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.


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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