After the dramatic start to yesterday’s trading session after the New Zealand earthquake reports, the markets were calmer through the rest of the day. Te reports from Christchurch have been understandably mixed but it seems tragically inevitable that the death toll will rise and the cost of the rebuild will escalate. The scenes of devastation are chilling. After an initial sell off in the value of the NZ Dollar, the decline stopped and the rest of the day saw the Sterling - NZ Dollar exchange rate trade around NZ$ 2.13 to NZ$ 2.16.
The data diary was pretty light elsewhere. UK public sector borrowing declined in January as yearend tax receipts boosted the government’s bank account. This is an annual event so no one was overly surprised. What was surprising though was the support offered by the governor of the Bank of England to the chancellor over his cost cutting measures. It lead inevitably to questions about Mervyn King’s independence. It was quite a bold move for him as he is already under pressure for not doing a good enough job in controlling inflation. He may want to keep his head below the parapet but he won’t have a chance to do that today. The minutes from the last Bank of England interest rate setting meeting will be released today at 9:30 am (UK time) so there will be loads of questions; especially if more than one member of the Monetary Policy Committee voted for an interest rate hike and that is very likely. If it’s true, we can expect further Sterling strength in the short term but I would urge caution. Were the BOE to hike interest rates, the obvious question would be “well you have been pretty sanguine about high inflation up until now; why raise rates when the economic recovery is so very fragile and you believe inflation will fall of its own accord?” Answer on a postcard to..........
Other than the UK news, yesterday also brought a rise in US consumer confidence. The Conference Board's index of consumer confidence rose to 70.4 in February. That is up from 64.8 in January and well above expectations. The US Dollar didn’t strengthen significantly on the news but it does add to an increasing number of positive data releases in the US of late. It is likely this afternoon’s US housing data will also be upbeat so US Dollar strength may ensue. That is already happening to some degree as investors run for cover while the Middle East simmers and after a bizarre speech from Colonel Qaddafi. German Chancellor Angela Merkel described him as ‘scary’; it’s hard to disagree but scary in a ‘bloke ranting loudly on the bus’ kind of way rather than menacing. The only problem is that he has a group of highly armed and probably British trained mercenaries at his disposal so he could cause all manner of mayhem and bloodshed. Thankfully, it would appear that the army and police forces are largely on the side of the general public so we will see what happens. I can’t think it is going to be a nice handover of power though. Good luck to the people of Libya.
The Euro had a bit of a purple patch yesterday as an European Central Bank member Yves Mersch said he wouldn’t be surprised if the ECB sharpened it language on interest rate hikes. It’s a bit on a ‘non-statement’ really. His expectation of the potential for tougher talk is not in itself a game changer but rumour is the key in unsettled markets. The other rumour is that further funds will be pumped into Greece to keep the wolves from the door. There are still fundamental flaws in the structure of the Eurozone but it seems the ‘sticking plaster’ approach is keeping the Euro from significant decline at the moment. Will that last? Goodness only knows but I can’t help thinking the Euro is due its comeuppance some time soon.
In other news, Japan has posted its first trade deficit in nearly 2 years as falling overseas demand; especially in China, slashed exports. That’ll add weight to the reduction in confidence in the Yen after Moody’s downgraded the debt ratings outlook for Japan.
Commodities have been boosted by nervousness over the Libyan and Bahraini protests and that has added weight to the Australian Dollar and the Canadian Dollar to some degree but we are still within recent ranges overall.
Today’s data diary is empty other than those items mentioned above so long periods of boredom followed by short bouts of high energy is probably the order of the day. I know what you’re thinking; “Not again”.
Egyptian calming measures
The Army in Egypt has asked the city's taxi drivers to drive around Cairo like lunatics, sounding their car horns. It is hoped that the familiar sounds of the city will induce a return to tranquillity and normality.
Operation Toot'n Calm'Em will last for the rest of the week.
Wednesday, 23 February 2011
Tuesday, 22 February 2011
As someone who lives much nearer to Crawley the Manchester, I guess I should probably be a Manchester United supporter but like, I suspect, a large part of the population, I was willing Crawley to upset the bookies on Saturday afternoon and at least force a return match. Ah well, the dream dies but the Crawley players will be able to hold their heads high because other than one fleeting moment, I think even Sir Alex would agree they were the better team on the day.
As for the financial markets, well there wasn’t too much concern for the bookies here last week. Some of the data releases were a little different to the market forecasts but the overall effect was pretty much status quo. Sterling had rather a good week overall but failed to capitalise on the gains and remains trapped below fairly long term resistance levels. UK retail sales saw a sharp rise in January after a snow bound December and Sterling rallied on the news but I can’t help feeling the Pound’s rise is a tad overdone n predictable news. In fact, that makes the Pound vulnerable to a bout of profit taking and those who sold Sterling in the last few days of last week have probably done themselves a favour as we head into the week. The big diary items are the release of the minutes from the last bank of England rate setting meeting on Wednesday and the 2nd calculation of economic growth for the last three months of 2010 which will be released on Friday. A drop in in the figure is forecast so Sterling is likely to weaken towards the Friday release and may continue to do so afterwards if the rumours are proven to be true.
The BOE didn’t have the 2nd estimate when they left interest rates on hold and Mervyn King did his best to justify the historically low interest rates while inflation is expected to make it to 5% this year so the minutes will make very interesting reading. We now know that Andrew Sentance voted for an interest rate hike and probably for a reduction in then quantitative easing package but his cries were almost certainly a solo performance rather than part of a chorus.
The weekend’s G20 meeting didn’t get the usual hype, I am glad to say and the lack of substantive progress on debt and growth really makes that a good thing. However, there was some progress on agreeing to reach agreement on certain items by April and whilst that may not sound like much improvement, it is a really big move for a G20 that generally appears to agree on very little.
Elsewhere, the US Dollar is weaker against the Pound this morning. It is Presidents Day in America so the markets there shut and that takes a lot of volume out of trading. There is a good chance that this weakness is a result of traders selling out of the USD ahead of the long weekend so US Dollar buyers should certainly look at their needs in the short term before the Dollar rebounds on nervousness surrounding events in Bahrain, Libya, Yemen etc. Friday brings the 2nd estimate of 4th quarter growth but little is expected in the way of revisions.
In the Eurozone, the general perception is of nervous tension. You know; the sort that brings on headaches and causes the actresses to frown a lot in TV adverts for pain killers. We are expecting higher French inflation and slightly better German business confidence data this week so the Euro may have a short term fillip but the longer term trend is, I believe, one of a weaker Euro and that is perhaps a warning bell for Euro sellers. This week brings the Irish parliamentary elections; that isn’t earth moving as far as the EU is concerned but the level of debt Ireland has owing to the EU and IMF does make it an issue worth watching.
The Australian Dollar and Canadian Dollar in particular, had a good week last week. Commodity prices are high and the demand from the US of A is good so why wouldn’t they. However, the New Zealand Dollar, which relies heavily on agricultural output for its overseas income, was less robust. In fact Sterling managed to peg the Kiwi Dollar back to the highest exchange rate we have seen in 6 months or so. We are slightly below those highs this morning but this is still an attractive level for NZ Dollar buyers ahead of all the UK data we will get this week and after we heard that Fonterra, the co-operative that manages most of New Zealand’s dairy output announced a substantial rise in earnings and therefore a substantial rise in payouts to NZ farmers.
And finally, I guess it had to happen but the town of Speed in Victoria, Australia has changed its name to Speedkills in order to promote road safety. I would guess that entering a town where the sign says ‘Speed’ tends to have an undesirable effect so changing it to Speedkills could work in reducing fast car incidents. However, they have perhaps missed a trick. If the ‘Speed’ instruction was working, then why not change the town name to ‘Spend’ or ‘Stop’ to boost the local economy. Maybe ‘Hungry’ would get people pausing for lunch and ‘Spend’ could work. People of Speedkills, I urge you to reconsider for the sake of the town’s prosperity.
Quote
A stockbroker urged me to buy a stock that would triple its value every year. I told him, "At my age, I don't even buy green bananas.
Claude Pepper
As for the financial markets, well there wasn’t too much concern for the bookies here last week. Some of the data releases were a little different to the market forecasts but the overall effect was pretty much status quo. Sterling had rather a good week overall but failed to capitalise on the gains and remains trapped below fairly long term resistance levels. UK retail sales saw a sharp rise in January after a snow bound December and Sterling rallied on the news but I can’t help feeling the Pound’s rise is a tad overdone n predictable news. In fact, that makes the Pound vulnerable to a bout of profit taking and those who sold Sterling in the last few days of last week have probably done themselves a favour as we head into the week. The big diary items are the release of the minutes from the last bank of England rate setting meeting on Wednesday and the 2nd calculation of economic growth for the last three months of 2010 which will be released on Friday. A drop in in the figure is forecast so Sterling is likely to weaken towards the Friday release and may continue to do so afterwards if the rumours are proven to be true.
The BOE didn’t have the 2nd estimate when they left interest rates on hold and Mervyn King did his best to justify the historically low interest rates while inflation is expected to make it to 5% this year so the minutes will make very interesting reading. We now know that Andrew Sentance voted for an interest rate hike and probably for a reduction in then quantitative easing package but his cries were almost certainly a solo performance rather than part of a chorus.
The weekend’s G20 meeting didn’t get the usual hype, I am glad to say and the lack of substantive progress on debt and growth really makes that a good thing. However, there was some progress on agreeing to reach agreement on certain items by April and whilst that may not sound like much improvement, it is a really big move for a G20 that generally appears to agree on very little.
