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