will cover 30 days of fighting, then we'll be sent one war every other month until we cancel our subscription."
Craig Kilborn
Away from the sad stories of lives lost or irrevocably changed, the news doesn’t get a lot more light hearted I can tell you. Estimates vary but the Australian floods could cause a drop of as much as 1% in Australia’s economic growth and could cost A$13 billion in lost economic activity. Oddly, the Australian Dollar is still relatively strong. It may seem odd to wish for the currency to be sold off at a time like this; kind of kicking a country when it is down, but a weaker Aussie Dollar would be very welcome to Australian exporters and would help boost the economy so bring it on.
Australia’s problems ought also to be negative for the New Zealand Dollar; Australia is, after all, New Zealand’s largest export market. However both Australia and New Zealand offer very high interest rate yields and that is still supporting their currencies. However, this morning’s poor Australian employment data may well keep the Aussie Dollar on the back foot through the next few days.
Elsewhere, the positive data came from Germany where economic growth was up 3.6% on the year; the fast growth rate since East and West Germany reunited. However, we do have to remember this is a year on year figure and 2009/2010 was a period of dark days for most of Europe in the aftermath of the credit crunch. That perhaps explains why the Euro reaction was muted. Against the Pound and US Dollar, the Euro remains in the same tight ranges it has been in all week. Today brings the interest rate decision from the European Central Bank although no change is forecast in either the base rate or the level of cash expansion in the Eurozone economy. Traders were on tenterhooks yesterday ahead of a Portuguese bond auction but in the end, despite having to pay upwards of 6.7%, the Portuguese authorities will be happy with the take up, especially amongst overseas buyers. Spain is in a similar position today so the same nervousness will be felt around the markets. What is interesting is the pressure being demonstrated by EU leaders towards the UK to help support the Eurozone as it tries to emerge from recession and as it tries to sand bag the holes in its disparate economies. In a speech which will be delivered by French Prime Minister Francois Fillon (I know what you are thinking but Sarkozy is the President. It’s easy to forget the French have a PM as well) The French PM will suggest that it is in Britain’s interests to ensure stability in the Euro or it would have repercussions for the UK economy. ‘Nice economy you’ve got here Mr Cameron. It would be a shame if summink was to ‘appen to it or if it was to collapse or suchlike. For the right ...consideration.... shall we say....me and my....associates in Europe can make sure it doesn’t ‘appen. Do we understand eachuvver?’ Or words to that effect.
But the UK has enough of its own problems; figures released on Wednesday showed the UK trade deficit hit a record high in November and the Bank of England is under a lot of pressure as they meet to set UK interest rates. Their apparent abandonment of inflation concerns in favour of growth focus is the subject of much debate. I have no doubt that they will continue with their policy of 0.5% interest rates today and make no moves to change budget of £200 billion involved in monetary expansion. In fact, it would seem implausible that the BOE would change its emphasis to controlling inflation in this mid-stream environment. Perhaps we will see interest rate hikes in the middle to late period of 2011 but not yet. Sterling is though being supported and should remain quite well sought after for the time being. I just can’t see any particular reason why the Pound would s
Rally significantly from here when there are so many uncertainties in the economy; both domestic and international.
Yesterday finished with the release of the US Federal Reserve’s Beige Book; a report from the regional Federal Reserve Banks which forms part of the next Federal Open Market Committee meeting agenda. The tone was quite subdued but vaguely positive. Given recent positive manufacturing data but poor consumer and housing numbers, the tone was probably about right. The US Dollar hasn’t moved much which is probably a reflection of the markets expectation of a report very much in line with the one they received.
As well as the UK and EU interest rate decisions, today also brings the producer price inflation data from both the UK and the US as well as the US trade deficit figure. With so many factors to contemplate, I can see this being yet another busy day.
Let’s be careful out there. I’ll leave you with a joke for everyone in IT departments around everywhere.
There are 10 types of people in the world, those who like binary and those who don’t.
Quote
"As fighting in Iraq intensified, President Bush delivered his supplemental war budget to Congress. The money will cover 30 days of fighting, then we'll be sent one war every other month until we cancel our subscription."