Elsewhere, the US Dollar is weaker against the Pound this morning. It is Presidents Day in America so the markets there shut and that takes a lot of volume out of trading. There is a good chance that this weakness is a result of traders selling out of the USD ahead of the long weekend so US Dollar buyers should certainly look at their needs in the short term before the Dollar rebounds on nervousness surrounding events in Bahrain, Libya, Yemen etc. Friday brings the 2nd estimate of 4th quarter growth but little is expected in the way of revisions.
In the Eurozone, the general perception is of nervous tension. You know; the sort that brings on headaches and causes the actresses to frown a lot in TV adverts for pain killers. We are expecting higher French inflation and slightly better German business confidence data this week so the Euro may have a short term fillip but the longer term trend is, I believe, one of a weaker Euro and that is perhaps a warning bell for Euro sellers. This week brings the Irish parliamentary elections; that isn’t earth moving as far as the EU is concerned but the level of debt Ireland has owing to the EU and IMF does make it an issue worth watching.
The Australian Dollar and Canadian Dollar in particular, had a good week last week. Commodity prices are high and the demand from the US of A is good so why wouldn’t they. However, the New Zealand Dollar, which relies heavily on agricultural output for its overseas income, was less robust. In fact Sterling managed to peg the Kiwi Dollar back to the highest exchange rate we have seen in 6 months or so. We are slightly below those highs this morning but this is still an attractive level for NZ Dollar buyers ahead of all the UK data we will get this week and after we heard that Fonterra, the co-operative that manages most of New Zealand’s dairy output announced a substantial rise in earnings and therefore a substantial rise in payouts to NZ farmers.
And finally, I guess it had to happen but the town of Speed in Victoria, Australia has changed its name to Speedkills in order to promote road safety. I would guess that entering a town where the sign says ‘Speed’ tends to have an undesirable effect so changing it to Speedkills could work in reducing fast car incidents. However, they have perhaps missed a trick. If the ‘Speed’ instruction was working, then why not change the town name to ‘Spend’ or ‘Stop’ to boost the local economy. Maybe ‘Hungry’ would get people pausing for lunch and ‘Spend’ could work. People of Speedkills, I urge you to reconsider for the sake of the town’s prosperity.
Quote
A stockbroker urged me to buy a stock that would triple its value every year. I told him, "At my age, I don't even buy green bananas.
Claude Pepper
Monday, 21 February 2011
VERY INTERESTING STUFF
Many years ago in Scotland, a new game was invented.. It was ruled 'Gentlemen Only...
Ladies Forbidden'.. .and thus, the word GOLF entered into the English language.
------------
The first couple to
be shown in bed together on prime time TV
was Fred and Wilma Flintstone.
------------
Every day more money
is printed for Monopoly than the
U.S. Treasury.
------------
Men can read smaller
print than women can; women can hear better.
------------
Coca-Cola was
originally green.
------------
It is impossible to lick
your elbow.
------------
The State with the
highest percentage of people who walk to work:
Alaska
------------
The percentage of
Africa that is wilderness: 28%
(now get this...)
The percentage of
North America that is wilderness: 38%
------------
The cost of raising
a medium-size dog to the age of eleven:
$16,400
------------
The average number of people
airborne over the U.S. in any given hour:
61,000
------------
Intelligent people
have more zinc and copper in their hair..
------------
The first novel ever
written on a typewriter, Tom Sawyer.
------------
In the 1400's a law was set forth in England that
a man was allowed to beat his wife with a stick no thicker than his thumb.
Hence we have 'the rule of thumb'
------------
The San Francisco
cable cars are the only mobile National
Monuments.
------------
Each king in a deck
of playing cards represents a great king from history:
Spades - King David
Hearts - Charlemagne
Clubs -Alexander, the Great
Diamonds - Julius Caesar
------------
111,111,111 x
111,111,111 = 12,345,678,987, 654,321
------------
If a statue in the park of a person on a horse
has both front legs in the air,
the person died in battle.
If the horse has one front leg in the air,
the person died because of wounds received in battle..
If the horse has all four legs on the ground,
the person died of natural causes
------------
Only two people
signed the Declaration of Independence on July 4, John Hancock and Charles Thomson.
Most of the rest signed on August 2, but
the last signature wasn't added until 5 years later.
------------
Q. Half of all
Americans live within 50 miles of what?
A. Their birthplace
------------
Q. Most boat owners name their boats.
What is the most popular boat name requested?
A. Obsession
------------
Q. If you were to
spell out numbers, how far would you have to go until you would find the letter 'A'?
A. One thousand
------------
Q. What do bulletproof vests, fire escapes, windshield wipers and laser
printers have in common?
A. All were invented by women.
------------
Q. What is the only food that doesn't spoil?
A. Honey
------------
Q. On which day are there more collect calls
than any other day of the year?
A. Father's Day
------------
In Shakespeare's time, mattresses
were secured on bed frames by ropes.
When you pulled on the ropes,
the mattress tightened,
making the bed firmer to sleep on. Hence the
phrase....'Goodnight , sleep tight'
------------
It was the accepted practice in Babylon ,
4,000 years ago that for a month after the
wedding, the bride's father would supply
his son-in-law with all the mead he could drink.
Mead is a honey wine, and because
their calendar was lunar based, this period was called the honey month, which we know today
as the honeymoon.
------------
In English pubs,
ale is ordered by pints and quarts...
So in old England ,
when customers got unruly,
the bartender would yell at them,
'Mind your pints and quarts, and settle down.'
It's where we get
the phrase 'mind your P's and Q's'
------------
Many years ago in England ,
pub frequenters had a whistle baked
into the rim, or handle, of their ceramic cups.
When they needed a refill,
they used the whistle to get some service.
'Wet your whistle'
is the phrase inspired by this practice.
------------
At least 75% of
people who read this
will try to lick their elbow!
------------
Don't delete this
just because it looks weird.
Believe it or not, you can read it....
I cdnuolt blveiee
taht I cluod aulaclty uesdnatnrd
waht I was rdanieg.
The phaonmneal pweor of the hmuan mnid Aoccdrnig to rscheearch at
Cmabrigde Uinervtisy,
it deosn't mttaer in waht oredr the
ltteers in a wrod are, the olny iprmoatnt tihng
is taht the first and last ltteer be in the rghit pclae.. The rset can be a
taotl mses and you can still raed it
wouthit a porbelm.
This is bcuseae the huamn mnid deos not raed
ervey lteter by istlef, but the wrod as a wlohe. Amzanig huh?
------------
YOU KNOW YOU ARE LIVING IN 2011 when...
1. You accidentally
enter your PIN on the microwave.
2. You haven't
played solitaire with real cards in years.
3. You have a list
of 15 phone numbers to reach your family of three.
4. You e-mail the
person who works at the desk next to you.
5. Your reason for
not staying in touch with friends and family is that
they don't have e-mail addresses.
6. You pull up in
your own driveway and use your cell phone
to see if anyone is
home to help you carry in the groceries.
7. Every commercial on television has a web
site at the bottom of the screen
8. Leaving the house
without your cell phone, which you didn't even have the first 20 or 30 (or 60) years of your life,
is now a cause for panic
and you turn around to go and get it.
10. You get up in the morning
and go on line before getting your coffee.
11. You start
tilting your head sideways to smile. : )
12 You're reading
this and nodding and laughing.
13. Even worse, you know exactly to whom
you are going to forward this message.
14. You are too busy
to notice there was no #9 on this list.
15. You actually
scrolled back up to check that there wasn't
a #9 on this list.
~~~~~~~~~~~AND FINALLY~~~~~~~~~~~~
NOW U R LAUGHING at yourself!
Go on, forward this
to your friends. You know you want to!
Go lick your elbow....!
Many years ago in Scotland, a new game was invented.. It was ruled 'Gentlemen Only...
Ladies Forbidden'.. .and thus, the word GOLF entered into the English language.
------------
The first couple to
be shown in bed together on prime time TV
was Fred and Wilma Flintstone.
------------
Every day more money
is printed for Monopoly than the
U.S. Treasury.
------------
Men can read smaller
print than women can; women can hear better.
------------
Coca-Cola was
originally green.
------------
It is impossible to lick
your elbow.
------------
The State with the
highest percentage of people who walk to work:
Alaska
------------
The percentage of
Africa that is wilderness: 28%
(now get this...)
The percentage of
North America that is wilderness: 38%
------------
The cost of raising
a medium-size dog to the age of eleven:
$16,400
------------
The average number of people
airborne over the U.S. in any given hour:
61,000
------------
Intelligent people
have more zinc and copper in their hair..
------------
The first novel ever
written on a typewriter, Tom Sawyer.
------------
In the 1400's a law was set forth in England that
a man was allowed to beat his wife with a stick no thicker than his thumb.
Hence we have 'the rule of thumb'
------------
The San Francisco
cable cars are the only mobile National
Monuments.
------------
Each king in a deck
of playing cards represents a great king from history:
Spades - King David
Hearts - Charlemagne
Clubs -Alexander, the Great
Diamonds - Julius Caesar
------------
111,111,111 x
111,111,111 = 12,345,678,987, 654,321
------------
If a statue in the park of a person on a horse
has both front legs in the air,
the person died in battle.
If the horse has one front leg in the air,
the person died because of wounds received in battle..
If the horse has all four legs on the ground,
the person died of natural causes
------------
Only two people
signed the Declaration of Independence on July 4, John Hancock and Charles Thomson.
Most of the rest signed on August 2, but
the last signature wasn't added until 5 years later.