Craig Kilborn
Wednesday, 12 January 2011
I am guessing all facebook users are feeling a tad inadequate this morning. A cross eyed possum in a German zoo has already accumulated more than 80,000 friends on the social networking site even before he goes on public display. Go on I’ll wait while you Google it and until you have counted your own friends ....................................................................................................................................................................................................... Done that? Feel any better? Never mind. Let’s move on before we all feel unloved.
The US Dollar hasn’t been short of friends lately but it lost a few yesterday amidst mixed data. US wholesale inventories data showed the first decline since 2009 and yet Philadelphia Fed President Charles Plosser forecast strong growth data for this year and next but suggested a slowing of fiscal stimulus would be necessary to temper growth as the economy started to properly recover.
Elsewhere, the Euro was being pulled from pillar to post as Portugal, which is normally overlooked, became the centre of attention. After yesterday’s slightly improved government debt figures, we anticipate fireworks around today’s Portuguese government bond auction. It is anticipated that the interest rate Portugal will have to pay will be elevated and that will bring further talk of pressure from the EU for Portugal to accept financial support from the EU at lower interest rates but whether Portugal will want to be in hock to the EU is another question altogether. However, while Japan and China continue to express a desire to own EU debt, we ought to see sufficient demand for the Euro but whether it is enough to stop the Euro weakening is open to debate. Nevertheless, if today’s auction is oversubscribed, we could well see a short term rally in the value of the Euro so Euro sellers should be ready to take advantage.
Sterling had a fairly flat day against the US Dollar and Euro with little data to ruffle traders’ feathers. The British Retail Consortium shop price index showed prices rose 2.1% in the year to December. With little else to focus on, that was enough to stabilise the Pound. Sterling did gain against the Australian Dollar and slightly against the New Zealand Dollar. The Australian Dollar’s weakness is easy to understand if you watch the pictures of the worst floods in 120 odd years and both the Aussie and Kiwi Dollars are suffering as China looks to slow its imports. However, overnight news that Australian home loans picked up in November was greeted with a little AUD strength. Traders appeared to ignore the drop in investment lending.
The Canadian Dollar is doing rather better as Australian commodity output is hit and Canadian production grows in demand.
The Swiss Franc was in the news as it weakened on rumours that the Swiss National Bank was either intervening or threatening to do so to weaken their currency. The exceptional strength the Swiss Franc has suffered in the last couple of years is understandable; the Swissie has always had an allure as a safe haven in times of crisis. However, it is damaging Swiss business and that is causing concern at the highest level in the Swiss authorities.
And in a move seen as offering more flexibility, the Chinese authorities have allowed some US banks to trade in the Yuan outside China for the first time. The Bank of China’s US office will trade in the US market and they expect 20-30% of invoices for Chinese exports will be settled in Yuan in 5 years time. The current level is less than 1%. No news on whether UK banks will get the same opportunity but we shall see.
Looking forward, today’s big news stories include UK trade balance, EU industrial production, US mortgage applications, US import prices and Canadian housing data. The day is topped off by the release of the Federal Reserve’s Beige book; a regional look at the economy and a component part of the agenda for the next Fed interest rate setting meeting. Busy busy busy.
And finally, this worldwide phenomenon of mass deaths amongst wild animals has another chapter today. A mass of dead gizzard shad fish washed up on shore around Chicago harbour and 100 birds dropped dead on highway 101 in California. Has anyone checked the chemical weapons labs for leaks yet? This is becoming ever more bizarre.
Quote
"I used to think that the brain was the most wonderful organ in my body. Then I realized who was telling me this."
Emo Phillips
The US Dollar hasn’t been short of friends lately but it lost a few yesterday amidst mixed data. US wholesale inventories data showed the first decline since 2009 and yet Philadelphia Fed President Charles Plosser forecast strong growth data for this year and next but suggested a slowing of fiscal stimulus would be necessary to temper growth as the economy started to properly recover.