------------
Q. Half of all
Americans live within 50 miles of what?
A. Their birthplace
------------
Q. Most boat owners name their boats.
What is the most popular boat name requested?
A. Obsession
------------
Q. If you were to
spell out numbers, how far would you have to go until you would find the letter 'A'?
A. One thousand
------------
Q. What do bulletproof vests, fire escapes, windshield wipers and laser
printers have in common?
A. All were invented by women.
------------
Q. What is the only food that doesn't spoil?
A. Honey
------------
Q. On which day are there more collect calls
than any other day of the year?
A. Father's Day
------------
In Shakespeare's time, mattresses
were secured on bed frames by ropes.
When you pulled on the ropes,
the mattress tightened,
making the bed firmer to sleep on. Hence the
phrase....'Goodnight , sleep tight'
------------
It was the accepted practice in Babylon ,
4,000 years ago that for a month after the
wedding, the bride's father would supply
his son-in-law with all the mead he could drink.
Mead is a honey wine, and because
their calendar was lunar based, this period was called the honey month, which we know today
as the honeymoon.
------------
In English pubs,
ale is ordered by pints and quarts...
So in old England ,
when customers got unruly,
the bartender would yell at them,
'Mind your pints and quarts, and settle down.'
It's where we get
the phrase 'mind your P's and Q's'
------------
Many years ago in England ,
pub frequenters had a whistle baked
into the rim, or handle, of their ceramic cups.
When they needed a refill,
they used the whistle to get some service.
'Wet your whistle'
is the phrase inspired by this practice.
------------
At least 75% of
people who read this
will try to lick their elbow!
------------
Don't delete this
just because it looks weird.
Believe it or not, you can read it....
I cdnuolt blveiee
taht I cluod aulaclty uesdnatnrd
waht I was rdanieg.
The phaonmneal pweor of the hmuan mnid Aoccdrnig to rscheearch at
Cmabrigde Uinervtisy,
it deosn't mttaer in waht oredr the
ltteers in a wrod are, the olny iprmoatnt tihng
is taht the first and last ltteer be in the rghit pclae.. The rset can be a
taotl mses and you can still raed it
wouthit a porbelm.
This is bcuseae the huamn mnid deos not raed
ervey lteter by istlef, but the wrod as a wlohe. Amzanig huh?
------------
YOU KNOW YOU ARE LIVING IN 2011 when...
1. You accidentally
enter your PIN on the microwave.
2. You haven't
played solitaire with real cards in years.
3. You have a list
of 15 phone numbers to reach your family of three.
4. You e-mail the
person who works at the desk next to you.
5. Your reason for
not staying in touch with friends and family is that
they don't have e-mail addresses.
6. You pull up in
your own driveway and use your cell phone
to see if anyone is
home to help you carry in the groceries.
7. Every commercial on television has a web
site at the bottom of the screen
8. Leaving the house
without your cell phone, which you didn't even have the first 20 or 30 (or 60) years of your life,
is now a cause for panic
and you turn around to go and get it.
10. You get up in the morning
and go on line before getting your coffee.
11. You start
tilting your head sideways to smile. : )
12 You're reading
this and nodding and laughing.
13. Even worse, you know exactly to whom
you are going to forward this message.
14. You are too busy
to notice there was no #9 on this list.
15. You actually
scrolled back up to check that there wasn't
a #9 on this list.
~~~~~~~~~~~AND FINALLY~~~~~~~~~~~~
NOW U R LAUGHING at yourself!
Go on, forward this
to your friends. You know you want to!
Go lick your elbow....!
(English translation prepared by the Bank's staff based on the Japanese original)
February 16, 2011
Bank of Japan
Monthly Report of Recent Economic and Financial Developments1
February 2011
Summary
Japan's economy is gradually emerging from the current deceleration phase.
Exports and production are showing signs of resuming an uptrend. Business fixed investment has started to pick up. The employment and income situation has remained severe, but the degree of severity has eased somewhat. As for private consumption, demand for some goods has suffered a reverse after the sharp increase seen previously. Housing investment has started to pick up. On the other hand, public investment is declining.
Japan's economy is expected to emerge from the current deceleration phase and return to a moderate recovery path.
Exports are expected to increase moderately, reflecting the improvement in overseas economic conditions. Private consumption is expected to pick up again as the reverse following the sharp increase in demand becomes less pronounced. Meanwhile, signs of picking up in business fixed investment are expected to gradually become more evident as the improvement in corporate profits continues. However, with firms' persistent sense of excessive capital stock, the pace of improvement in business fixed investment is likely to remain moderate. In these circumstances, production is expected to increase modestly.
On the price front, the three-month rate of change in domestic corporate goods prices is rising, mainly due to the increase in international commodity prices. The year-on-year rate of decline in consumer prices (excluding fresh food) has continued to slow as a trend, while the substantial slack remains in the economy as a whole.
1 This report is based on data and information available at the time of the Bank of Japan Monetary Policy Meeting held on February 14 and 15, 2011.
1
Domestic corporate goods prices are expected to continue rising for the time being, reflecting movements in international commodity prices. The year-on-year rate of decline in consumer prices is expected to slow as a trend as the aggregate supply and demand balance improves gradually.
The weighted average of the overnight call rate has generally been slightly below the 0.1 percent level, and interest rates on term instruments have been more or less unchanged. Meanwhile, the value of the yen against the U.S. dollar, long-term interest rates, and stock prices have remained at more or less the same levels as last month.
Financial conditions have continued to ease further.
The overnight call rate has remained at an extremely low level, and the declining trend in firms' funding costs has continued. While stimulative effects from low interest rates are still partly constrained given current developments in economic activity and prices, such effects are beginning to strengthen in light of improved corporate profits. With regard to credit supply, firms have continued to see financial institutions' lending attitudes as improving. Issuing conditions for CP and corporate bonds have become more favorable as seen in an increased variety of corporate bond issuers. As for credit demand, firms' need to fund working capital and fixed investment has declined, and some firms have reduced the on-hand liquidity that they had accumulated. Against this backdrop, bank lending has declined on a year-on-year basis. On the other hand, the amount outstanding of corporate bonds has exceeded the previous year's level, and the pace of decline in the amount outstanding of CP has been on a decelerating trend. In these circumstances, the financial positions of firms have been improving as a whole. Meanwhile, the year-on-year rate of change in the money stock has been in the range of 2.0-2.5 percent.
February 16, 2011
Bank of Japan
Monthly Report of Recent Economic and Financial Developments1
February 2011
Summary
Japan's economy is gradually emerging from the current deceleration phase.
Exports and production are showing signs of resuming an uptrend. Business fixed investment has started to pick up. The employment and income situation has remained severe, but the degree of severity has eased somewhat. As for private consumption, demand for some goods has suffered a reverse after the sharp increase seen previously. Housing investment has started to pick up. On the other hand, public investment is declining.
Japan's economy is expected to emerge from the current deceleration phase and return to a moderate recovery path.
Exports are expected to increase moderately, reflecting the improvement in overseas economic conditions. Private consumption is expected to pick up again as the reverse following the sharp increase in demand becomes less pronounced. Meanwhile, signs of picking up in business fixed investment are expected to gradually become more evident as the improvement in corporate profits continues. However, with firms' persistent sense of excessive capital stock, the pace of improvement in business fixed investment is likely to remain moderate. In these circumstances, production is expected to increase modestly.
On the price front, the three-month rate of change in domestic corporate goods prices is rising, mainly due to the increase in international commodity prices. The year-on-year rate of decline in consumer prices (excluding fresh food) has continued to slow as a trend, while the substantial slack remains in the economy as a whole.
1 This report is based on data and information available at the time of the Bank of Japan Monetary Policy Meeting held on February 14 and 15, 2011.
1
Domestic corporate goods prices are expected to continue rising for the time being, reflecting movements in international commodity prices. The year-on-year rate of decline in consumer prices is expected to slow as a trend as the aggregate supply and demand balance improves gradually.
The weighted average of the overnight call rate has generally been slightly below the 0.1 percent level, and interest rates on term instruments have been more or less unchanged. Meanwhile, the value of the yen against the U.S. dollar, long-term interest rates, and stock prices have remained at more or less the same levels as last month.
Financial conditions have continued to ease further.
The overnight call rate has remained at an extremely low level, and the declining trend in firms' funding costs has continued. While stimulative effects from low interest rates are still partly constrained given current developments in economic activity and prices, such effects are beginning to strengthen in light of improved corporate profits. With regard to credit supply, firms have continued to see financial institutions' lending attitudes as improving. Issuing conditions for CP and corporate bonds have become more favorable as seen in an increased variety of corporate bond issuers. As for credit demand, firms' need to fund working capital and fixed investment has declined, and some firms have reduced the on-hand liquidity that they had accumulated. Against this backdrop, bank lending has declined on a year-on-year basis. On the other hand, the amount outstanding of corporate bonds has exceeded the previous year's level, and the pace of decline in the amount outstanding of CP has been on a decelerating trend. In these circumstances, the financial positions of firms have been improving as a whole. Meanwhile, the year-on-year rate of change in the money stock has been in the range of 2.0-2.5 percent.
Thursday, 17 February 2011
As inflation hit 4% last month, the Governor f the Bank of England has had, yet again, to write to the Chancellor of the Exchequer to explain why the BOE is failing to keep interest rates below their upper threshold of 3%. Up until now, Mervyn King has been fairly relaxed about the external nature of the inflation pressure and the bank’s confidence that the cost of living will fall back to within bounds within a couple of years but the tone changed in yesterday’s letter and we are now expecting three interest rate hikes of 25 basis points each before the year is over.