Elsewhere, the Euro was being pulled from pillar to post as Portugal, which is normally overlooked, became the centre of attention. After yesterday’s slightly improved government debt figures, we anticipate fireworks around today’s Portuguese government bond auction. It is anticipated that the interest rate Portugal will have to pay will be elevated and that will bring further talk of pressure from the EU for Portugal to accept financial support from the EU at lower interest rates but whether Portugal will want to be in hock to the EU is another question altogether. However, while Japan and China continue to express a desire to own EU debt, we ought to see sufficient demand for the Euro but whether it is enough to stop the Euro weakening is open to debate. Nevertheless, if today’s auction is oversubscribed, we could well see a short term rally in the value of the Euro so Euro sellers should be ready to take advantage.
Sterling had a fairly flat day against the US Dollar and Euro with little data to ruffle traders’ feathers. The British Retail Consortium shop price index showed prices rose 2.1% in the year to December. With little else to focus on, that was enough to stabilise the Pound. Sterling did gain against the Australian Dollar and slightly against the New Zealand Dollar. The Australian Dollar’s weakness is easy to understand if you watch the pictures of the worst floods in 120 odd years and both the Aussie and Kiwi Dollars are suffering as China looks to slow its imports. However, overnight news that Australian home loans picked up in November was greeted with a little AUD strength. Traders appeared to ignore the drop in investment lending.
The Canadian Dollar is doing rather better as Australian commodity output is hit and Canadian production grows in demand.
The Swiss Franc was in the news as it weakened on rumours that the Swiss National Bank was either intervening or threatening to do so to weaken their currency. The exceptional strength the Swiss Franc has suffered in the last couple of years is understandable; the Swissie has always had an allure as a safe haven in times of crisis. However, it is damaging Swiss business and that is causing concern at the highest level in the Swiss authorities.
And in a move seen as offering more flexibility, the Chinese authorities have allowed some US banks to trade in the Yuan outside China for the first time. The Bank of China’s US office will trade in the US market and they expect 20-30% of invoices for Chinese exports will be settled in Yuan in 5 years time. The current level is less than 1%. No news on whether UK banks will get the same opportunity but we shall see.
Looking forward, today’s big news stories include UK trade balance, EU industrial production, US mortgage applications, US import prices and Canadian housing data. The day is topped off by the release of the Federal Reserve’s Beige book; a regional look at the economy and a component part of the agenda for the next Fed interest rate setting meeting. Busy busy busy.
And finally, this worldwide phenomenon of mass deaths amongst wild animals has another chapter today. A mass of dead gizzard shad fish washed up on shore around Chicago harbour and 100 birds dropped dead on highway 101 in California. Has anyone checked the chemical weapons labs for leaks yet? This is becoming ever more bizarre.
Quote
"I used to think that the brain was the most wonderful organ in my body. Then I realized who was telling me this."
Emo Phillips
The lack of data in the market yesterday meant, as is usually the case, that traders looked to the rumour and speculation mill for inspiration. They had plenty to keep their minds occupied though.
The most prevalent rumour is that the major affluent EU countries are pressing Portugal to take a support package of some €66 billion to stop them falling into the same abyss as Greece, Ireland and perhaps Belgium. Of course all the authorities in Europe denied the rumour but they tended to do so in the same tone as a football team’s board of directors voicing their full support for the manager a couple of days before they sack him. Meanwhile, the telegraph has an article examining just how far the financial support from the likes of France and Germany will have to go before credit ratings agencies will start to downgrade the sovereign debt of these countries due to their exposure to these less robust economies. They make a very good point but it is one that could easily be applied to the UK with its exposure to Ireland and British Banks’ exposure to EU debt.
The Euro would perhaps have slipped had the Japanese not come out of the blind side and confirmed they would be buying up to 20% of the impending EU bond issuance. That was a real bolt from the blue and traders got quite kerfuffled until they realised that the reserve funds Japan would use were already in Euros so no currency conversion was necessary. Boo hiss. The Euro ended the day in neutral territory.
Elsewhere, protectionism raised its gnarly head as Brazil warned that a rise in its currency of some 40% in the value of the real against the US Dollar in the last year was enough to cause serious consideration of protectionist measures including tighter exchange rate controls. The affairs of Latin America may not affect everyone but the sentiment that the Brazilians are expressing could just as well be applied to the Japanese Yen, Australian or New Zealand Dollar or many other currencies. As one commentator put it, ‘The embers of the economic crisis are still glowing’; both poetic and foreboding in one brief statement.