That stoked fears for mortgagees but acted like a honey pot for the Sterling buying bees which swarmed to the Pound throughout the day. Sterling hit the top of its trading ranges against most currencies and its highest level against the New Zealand Dollar in 6 months before slipping back a little on profit taking. This morning’s UK unemployment report and the Bank of England's quarterly inflation report are the next hurdle for the Pound so a positive employment figure and hawkish inflation adn interest rate setniment here could well see sterling start to make headway above recent ranges.
Sterling was less buoyant against the Euro, even though it did make it to within a whisker of €1.20. The day’s EU data just served to high light the disparity between EU economies. Spain reported rising inflation at 3.0%, most EU states reported economic growth in line with forecasts but Greece still stands out as the black sheep of the Eurozone flock with figures that show the Greek economy shrank by 6.6% last year. They are still in recession even as Germany and France are starting to grow out of the gloom. That has caused some nervousness but the Euro hasn’t yet collapsed.
The US Dollar was shunted from pillar to post as analysts tried to get through reams of data releases. Strong manufacturing sentiment was countered by poor retail sales but a rise in business inventories was the item that prompted most debate. Businesses tend only to increase stock holdings when they are confident in the future, so the rise of 0.8%, which was above forecasts, was a welcome boost for US business sentiment. In traditional perverse fashion, good US news generally results in a weaker US Dollar as investors shun the safety of US treasuries in favour of higher yielding but potentially more risky assets elsewhere. That effect was a tad muted though because this week’s data diary is so huge and because weaker US sales have a dampening effect on demand. Today’s US data diary is another barnstormer, with producer price data, housing market data, industrial production and capacity utilisation all ready to assail us before the day is over. However, the release of the minutes from the last Federal Reserve Open Market Committee (FOMC) meeting will be the major talking point and every word will be analysed in search of hints on any interest rate or quantitative easing changes.
So if investors were selling the US Dollar, what were they buying? I heard you ask the question from here. Well they were buying the Pound and to a lesser degree, the Canadian Dollar. Strong commodity prices are boosting the CAD but the fact that Canada’s trade balance returned to surplus last month is a bonus and the Canadian Dollar hit a fresh 2 year high against the US Dollar on the back of all this news. Today brings Canadian manufacturing sales data and the leading indicators index so we will watch those with great interest.
Both the New Zealand and Australian Dollars were big movers on the day. Sterling hit NZ$ 2.15 briefly, the highest level we have seen in 6 months as poor US retail data weakened sentiment around the globe. US share prices fell on the day and so did the high yielding currencies like the Aussie and Kiwi Dollars. The Sterling - NZ Dollar though is right at the top of a trading range which has contained this pair since September 2009, so NZ Dollar buyers really ought to be looking at their requirements at this level. This is a ‘gift horse’ if ever I saw one.
So buckle up everyone for another roller coaster of a day. Scream if you want to go faster.
I will leave you with the salutary tale of Josue Hernandez of Naples, Florida who was arrested for disorderly intoxication and carrying a concealed knife. All of that is bad but the thing that prompted the fight makes the story a trifle more understandable. Josue was in a bar, buying drinks for a group of girls and getting on really well with them until he discovered that they were actually men in women’s clothing. He was upset, perhaps over the drinks bill, perhaps over the wasted evening and perhaps because of what others may think of him but he will certainly be a tad more careful in future. Another drink for the ‘laydeees’ Josue?
Quote
Some people see the glass half full. Others see it half empty. I see a glass that's twice as big as it needs to be.
George Carlin
That stoked fears for mortgagees but acted like a honey pot for the Sterling buying bees which swarmed to the Pound throughout the day. Sterling hit the top of its trading ranges against most currencies and its highest level against the New Zealand Dollar in 6 months before slipping back a little on profit taking. This morning’s UK unemployment report and the Bank of England's quarterly inflation report are the next hurdle for the Pound so a positive employment figure and hawkish inflation adn interest rate setniment here could well see sterling start to make headway above recent ranges.
Sterling was less buoyant against the Euro, even though it did make it to within a whisker of €1.20. The day’s EU data just served to high light the disparity between EU economies. Spain reported rising inflation at 3.0%, most EU states reported economic growth in line with forecasts but Greece still stands out as the black sheep of the Eurozone flock with figures that show the Greek economy shrank by 6.6% last year. They are still in recession even as Germany and France are starting to grow out of the gloom. That has caused some nervousness but the Euro hasn’t yet collapsed.
The US Dollar was shunted from pillar to post as analysts tried to get through reams of data releases. Strong manufacturing sentiment was countered by poor retail sales but a rise in business inventories was the item that prompted most debate. Businesses tend only to increase stock holdings when they are confident in the future, so the rise of 0.8%, which was above forecasts, was a welcome boost for US business sentiment. In traditional perverse fashion, good US news generally results in a weaker US Dollar as investors shun the safety of US treasuries in favour of higher yielding but potentially more risky assets elsewhere. That effect was a tad muted though because this week’s data diary is so huge and because weaker US sales have a dampening effect on demand. Today’s US data diary is another barnstormer, with producer price data, housing market data, industrial production and capacity utilisation all ready to assail us before the day is over. However, the release of the minutes from the last Federal Reserve Open Market Committee (FOMC) meeting will be the major talking point and every word will be analysed in search of hints on any interest rate or quantitative easing changes.
So if investors were selling the US Dollar, what were they buying? I heard you ask the question from here. Well they were buying the Pound and to a lesser degree, the Canadian Dollar. Strong commodity prices are boosting the CAD but the fact that Canada’s trade balance returned to surplus last month is a bonus and the Canadian Dollar hit a fresh 2 year high against the US Dollar on the back of all this news. Today brings Canadian manufacturing sales data and the leading indicators index so we will watch those with great interest.
Both the New Zealand and Australian Dollars were big movers on the day. Sterling hit NZ$ 2.15 briefly, the highest level we have seen in 6 months as poor US retail data weakened sentiment around the globe. US share prices fell on the day and so did the high yielding currencies like the Aussie and Kiwi Dollars. The Sterling - NZ Dollar though is right at the top of a trading range which has contained this pair since September 2009, so NZ Dollar buyers really ought to be looking at their requirements at this level. This is a ‘gift horse’ if ever I saw one.
So buckle up everyone for another roller coaster of a day. Scream if you want to go faster.
I will leave you with the salutary tale of Josue Hernandez of Naples, Florida who was arrested for disorderly intoxication and carrying a concealed knife. All of that is bad but the thing that prompted the fight makes the story a trifle more understandable. Josue was in a bar, buying drinks for a group of girls and getting on really well with them until he discovered that they were actually men in women’s clothing. He was upset, perhaps over the drinks bill, perhaps over the wasted evening and perhaps because of what others may think of him but he will certainly be a tad more careful in future. Another drink for the ‘laydeees’ Josue?
Quote
Some people see the glass half full. Others see it half empty. I see a glass that's twice as big as it needs to be.
George Carlin
Tuesday, 15 February 2011
Monday’s data diary was a sparse one and that reflected in the lack of exchange rate momentum. Traders could be forgiven for keeping their powder dry as they awaited this morning’s UK inflation data. There is a lot of buzz around this release with many forecasters assuming the January figure will be well above the Bank of England’s 2% target at perhaps 4.4%. The BOE for its part has already said that the current inflation pressures are largely externally driven so there is no need to hike interest rates because it would have little impact. My mortgage says ‘thank you BOE’. However it will reignite the debate about just what the BOE’s remit is or should be. Anything above 4.2% should cause some Sterling strength but anything less than 4.0% may allow the Pound to slip back. If you have Sterling to buy or sell, you may want to take a risk-averse approach and trade before the announcement at 9:30 UK time or place an automated order in the hope that it may trigger around the time of the announcement.
Yesterday wasn’t entirely devoid of news; China’s inflation didn’t rise as fast as many had feared; 4.9% may sound alarming when the Bank of England is being chided for UK inflation getting up into the 3-4% area but it was below the 5.4% that most analysts were expecting and that is perhaps good news for the Chinese economy. However, the component parts of the basket of products used to calculate the inflation figure have changed substantially so we can’t read too much into the number. Opinions are mixed over what that does to the countries supplying China and the countries being supplied by China and it would take a much longer report than this to deal with all the potential ramifications but the initial response has been for Australian Dollar strength and little else.
Today’s other big releases include the economic growth data for many of the Eurozone states. Recent releases from Spain and Portugal have been mixed so, if the Euro is to improve, today’s German, French and Italian data will have to be positive and goodness only knows what we will get from Greece. Described in many circles as the weakest link, the Greek economy is clearly at the fragile end of the Eurozone spectrum. As with the Pound, if you are not a risk taker and you have Euros to trade, you might want to do something before the data which is due at 10:00 UK time.
The US trading session will also be awash with enough data to keep even the most bored trader happy. Retail and manufacturing figures are de for release although many will be a little stoic until they see the release of the minutes from the last Federal Reserve meting and those are not due for release until 19:00 (GMT) tomorrow.
Meanwhile, the New Zealand Dollar is still weaker after poor retail sales numbers and a report showing a sharp drop in interest rate expectations. As regular readers will know, the 3.0% base rate in NZ is one of the major incentives for international investors to buy the Kiwi Dollar, so if the interest rate hikes stop, the Kiwi Dollar may well decline.