And speaking of the Australian Dollar; the floods in Queensland are on a biblical scale and are taking lives and livelihoods in their wake. The effect on output seems a minor matter in the overall scheme of things but it does have an effect on the value of the Australian Dollar and on the value of the funds émigrés to Australia have and importers from Australia will have to spend. The fall in Chinese imports, as announced yesterday morning, was a shot across the bows of the Australian economy. This external factor is a clear sign that Australia’s commodity exports to China are likely to shrink to some degree. This morning’s release of a falling Australian trade surplus just added to that view and a disappointing retail sales report did nothing to change the perception that the Australian economy is stalling to some degree. The Aussie Dollar weakened overnight and the Sterling - Australian Dollar exchange rate is now stuck below A$ 1.59; the top of the recent trading range.
Overnight news from the BRC Retail Sales Monitor showed that retail sales were up by 1.5% in December in spite of weather disruption. That is below initial forecasts but is still, I think, quite a good news story and we are due to see reports from Marks and Spencer and others for the Christmas period in the week ahead so we will watch that with interest.
Today is another day with little on the data front so stand by for more rumour, more speculation and less fact. That’s not to say it’ll all be guesswork but divining the facts amongst a field of fiction is a tricky process. I think the best plan is to hold your nose and just dive in.
The general mood seems to be that the Pound is set for further gains. It has some resistance to overcome before it can do that; it is struggling to break above €1.20 but if it does, then €1.2180 will be a tough cookie. It is heading for $1.56 against the US Dollar and that marks the top of a two month downtrend, so expect some delay here. However, if it can clear that marker, then $1.57 beckons. It may hit A$ 1.5870 but we are hoping it will push on to test the channel top at A$1.60. The Pound is having a torrid time trying to get above NZ$2.0450. If it does finally free itself from those shackles, it may well sprint through to NZ$ 2.07 but no sign of that yet. But the pound is having a tougher time against the Canadian Dollar which looks set to push it down to the bottom of its range again at C$1.52. Rising commodity prices and a lack of output from Australia are conspiring to boost demand for Canadian output and also giving Canadian exporters a better profit margin to boot.
So enjoy Tuesday, I am sure Crawley Town will be celebrating after beating Derby County in the 3rd round of the FA Cup, I am sure Darco Sangermano will enjoy it. You know how in some countries where guns are universally available, how people who get excited shoot into the air. Have you ever, like me, wondered where the bullets go? Well that was happening in Naples in Italy and the result was that one person died and three people were hit by the falling bullets. One of those people, Mr Sangermano, sneezed while he was being examined at the hospital and out came the bullet which had entered his head, hit a bone in his nose and lodged in his nostril. Lucky escape or very unlucky to be hit by a random bullet...you decide.
And to anyone who will have dealings with our Settlements Manager, Olivia Atkins today, don’t be surprised if she is even more effervescent than usual. She now has a Johnny Depp desk pad. I don’t think she would be happier if she won the lottery.
Quote
The only gossip I'm interested in is things from the Weekly World News - 'Woman's bra bursts, 11 injured'. That kind of thing.
Johnny Depp
The most prevalent rumour is that the major affluent EU countries are pressing Portugal to take a support package of some €66 billion to stop them falling into the same abyss as Greece, Ireland and perhaps Belgium. Of course all the authorities in Europe denied the rumour but they tended to do so in the same tone as a football team’s board of directors voicing their full support for the manager a couple of days before they sack him. Meanwhile, the telegraph has an article examining just how far the financial support from the likes of France and Germany will have to go before credit ratings agencies will start to downgrade the sovereign debt of these countries due to their exposure to these less robust economies. They make a very good point but it is one that could easily be applied to the UK with its exposure to Ireland and British Banks’ exposure to EU debt.
The Euro would perhaps have slipped had the Japanese not come out of the blind side and confirmed they would be buying up to 20% of the impending EU bond issuance. That was a real bolt from the blue and traders got quite kerfuffled until they realised that the reserve funds Japan would use were already in Euros so no currency conversion was necessary. Boo hiss. The Euro ended the day in neutral territory.