And finally, Damien Hirst has a lot to answer for. A Brooklyn gallery is offering a bizarre course in taxidermy in which dead mice are reconfigured into odd looking miniature humans in odd poses. I hope to goodness it doesn’t catch on and I am glad I don’t have any pictures to offer you but I thought you would like to know what is going on in some sections of the ‘art’ world. Future classics maybe?
Quote
I'd asked around 10 or 15 people for suggestions. Finally one lady friend asked the right question, 'Well, what do you love most?' That's how I started painting money.
Andy Warhol
Yesterday wasn’t entirely devoid of news; China’s inflation didn’t rise as fast as many had feared; 4.9% may sound alarming when the Bank of England is being chided for UK inflation getting up into the 3-4% area but it was below the 5.4% that most analysts were expecting and that is perhaps good news for the Chinese economy. However, the component parts of the basket of products used to calculate the inflation figure have changed substantially so we can’t read too much into the number. Opinions are mixed over what that does to the countries supplying China and the countries being supplied by China and it would take a much longer report than this to deal with all the potential ramifications but the initial response has been for Australian Dollar strength and little else.
Today’s other big releases include the economic growth data for many of the Eurozone states. Recent releases from Spain and Portugal have been mixed so, if the Euro is to improve, today’s German, French and Italian data will have to be positive and goodness only knows what we will get from Greece. Described in many circles as the weakest link, the Greek economy is clearly at the fragile end of the Eurozone spectrum. As with the Pound, if you are not a risk taker and you have Euros to trade, you might want to do something before the data which is due at 10:00 UK time.
The US trading session will also be awash with enough data to keep even the most bored trader happy. Retail and manufacturing figures are de for release although many will be a little stoic until they see the release of the minutes from the last Federal Reserve meting and those are not due for release until 19:00 (GMT) tomorrow.
Meanwhile, the New Zealand Dollar is still weaker after poor retail sales numbers and a report showing a sharp drop in interest rate expectations. As regular readers will know, the 3.0% base rate in NZ is one of the major incentives for international investors to buy the Kiwi Dollar, so if the interest rate hikes stop, the Kiwi Dollar may well decline.
And finally, Damien Hirst has a lot to answer for. A Brooklyn gallery is offering a bizarre course in taxidermy in which dead mice are reconfigured into odd looking miniature humans in odd poses. I hope to goodness it doesn’t catch on and I am glad I don’t have any pictures to offer you but I thought you would like to know what is going on in some sections of the ‘art’ world. Future classics maybe?
Quote
I'd asked around 10 or 15 people for suggestions. Finally one lady friend asked the right question, 'Well, what do you love most?' That's how I started painting money.
Andy Warhol
Monday, 14 February 2011
Happy Valentine’s Day everyone. I hope the one you love let you know they do too. We apparently all love Colin Firth for his portrayal of a stammering king. I still find it amazing how excited we are supposed to get over someone who can do good pretending. Obviously some people who do good pretending get locked up; Bernard Madoff and the people from Enron spring to mind, but if you do it on camera and call it acting, it is apparently the most amazing thing on the planet; more amazing than science or curing disease and clearly it deserves to be lauded and rewarded handsomely and occupy every front page in the land. It’s just good pretending you know.
Back in the real world, the amazing news that the people of Egypt have got rid of the president they didn’t want was greeted with a slightly more relaxed feeling around the markets. Everyone will be hoping that the old adage ‘beware what you wish for; you might just get it’ doesn’t apply to the Egyptian situation. Now that the Egyptians have succeeded, the people of Italy seem hell bent on ousting Silvio Berlusconi in similar street demonstrations. That would be a coup.
The market reaction to all of this has lacked vigour. The US Dollar weakened a tad as funds flowed out into higher yielding currencies and the Euro did likewise. Sterling failed to capitalise on those moves though because traders and investors are still wary of the UK economy. Tomorrow’s UK inflation may well be a decider in this. Many analysts are expecting yet another rise in the cost of living with the general view being that we will see a 4.4% Consumer Price Inflation figure. The Bank of England has tried to sound fine about higher inflation; suggesting it will fall back in line without higher interest rates because it is due to effects that the BOE can’t control any way. We shall see how they feel if inflation gets above double their target and get some hints from Wednesday’s release of their quarterly inflation report.
The other big news of the week is the release of the minutes from the last US Federal Reserve meeting. This happens on Wednesday and the interesting element will be the Fed members’ attitude to the economy. They are all clearly concerned about the labour and housing markets so that may come through in the minutes. Meanwhile the US Dollar is still susceptible to flows related to higher or lower risk taking amongst international investors.
For its part, the Euro is still eyed with suspicion by investors and traders alike. It is at the weak end of the scale against the USD and GBP and that is largely due to concerns over the structural deficiencies in the Eurozone structure and the apparent inability of the EU and IMF to ach agreement on reforms which would put a long term support package in place for the Euro. You have to think such a package wouldn’t be necessary if the structure of the Eurozone wasn’t compromised by the disparity between the various member states. On a separate note, the announcement that Axel Weber will leave the Bundesbank at the end of April was not market moving although the speculation over his replacement is rife.
Over the weekend the Australian Dollar has boosted by news that home loans advanced twice as fast as analysts had forecast and the Aussie Dollar is still attractive for its interest rate yield. It was also boosted by news that both imports and exports in China were up more than forecast; a comforting sign for Aussie exporters who have been worried about China’s stated aim of slowing the economy.
It’s near neighbour, the New Zealand Dollar though weakened as retail sales slowed again; dropping expectations of another interest rate hike from the Reserve Bank of New Zealand and causing concerns that the NZ economy is slowing more than expected.
Still on a Dollar theme, the Canadian Dollar is stronger as we start the week on news that Canada’s trade surplus expanded at a faster =rate than forecast in December. Higher commodity prices will have helped but it does increase speculation over an early hike in Canadian interest rates.
As usual, the third week of the month carries the fattest data diary so there is plenty to talk and write about this week; I’ll keep you updated as we go through but have a lovely day today. I hope that special someone has planned a great evening for Valentine’s Day. If they haven’t then you had better sort something pronto. Go on...stop reading this and get a table booked or something.
Some quotes for St Valentine̢۪s Day
You can't put a price tag on love, but you can on all its accessories.
Melanie Clark
I wanted to make it really special on Valentine's Day, so I tied my boyfriend up. And for three solid hours I watched whatever I wanted on TV.
Tracy Smith
My boyfriend and I broke up. He wanted to get married and I didn't want him to.
Rita Rudner
Today is Valentine's Day. Or, as men like to call it, Extortion day.
Jay Leno
Back in the real world, the amazing news that the people of Egypt have got rid of the president they didn’t want was greeted with a slightly more relaxed feeling around the markets. Everyone will be hoping that the old adage ‘beware what you wish for; you might just get it’ doesn’t apply to the Egyptian situation. Now that the Egyptians have succeeded, the people of Italy seem hell bent on ousting Silvio Berlusconi in similar street demonstrations. That would be a coup.
The market reaction to all of this has lacked vigour. The US Dollar weakened a tad as funds flowed out into higher yielding currencies and the Euro did likewise. Sterling failed to capitalise on those moves though because traders and investors are still wary of the UK economy. Tomorrow’s UK inflation may well be a decider in this. Many analysts are expecting yet another rise in the cost of living with the general view being that we will see a 4.4% Consumer Price Inflation figure. The Bank of England has tried to sound fine about higher inflation; suggesting it will fall back in line without higher interest rates because it is due to effects that the BOE can’t control any way. We shall see how they feel if inflation gets above double their target and get some hints from Wednesday’s release of their quarterly inflation report.
The other big news of the week is the release of the minutes from the last US Federal Reserve meeting. This happens on Wednesday and the interesting element will be the Fed members’ attitude to the economy. They are all clearly concerned about the labour and housing markets so that may come through in the minutes. Meanwhile the US Dollar is still susceptible to flows related to higher or lower risk taking amongst international investors.
For its part, the Euro is still eyed with suspicion by investors and traders alike. It is at the weak end of the scale against the USD and GBP and that is largely due to concerns over the structural deficiencies in the Eurozone structure and the apparent inability of the EU and IMF to ach agreement on reforms which would put a long term support package in place for the Euro. You have to think such a package wouldn’t be necessary if the structure of the Eurozone wasn’t compromised by the disparity between the various member states. On a separate note, the announcement that Axel Weber will leave the Bundesbank at the end of April was not market moving although the speculation over his replacement is rife.
Over the weekend the Australian Dollar has boosted by news that home loans advanced twice as fast as analysts had forecast and the Aussie Dollar is still attractive for its interest rate yield. It was also boosted by news that both imports and exports in China were up more than forecast; a comforting sign for Aussie exporters who have been worried about China’s stated aim of slowing the economy.
It’s near neighbour, the New Zealand Dollar though weakened as retail sales slowed again; dropping expectations of another interest rate hike from the Reserve Bank of New Zealand and causing concerns that the NZ economy is slowing more than expected.
Still on a Dollar theme, the Canadian Dollar is stronger as we start the week on news that Canada’s trade surplus expanded at a faster =rate than forecast in December. Higher commodity prices will have helped but it does increase speculation over an early hike in Canadian interest rates.
As usual, the third week of the month carries the fattest data diary so there is plenty to talk and write about this week; I’ll keep you updated as we go through but have a lovely day today. I hope that special someone has planned a great evening for Valentine’s Day. If they haven’t then you had better sort something pronto. Go on...stop reading this and get a table booked or something.
Some quotes for St Valentine̢۪s Day
You can't put a price tag on love, but you can on all its accessories.
Melanie Clark
I wanted to make it really special on Valentine's Day, so I tied my boyfriend up. And for three solid hours I watched whatever I wanted on TV.
Tracy Smith
My boyfriend and I broke up. He wanted to get married and I didn't want him to.
Rita Rudner
Today is Valentine's Day. Or, as men like to call it, Extortion day.
Jay Leno
Thursday, 10 February 2011
Spin doesn’t get much more blatant but I have to admire the bravado of the Oxbridge set. The UK’s top universities have declared that they absolutely have to charge the maximum they can get away with otherwise people will question their commitment to excellence. In other words, we have to ravage your bank accounts or you won’t believe we’re serious. It’s genius isn’t it.
Sadly, that was about the most interesting thing in the news yesterday. A lack of data meant traders were left to their own devices. There was a flurry of excitement when China unexpectedly announced a 25 basis point interest rate hike. We knew they were voicing a commitment to slowing economic growth but the actions had been rather lacking. However, this is the third such hike since October so perhaps they are starting to take the bull by the horns.
The only other news was the fact that an auction of $32 billion worth of US Treasury certificates drew its lowest overseas demand from bank bidders since 2007. That caused some concern that, as global economies pick up, the demand for the safe haven of the US Treasury will lessen and that may make funding an issue for the US authorities. The change in sentiment towards safe haven buying saw the US Dollar weaken against the Euro and some other currencies. The Euro was pretty quiet on the day as traders largely ignored the news that the 17 euro member states are planning an extraordinary meeting in March to try to agree a plan of action to avoid any repeat of the 2008 credit crunch. Good luck with that guys.
The Canadian Dollar lost some ground against the US Dollar though because events in Canada’s chief export market are bound to affect the Canadian economy and therefore the Canadian Dollar.
Sterling had a poor day after the Chancellor of the Exchequer announced an additional £800 million of taxes on the UK banks. If you look at the profits and bonus pots, this is a trifling amount for the banks but it did harm sentiment. I guess that is perhaps another £800 million which won’t be spent on champagne, cars and houses in the south east and Edinburgh. Sterling regained a little ground overnight when the British Retail Consortium announced that January’s shop price inflation was 2.5% year on year. That’s positive for the Pound but the sharp drop on retail activity in December due to poor weather will have had an effect along with higher commodity and food prices.
The New Zealand Dollar weakened after NZ Finance Minister, Bill English told the NZ Parliament it was “possible” that the NZ economy slipped into recession in the second half of 2010. With the global slowdown it is not so surprising but having a government minister voice such a concern has a greater impact than just general sentiment. The NZ Dollar is weaker than its Australian counterpart today but still within recent ranges.
Today brings UK and German trade balance data. We have already seen the German data which was disappointing. That was to be expected because recent manufacturing and production data has been poor but we are expecting the UK trade gap to have shrunk a tad so that will be good for the Pound. And the Bank of England starts its two day interest rate setting meeting today. We don’t expect any change when the announcement is made tomorrow but traders are split over when we will start to see UK interest rate hikes so they will be desperately seeking clues in the statement after the meeting.
And elsewhere, Australian employment data is due tonight and that should show 17,500 fresh jobs were created in January. That’ll be the 11th straight month of gains if it is true and the Australian Dollar should strengthen on the news. If you need to purchase Aussie Dollars in the short term, you may wish to either do so today to avoid any risk or place an order in the market overnight to take advantage of the expected volatility.
I’ll leave you with news of a theme park ride that appears to be scarier than the designers imagined. Apparently, Storm Surge, a new rise at Thorpe Park has had to be moved because the guys building the ride were seeing headless monk ghosts on site. It was being built above the site of an ancient abbey and people who believe that kind of thing are investigating.
Quote
It is my belief, you cannot deal with the most serious things in the world unless you understand the most amusing.
Winston Churchill
Sadly, that was about the most interesting thing in the news yesterday. A lack of data meant traders were left to their own devices. There was a flurry of excitement when China unexpectedly announced a 25 basis point interest rate hike. We knew they were voicing a commitment to slowing economic growth but the actions had been rather lacking. However, this is the third such hike since October so perhaps they are starting to take the bull by the horns.
The only other news was the fact that an auction of $32 billion worth of US Treasury certificates drew its lowest overseas demand from bank bidders since 2007. That caused some concern that, as global economies pick up, the demand for the safe haven of the US Treasury will lessen and that may make funding an issue for the US authorities. The change in sentiment towards safe haven buying saw the US Dollar weaken against the Euro and some other currencies. The Euro was pretty quiet on the day as traders largely ignored the news that the 17 euro member states are planning an extraordinary meeting in March to try to agree a plan of action to avoid any repeat of the 2008 credit crunch. Good luck with that guys.
The Canadian Dollar lost some ground against the US Dollar though because events in Canada’s chief export market are bound to affect the Canadian economy and therefore the Canadian Dollar.
Sterling had a poor day after the Chancellor of the Exchequer announced an additional £800 million of taxes on the UK banks. If you look at the profits and bonus pots, this is a trifling amount for the banks but it did harm sentiment. I guess that is perhaps another £800 million which won’t be spent on champagne, cars and houses in the south east and Edinburgh. Sterling regained a little ground overnight when the British Retail Consortium announced that January’s shop price inflation was 2.5% year on year. That’s positive for the Pound but the sharp drop on retail activity in December due to poor weather will have had an effect along with higher commodity and food prices.
The New Zealand Dollar weakened after NZ Finance Minister, Bill English told the NZ Parliament it was “possible” that the NZ economy slipped into recession in the second half of 2010. With the global slowdown it is not so surprising but having a government minister voice such a concern has a greater impact than just general sentiment. The NZ Dollar is weaker than its Australian counterpart today but still within recent ranges.
Today brings UK and German trade balance data. We have already seen the German data which was disappointing. That was to be expected because recent manufacturing and production data has been poor but we are expecting the UK trade gap to have shrunk a tad so that will be good for the Pound. And the Bank of England starts its two day interest rate setting meeting today. We don’t expect any change when the announcement is made tomorrow but traders are split over when we will start to see UK interest rate hikes so they will be desperately seeking clues in the statement after the meeting.
And elsewhere, Australian employment data is due tonight and that should show 17,500 fresh jobs were created in January. That’ll be the 11th straight month of gains if it is true and the Australian Dollar should strengthen on the news. If you need to purchase Aussie Dollars in the short term, you may wish to either do so today to avoid any risk or place an order in the market overnight to take advantage of the expected volatility.
I’ll leave you with news of a theme park ride that appears to be scarier than the designers imagined. Apparently, Storm Surge, a new rise at Thorpe Park has had to be moved because the guys building the ride were seeing headless monk ghosts on site. It was being built above the site of an ancient abbey and people who believe that kind of thing are investigating.
Quote
It is my belief, you cannot deal with the most serious things in the world unless you understand the most amusing.
Winston Churchill
Wednesday, 9 February 2011
Great news everyone; chocolate is as good for you as fruit juice. That is now an official undeniable fact because researchers have said so and they are clever and they should know. Chocolate is high in antioxidants and therefore good for you. The study was carried out by the Hershey Centre for Health and Nutrition, in Pennsylvania. Yes, you have spotted the problem here. That is ‘Hershey’ as in the American chocolate company. The fact that the research was carried out by a chocolate company kind of takes the excitement out of it doesn’t it.
So while you put that slab of Dairy Milk back in the cupboard and retrieve the orange juice I’ll cover what also happened yesterday and no I am not sponsored by the Bank of England so this is all reliable stuff. The lack of data yesterday didn’t seem to hamper trading activity. US consumers borrowed a little more money and that is a tentative sign of increasing confidence. The US Dollar though failed to capitalise on the news and remains relatively weak this morning. It did though make gains against the Euro but so did Sterling and a whole bunch of other currencies so it was nothing for the US Dollar to write home about.
The Euro was on the back foot against Sterling in particular as analysts started to factor in earlier interest rate hikes from the UK than from the Eurozone. The highly unexpected drop in German factory orders did little to alter that impression and we get the bank of England’s take on the interest rate speculation on Thursday but no change is expected in either the base rate or the level of the quantitative easing program. Without a press conference, we will almost certainly have to wait another fortnight to get the minutes from this meeting before we can assess the mood amongst Monetary Policy committee members. Overnight news from the British Retail Consortium that January retail sales were up on the previous January looked good on the surface but the fact is that January 2010 was a snowy month so the shops were quiet. And the other overnight report from the Royal Institution of Chartered Surveyors showed that house prices in the UK declined marginally in January. Sterling hasn’t really reacted to either data.
Elsewhere, the Canadian Dollar weakened as oil prices slipped. Traders are less concerned about the Egyptian protests causing supply problems, so the wholesale markets dipped a tad. Oil is one of Canada’s chief exports. This correction in the value of the CAD was expected after it rallied when Friday’s Canadian employment report was so positive.
The Australian Dollar stayed pretty flat after job adverts were shown to have risen last month and because we are expecting an 11th straight month of employment growth when that data is released on the 10th Feb and because there is a seemingly immovable confidence in the Australian Dollar in spite of the recent floods, cyclones and fires that Aussies have had to endure. Australian Treasurer Wayne Swan said yesterday that this series of disasters would undoubtedly "thump" Australian economic growth but that the recovery and rebuilding would redress the balance. On an optimistic note for those trying to move to Australia, Swan said that labour market shortages (a lack of suitably qualified employees in other words) would continue to be a problem. There is a chance then that the Australian Authorities will open up more work related visas in the months ahead.