Elsewhere, protectionism raised its gnarly head as Brazil warned that a rise in its currency of some 40% in the value of the real against the US Dollar in the last year was enough to cause serious consideration of protectionist measures including tighter exchange rate controls. The affairs of Latin America may not affect everyone but the sentiment that the Brazilians are expressing could just as well be applied to the Japanese Yen, Australian or New Zealand Dollar or many other currencies. As one commentator put it, ‘The embers of the economic crisis are still glowing’; both poetic and foreboding in one brief statement.
And speaking of the Australian Dollar; the floods in Queensland are on a biblical scale and are taking lives and livelihoods in their wake. The effect on output seems a minor matter in the overall scheme of things but it does have an effect on the value of the Australian Dollar and on the value of the funds émigrés to Australia have and importers from Australia will have to spend. The fall in Chinese imports, as announced yesterday morning, was a shot across the bows of the Australian economy. This external factor is a clear sign that Australia’s commodity exports to China are likely to shrink to some degree. This morning’s release of a falling Australian trade surplus just added to that view and a disappointing retail sales report did nothing to change the perception that the Australian economy is stalling to some degree. The Aussie Dollar weakened overnight and the Sterling - Australian Dollar exchange rate is now stuck below A$ 1.59; the top of the recent trading range.
Overnight news from the BRC Retail Sales Monitor showed that retail sales were up by 1.5% in December in spite of weather disruption. That is below initial forecasts but is still, I think, quite a good news story and we are due to see reports from Marks and Spencer and others for the Christmas period in the week ahead so we will watch that with interest.
Today is another day with little on the data front so stand by for more rumour, more speculation and less fact. That’s not to say it’ll all be guesswork but divining the facts amongst a field of fiction is a tricky process. I think the best plan is to hold your nose and just dive in.
The general mood seems to be that the Pound is set for further gains. It has some resistance to overcome before it can do that; it is struggling to break above €1.20 but if it does, then €1.2180 will be a tough cookie. It is heading for $1.56 against the US Dollar and that marks the top of a two month downtrend, so expect some delay here. However, if it can clear that marker, then $1.57 beckons. It may hit A$ 1.5870 but we are hoping it will push on to test the channel top at A$1.60. The Pound is having a torrid time trying to get above NZ$2.0450. If it does finally free itself from those shackles, it may well sprint through to NZ$ 2.07 but no sign of that yet. But the pound is having a tougher time against the Canadian Dollar which looks set to push it down to the bottom of its range again at C$1.52. Rising commodity prices and a lack of output from Australia are conspiring to boost demand for Canadian output and also giving Canadian exporters a better profit margin to boot.
So enjoy Tuesday, I am sure Crawley Town will be celebrating after beating Derby County in the 3rd round of the FA Cup, I am sure Darco Sangermano will enjoy it. You know how in some countries where guns are universally available, how people who get excited shoot into the air. Have you ever, like me, wondered where the bullets go? Well that was happening in Naples in Italy and the result was that one person died and three people were hit by the falling bullets. One of those people, Mr Sangermano, sneezed while he was being examined at the hospital and out came the bullet which had entered his head, hit a bone in his nose and lodged in his nostril. Lucky escape or very unlucky to be hit by a random bullet...you decide.
And to anyone who will have dealings with our Settlements Manager, Olivia Atkins today, don’t be surprised if she is even more effervescent than usual. She now has a Johnny Depp desk pad. I don’t think she would be happier if she won the lottery.
Quote
The only gossip I'm interested in is things from the Weekly World News - 'Woman's bra bursts, 11 injured'. That kind of thing.
Johnny Depp
Monday, 10 January 2011
The Swiss franc seems well placed to benefit if currency wars turn into trade wars
‘Currency wars’ – deliberate attempts to weaken exchange rates through direct foreign exchange intervention, or indirectly through loosening domestic monetary policy or imposing capital controls – have the potential to turn into ‘trade wars’ if countries start imposing tariffs on imports.