Today is another day light on data but this one does carry a couple of speeches by two Chairmen of US Federal Reserve Banks so anything could happen.
And finally, the search for the cure for the common cold may not be over but a team at Oxford University may have discovered how to combat all strains of influenza. Apart from potentially making gazillions of pounds from the discovery, the team will write their place in history but there is a downside. In the future, what are we going to call the sniffle that makes men bedridden if it can’t be called manflu anymore?
Chocolate quote
The 12-step chocoholics program:
NEVER BE MORE THAN 12 STEPS AWAY FROM CHOCOLATE!
Terry Moore
So while you put that slab of Dairy Milk back in the cupboard and retrieve the orange juice I’ll cover what also happened yesterday and no I am not sponsored by the Bank of England so this is all reliable stuff. The lack of data yesterday didn’t seem to hamper trading activity. US consumers borrowed a little more money and that is a tentative sign of increasing confidence. The US Dollar though failed to capitalise on the news and remains relatively weak this morning. It did though make gains against the Euro but so did Sterling and a whole bunch of other currencies so it was nothing for the US Dollar to write home about.
The Euro was on the back foot against Sterling in particular as analysts started to factor in earlier interest rate hikes from the UK than from the Eurozone. The highly unexpected drop in German factory orders did little to alter that impression and we get the bank of England’s take on the interest rate speculation on Thursday but no change is expected in either the base rate or the level of the quantitative easing program. Without a press conference, we will almost certainly have to wait another fortnight to get the minutes from this meeting before we can assess the mood amongst Monetary Policy committee members. Overnight news from the British Retail Consortium that January retail sales were up on the previous January looked good on the surface but the fact is that January 2010 was a snowy month so the shops were quiet. And the other overnight report from the Royal Institution of Chartered Surveyors showed that house prices in the UK declined marginally in January. Sterling hasn’t really reacted to either data.
Elsewhere, the Canadian Dollar weakened as oil prices slipped. Traders are less concerned about the Egyptian protests causing supply problems, so the wholesale markets dipped a tad. Oil is one of Canada’s chief exports. This correction in the value of the CAD was expected after it rallied when Friday’s Canadian employment report was so positive.
The Australian Dollar stayed pretty flat after job adverts were shown to have risen last month and because we are expecting an 11th straight month of employment growth when that data is released on the 10th Feb and because there is a seemingly immovable confidence in the Australian Dollar in spite of the recent floods, cyclones and fires that Aussies have had to endure. Australian Treasurer Wayne Swan said yesterday that this series of disasters would undoubtedly "thump" Australian economic growth but that the recovery and rebuilding would redress the balance. On an optimistic note for those trying to move to Australia, Swan said that labour market shortages (a lack of suitably qualified employees in other words) would continue to be a problem. There is a chance then that the Australian Authorities will open up more work related visas in the months ahead.
Today is another day light on data but this one does carry a couple of speeches by two Chairmen of US Federal Reserve Banks so anything could happen.
And finally, the search for the cure for the common cold may not be over but a team at Oxford University may have discovered how to combat all strains of influenza. Apart from potentially making gazillions of pounds from the discovery, the team will write their place in history but there is a downside. In the future, what are we going to call the sniffle that makes men bedridden if it can’t be called manflu anymore?
Chocolate quote
The 12-step chocoholics program:
NEVER BE MORE THAN 12 STEPS AWAY FROM CHOCOLATE!
Terry Moore
I think we had three excellent rugby matches over the weekend, some disappointing cricket and more goals in the premiership football than you can shake a transfer deal at. You would normally use a stick for shaking at such things but transfer deals are so much bigger than any stick.
The upshot of last week was a series of pretty positive US data culminating in Friday’s positive employment report. The headline numbers from that report were that 36,000 jobs were created in January and the unemployment rate fell to just over 9%. That’s all good but the market expectation was higher on the job count, poor weather through January will undoubtedly have skewed the figures somewhat and the unemployment rate shifted more on a statistical adjustment in the base level than through any real life activity. No surprise then that the US Dollar didn’t rally significantly although it does remain strong this morning. This week is a bit light on US data so we may find the Dollar is adrift, buffeted by influences from elsewhere.
The Egyptian uprising is just such an event. The risk that instability in Egypt poses to the rest of the middle eastern and north African region is significant and that kind of geo-political risk is bound to cause some consternation amongst investors who generally take the path of least resistance and buy safe secure rock solid investments like government bonds in America, Japan, Switzerland etc. You’ll notice that in the value of these currencies.
In spite of this, the Euro remains rather better supported than it has a right to be - in my opinion. Sorry IMHO (in my humble opinion as people seem to put in blogs these days). Is there anything humble in assuming people know what your acronyms mean? I’m not sure but the fact is that the slightly more dovish tone of the European Central Bank’s rhetoric mirrors that of the US Federal Reserve and we expect little chance of an interest rate hike from either side of the Atlantic any time soon. The failure of the EU finance ministers to agree a reform of the Euro support package was disappointing but not unexpected. Today’s German Factory Orders data could well be very positive but that will just serve to exacerbate the argument over whether Germany can or should continue to be the sugar daddy to the rest of the Eurozone. I think the answer you would get from German voters compared to those in Ireland or Spain would be a little different.
The UK interest rate story could be a little different but the BOE would have to have a complete change of emphasis if it were to switch to an interest rate hiking plan before the 3rd quarter of the year. And that will be this week’s major news; the Bank of England’s interest rate decision. No change is forecast in either the base rate or the quantitative easing budget but bond traders believe we are approaching a time when UK interest rate will start to rise and, as mentioned above, the favourite guess is quarter 3.
The Australian Dollar is being hampered by the recent floods and storms in Queensland and now Western Australia is facing wildfires. These plus China’s state aim of slowing their economy and therefore their imports, are chipping away at Australian Dollar strength but the AUD remains pretty well supported due to its relatively robust economy and the allure of a 4.75% base rate. The release of poor December retail sales data won’t have helped the Aussie Dollar but the maths needed to extract the flood effects are so complex and entirely subjective so it may be we have to wait a month for the January numbers to get a clearer picture.
The week will be less crammed with data but no less volatile for it. The few choice morsels we do get to digest will keep even the most bored trader busy. Speeches from all manner of central bankers, retail, manufacturing and trade balance data from the UK as well as the Bank of England decision to flutter Sterling traders’ hearts, German inflation data and the Eurozone monthly bulletin to rattle the euro and just a smattering from America. That’ll leave the US Dollar to drift on external influences.
And if the currency markets aren’t exciting enough for you then there must be something else out there to keep you entertained. The Speakers wife, Sally Bercow seems to have reinvented herself as a giggling bimbette; such is the lure of ‘celebrity in exchange for dignity’ and the Top Gear presenters have decided that receiving complaints about racism is a new sport so they incite them by the bucket load. They should be lucky they didn’t mention rumours being spread by ‘jungle drums’. The Chair of one NHS watchdog in Wiltshire made the mistake of doing so and the accusation that her remark was racist caused tens of thousands of taxpayers’ pounds to be wasted on an enquiry.
Quote
“Tonight, the new Dodge Viper, which is the American equivalent of a sportscar... in the same way, I guess, that George Bush is the equivalent of a President.”
Jeremy Clarkson
The upshot of last week was a series of pretty positive US data culminating in Friday’s positive employment report. The headline numbers from that report were that 36,000 jobs were created in January and the unemployment rate fell to just over 9%. That’s all good but the market expectation was higher on the job count, poor weather through January will undoubtedly have skewed the figures somewhat and the unemployment rate shifted more on a statistical adjustment in the base level than through any real life activity. No surprise then that the US Dollar didn’t rally significantly although it does remain strong this morning. This week is a bit light on US data so we may find the Dollar is adrift, buffeted by influences from elsewhere.
The Egyptian uprising is just such an event. The risk that instability in Egypt poses to the rest of the middle eastern and north African region is significant and that kind of geo-political risk is bound to cause some consternation amongst investors who generally take the path of least resistance and buy safe secure rock solid investments like government bonds in America, Japan, Switzerland etc. You’ll notice that in the value of these currencies.
In spite of this, the Euro remains rather better supported than it has a right to be - in my opinion. Sorry IMHO (in my humble opinion as people seem to put in blogs these days). Is there anything humble in assuming people know what your acronyms mean? I’m not sure but the fact is that the slightly more dovish tone of the European Central Bank’s rhetoric mirrors that of the US Federal Reserve and we expect little chance of an interest rate hike from either side of the Atlantic any time soon. The failure of the EU finance ministers to agree a reform of the Euro support package was disappointing but not unexpected. Today’s German Factory Orders data could well be very positive but that will just serve to exacerbate the argument over whether Germany can or should continue to be the sugar daddy to the rest of the Eurozone. I think the answer you would get from German voters compared to those in Ireland or Spain would be a little different.
The UK interest rate story could be a little different but the BOE would have to have a complete change of emphasis if it were to switch to an interest rate hiking plan before the 3rd quarter of the year. And that will be this week’s major news; the Bank of England’s interest rate decision. No change is forecast in either the base rate or the quantitative easing budget but bond traders believe we are approaching a time when UK interest rate will start to rise and, as mentioned above, the favourite guess is quarter 3.
The Australian Dollar is being hampered by the recent floods and storms in Queensland and now Western Australia is facing wildfires. These plus China’s state aim of slowing their economy and therefore their imports, are chipping away at Australian Dollar strength but the AUD remains pretty well supported due to its relatively robust economy and the allure of a 4.75% base rate. The release of poor December retail sales data won’t have helped the Aussie Dollar but the maths needed to extract the flood effects are so complex and entirely subjective so it may be we have to wait a month for the January numbers to get a clearer picture.