This would increase risk aversion to the benefit of the safe-haven dollar, yen and Swiss franc. But since the US economy is dependent on capital inflows to finance its current account deficit at prevailing exchange rates, and Japan’s economy is heavily dependent on exports for growth, the Swiss franc may be better placed than the US or Japanese currencies if the global economy were hit by the ‘black swan’ of widespread protectionism.
Like Japan, Switzerland has ample foreign exchange reserves to defend its currency, following the Swiss National Bank’s efforts last year and this year to curb the strength of the Swiss franc through buying foreign currency, as shown in the chart above.
Like Japan, Switzerland is also a significant net exporter. So if the world economy were to fall prey to trade wars, the Swiss economy would be hurt by declining exports. But unlike Japan, Switzerland’s economy is less dependent on trade for growth. As the right-hand chart above shows, Swiss GDP growth, like German growth, has been strong in 2010, easily outpacing the Eurozone. This is because Switzerland’s domestic economy has not suffered excessively from the credit crunch, as local banks have continued to lend. Thus, in the event of
widespread protectionism disrupting global trade, Switzerland may still be able to rely upon domestic demand to help keep its economy afloat.
In contrast, Japan’s heavily reliance on exports suggests Tokyo would be much quicker to respond to serious trade frictions by resorting to intervention to weaken the Japanese yen. That would reduce the yen’s safe-haven appeal. Similarly, for the world’s other main safe-haven currency – the US dollar – concerns that foreign central banks could stop buying US Treasuries if the US were to impose trade tariffs would reduce the appeal of the greenback.
‘Currency wars’ – deliberate attempts to weaken exchange rates through direct foreign exchange intervention, or indirectly through loosening domestic monetary policy or imposing capital controls – have the potential to turn into ‘trade wars’ if countries start imposing tariffs on imports.
This would increase risk aversion to the benefit of the safe-haven dollar, yen and Swiss franc. But since the US economy is dependent on capital inflows to finance its current account deficit at prevailing exchange rates, and Japan’s economy is heavily dependent on exports for growth, the Swiss franc may be better placed than the US or Japanese currencies if the global economy were hit by the ‘black swan’ of widespread protectionism.
Like Japan, Switzerland has ample foreign exchange reserves to defend its currency, following the Swiss National Bank’s efforts last year and this year to curb the strength of the Swiss franc through buying foreign currency, as shown in the chart above.
Like Japan, Switzerland is also a significant net exporter. So if the world economy were to fall prey to trade wars, the Swiss economy would be hurt by declining exports. But unlike Japan, Switzerland’s economy is less dependent on trade for growth. As the right-hand chart above shows, Swiss GDP growth, like German growth, has been strong in 2010, easily outpacing the Eurozone. This is because Switzerland’s domestic economy has not suffered excessively from the credit crunch, as local banks have continued to lend. Thus, in the event of
widespread protectionism disrupting global trade, Switzerland may still be able to rely upon domestic demand to help keep its economy afloat.
In contrast, Japan’s heavily reliance on exports suggests Tokyo would be much quicker to respond to serious trade frictions by resorting to intervention to weaken the Japanese yen. That would reduce the yen’s safe-haven appeal. Similarly, for the world’s other main safe-haven currency – the US dollar – concerns that foreign central banks could stop buying US Treasuries if the US were to impose trade tariffs would reduce the appeal of the greenback.
Germany's Refusal to Boost $966 Billion Euro Rescue Fund May Be Weakening
Related News:Europe · Germany · Currencies · Economy · Eastern Europe · France · Bonds .Germany's Refusal to Boost $966 Billion Euro Rescue Fund May Be Weakening
By Tony Czuczka - Jan 10, 2011 7:00 AM GMT+0800
inShare.0More
Business ExchangeBuzz up!DiggPrint Email .Germany may be softening its opposition to expanding the 750 billion-euro ($966 billion) rescue facility for indebted euro nations as investors question Portugal’s ability to avoid tapping the fund.
European Union leaders may discuss expanding the fund at their next summit in February, the Handelsblatt newspaper reported today, citing German government officials it didn’t identify. Der Spiegel magazine said the EU could time such a pledge to coincide with granting aid to Portugal.
With Portugal due to sell debt on Jan. 12 and Spain on Jan. 13, attention is shifting back to whether Europe is doing enough to stem the crisis. Chancellor Angela Merkel has up to now opposed expanding government-funded aid for debt-plagued euro nations, saying as recently as Dec. 6 that she sees no need for additional aid.
“No decision has been taken about widening the rescue fund,” Steffen Seibert, Merkel’s chief spokesman said by telephone yesterday when asked whether her policy remains the same. “We should note that only a small part of the available funds has been tapped.”
France and Germany will push Portugal to accept aid as officials in the two countries doubt the Lisbon government can raise money on capital markets much longer, Der Spiegel reported Jan. 8 in a preview of an article in this week’s edition.
All Means Necessary
Aid for Portugal should coincide with an agreement by the euro-area countries to provide all means necessary to safeguard the monetary union, including unlimited funds to expand the bailout facility if required, the Hamburg-based weekly said.
Seibert denied that Merkel is pressing Portugal to tap the rescue fund, saying Germany’s aim is to ensure that Prime Minister Jose Socrates persuades markets he is pursuing budget discipline.
“What’s important is that governments take sustainable steps toward more stability and competitiveness, and that the markets recognize that,” Seibert said.
The yield investors demand to hold Portuguese government bonds over similar-maturity German bunds rose last week as the country seeks to persuade investors it can narrow its budget gap and avoid following Greece and Ireland, which were forced to accept EU bailouts last year.
“Markets won’t stay at these levels because that’s just not sustainable and if they widen much further, then we’ll soon have rescue packages for Spain and Portugal,” Erik Nielsen, chief European economist at Goldman Sachs Group Inc, said in a research note yesterday.
“All the mechanisms are in place” to help Portugal if it asks for aid, German Finance Ministry spokesman Tobias Romeis said in a telephone interview.
By Tony Czuczka - Jan 10, 2011 7:00 AM GMT+0800
inShare.0More
Business ExchangeBuzz up!DiggPrint Email .Germany may be softening its opposition to expanding the 750 billion-euro ($966 billion) rescue facility for indebted euro nations as investors question Portugal’s ability to avoid tapping the fund.
European Union leaders may discuss expanding the fund at their next summit in February, the Handelsblatt newspaper reported today, citing German government officials it didn’t identify. Der Spiegel magazine said the EU could time such a pledge to coincide with granting aid to Portugal.
With Portugal due to sell debt on Jan. 12 and Spain on Jan. 13, attention is shifting back to whether Europe is doing enough to stem the crisis. Chancellor Angela Merkel has up to now opposed expanding government-funded aid for debt-plagued euro nations, saying as recently as Dec. 6 that she sees no need for additional aid.
“No decision has been taken about widening the rescue fund,” Steffen Seibert, Merkel’s chief spokesman said by telephone yesterday when asked whether her policy remains the same. “We should note that only a small part of the available funds has been tapped.”
France and Germany will push Portugal to accept aid as officials in the two countries doubt the Lisbon government can raise money on capital markets much longer, Der Spiegel reported Jan. 8 in a preview of an article in this week’s edition.
All Means Necessary
Aid for Portugal should coincide with an agreement by the euro-area countries to provide all means necessary to safeguard the monetary union, including unlimited funds to expand the bailout facility if required, the Hamburg-based weekly said.
Seibert denied that Merkel is pressing Portugal to tap the rescue fund, saying Germany’s aim is to ensure that Prime Minister Jose Socrates persuades markets he is pursuing budget discipline.
“What’s important is that governments take sustainable steps toward more stability and competitiveness, and that the markets recognize that,” Seibert said.
The yield investors demand to hold Portuguese government bonds over similar-maturity German bunds rose last week as the country seeks to persuade investors it can narrow its budget gap and avoid following Greece and Ireland, which were forced to accept EU bailouts last year.
“Markets won’t stay at these levels because that’s just not sustainable and if they widen much further, then we’ll soon have rescue packages for Spain and Portugal,” Erik Nielsen, chief European economist at Goldman Sachs Group Inc, said in a research note yesterday.
“All the mechanisms are in place” to help Portugal if it asks for aid, German Finance Ministry spokesman Tobias Romeis said in a telephone interview.
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