The week will be less crammed with data but no less volatile for it. The few choice morsels we do get to digest will keep even the most bored trader busy. Speeches from all manner of central bankers, retail, manufacturing and trade balance data from the UK as well as the Bank of England decision to flutter Sterling traders’ hearts, German inflation data and the Eurozone monthly bulletin to rattle the euro and just a smattering from America. That’ll leave the US Dollar to drift on external influences.
And if the currency markets aren’t exciting enough for you then there must be something else out there to keep you entertained. The Speakers wife, Sally Bercow seems to have reinvented herself as a giggling bimbette; such is the lure of ‘celebrity in exchange for dignity’ and the Top Gear presenters have decided that receiving complaints about racism is a new sport so they incite them by the bucket load. They should be lucky they didn’t mention rumours being spread by ‘jungle drums’. The Chair of one NHS watchdog in Wiltshire made the mistake of doing so and the accusation that her remark was racist caused tens of thousands of taxpayers’ pounds to be wasted on an enquiry.
Quote
“Tonight, the new Dodge Viper, which is the American equivalent of a sportscar... in the same way, I guess, that George Bush is the equivalent of a President.”
Jeremy Clarkson
Saturday, 5 February 2011
February 1, 2011 -- Is the US's financial position hopeless?
I've studied the US finances backwards and forwards, and as I see it the US's financial position most definitely is hopeless.
The actual posted national debt of the US is $14.1 trillion.
However, the US reports its finances on a cash basis while
omitting its unfunded obligations in such items as Social
Security, Medicare and Medicaid and various other entitlements.
If the entitlements are included, the total national debt
including unfunded obligations would be over $100 trillion.
Wait, it gets worse. Entitlements, defense and interest on the
national debt takes up 80% of the entire budget of the
US. That leaves just 20% that can be sliced away if the US wants
to actually cut into its deficits. So what's left to cut? Actually,
nothing that's politically feasible.
To make the picture even more grotesque, the first group of baby
boomers is now reaching the retirement age of 65. As they leave
the nation's work force, the problem of financing Social Security
becomes more difficult if not impossible.
So what in God's name is the answer to all this? How will the
US's finances be handled? There are only two ways that I can
come up with:
The first is -- to default, just declare that the nation
is dead broke and it can't meet its obligations. That would be
tantamount to admitting that the US is less than a third-rate
power, a dying banana republic. Unthinkable.
The second way would be to devalue the currency to the
point where obligatory dollar debts would be financed or paid
off with dollars equal to pennies or nickels.
It's now really a question of timing. With the national debt
compounding at rising rates, the problem of financing the debt
becomes ever-more pressing. For this reason, I believe the process
of devaluing the dollar will have to be speeded up.
From the government's standpoint, the deliberate devaluation
strategy must be kept secret from the public. They must not be
allowed to know that the currency they've worked so hard for,
that the currency their savings are in, is to be crushed
into a shadow of its former self. Ultimately, the awful truth
must come out.
At some point the government may be forced to be honest.
The phrase will be three words that I coined many years ago:
Inflate or die. And, the government's answer will be,
"You wouldn't want this nation to die, would you?"
We have no choice, but to pay off, or carry, the debts, with
a currency that must be devalued down to ten cents on the dollar.
You don't have to be a genius to read the US Dollar chart. Most recently, the Dollar Index dropped through the bottom of the consolidation. Today the cash Dollar Index plunged again (OMG) to 76.99!
At this point, the Dollar Index is oversold and probably overdue for some kind of a rally.
I've studied the US finances backwards and forwards, and as I see it the US's financial position most definitely is hopeless.
The actual posted national debt of the US is $14.1 trillion.
However, the US reports its finances on a cash basis while
omitting its unfunded obligations in such items as Social
Security, Medicare and Medicaid and various other entitlements.
If the entitlements are included, the total national debt
including unfunded obligations would be over $100 trillion.
Wait, it gets worse. Entitlements, defense and interest on the
national debt takes up 80% of the entire budget of the
US. That leaves just 20% that can be sliced away if the US wants
to actually cut into its deficits. So what's left to cut? Actually,
nothing that's politically feasible.
To make the picture even more grotesque, the first group of baby
boomers is now reaching the retirement age of 65. As they leave
the nation's work force, the problem of financing Social Security
becomes more difficult if not impossible.
So what in God's name is the answer to all this? How will the
US's finances be handled? There are only two ways that I can
come up with:
The first is -- to default, just declare that the nation
is dead broke and it can't meet its obligations. That would be
tantamount to admitting that the US is less than a third-rate
power, a dying banana republic. Unthinkable.
The second way would be to devalue the currency to the
point where obligatory dollar debts would be financed or paid
off with dollars equal to pennies or nickels.
It's now really a question of timing. With the national debt
compounding at rising rates, the problem of financing the debt
becomes ever-more pressing. For this reason, I believe the process
of devaluing the dollar will have to be speeded up.
From the government's standpoint, the deliberate devaluation
strategy must be kept secret from the public. They must not be
allowed to know that the currency they've worked so hard for,
that the currency their savings are in, is to be crushed
into a shadow of its former self. Ultimately, the awful truth
must come out.
At some point the government may be forced to be honest.
The phrase will be three words that I coined many years ago:
Inflate or die. And, the government's answer will be,
"You wouldn't want this nation to die, would you?"
We have no choice, but to pay off, or carry, the debts, with
a currency that must be devalued down to ten cents on the dollar.
You don't have to be a genius to read the US Dollar chart. Most recently, the Dollar Index dropped through the bottom of the consolidation. Today the cash Dollar Index plunged again (OMG) to 76.99!
At this point, the Dollar Index is oversold and probably overdue for some kind of a rally.
Friday, 4 February 2011
Yesterday was another very lively one with all manner of reasons for traders to be active. You will perhaps have seen the Pound recover some strength against the Euro after the European Central Bank left its base interest rate on hold and ECB President Jean Claude Trichet said inflation would remain contained in the medium term. As traders scaled back their expectations of EU interest rate hikes, the Euro weakened against most other currencies. The heads of the Eurozone countries are meeting this weekend and there are rumours that they may restructure the €440 billion support fund. Ahead of that meeting German Chancellor, Angela Merkel was quoted as saying "Spain has really done its homework and for that reason I think Spain is on a very good path," when someone at a press conference asked if Spain could rule out any chance of the need for a bailout package. IF that sets the tone for the weekend and we are to be assailed with positive messages from the meeting please don’t be surprised if we come in on Monday to a stronger Euro again.
The US Data was also strong yesterday ahead of today’s employment report which is expected to show another significant rise in jobs. That would be a relief to Federal Reserve Chairman Ben Bernanke who said last night that "Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established". His caution is understandable; US data has been improving but we haven’t yet seen that translate into significant employment increases. He added that "The economy, although it does look to be growing more quickly, is still in a deep hole." The US IS not alone in that though.
Other economies have been worryingly slow to recover but I guess that was always going to be the case in the UK as the government’s spending cuts and tax hikes start to hit home. However, a very positive rise in service sector activity, as reported in yesterday’s Purchasing Managers Index, does bode well for the future because, as we all know, the service sector is by far the largest sector of the economy. Traders ‘liked this’ in a facebook kind of way and bought the Pound. Sterling had a good day; strengthening against all but the so called ‘commodity currencies’. i.e. the currencies from countries which rely heavily on commodity output.
The Australian Dollar was stronger during the day yesterday as commodity prices rose again but it gathered even more strength overnight when the Reserve Bank of Australia upgraded its growth forecasts for the last half of the year because they see the rebuilding in Queensland boosting economic activity. That is stating the blindingly obvious to a large degree but traders are simple folk and they bought into the news. The New Zealand Dollar recovered some of its losses from the previous night as commodity prices rose; boosting the value of NZ exports and the Canadian Dollar did likewise. However, some of the Canadian Dollar’s strength is derived from its reliance on the US economy as an export market and the expectation of improved US employment data due later today.
Today also marks the start of the 6 Nations rugby tournament for 2011. We will get a chance to see if England has learned anything since the southern hemisphere tourists came calling. I sincerely hope so because it is about time England won the grand slam. Come on England...a bit of consistency please.
Quote
The will to win, the desire to succeed, the urge to reach your full potential... these are the keys that will unlock the door to personal excellence.
Confucius
The US Data was also strong yesterday ahead of today’s employment report which is expected to show another significant rise in jobs. That would be a relief to Federal Reserve Chairman Ben Bernanke who said last night that "Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established". His caution is understandable; US data has been improving but we haven’t yet seen that translate into significant employment increases. He added that "The economy, although it does look to be growing more quickly, is still in a deep hole." The US IS not alone in that though.
Other economies have been worryingly slow to recover but I guess that was always going to be the case in the UK as the government’s spending cuts and tax hikes start to hit home. However, a very positive rise in service sector activity, as reported in yesterday’s Purchasing Managers Index, does bode well for the future because, as we all know, the service sector is by far the largest sector of the economy. Traders ‘liked this’ in a facebook kind of way and bought the Pound. Sterling had a good day; strengthening against all but the so called ‘commodity currencies’. i.e. the currencies from countries which rely heavily on commodity output.
The Australian Dollar was stronger during the day yesterday as commodity prices rose again but it gathered even more strength overnight when the Reserve Bank of Australia upgraded its growth forecasts for the last half of the year because they see the rebuilding in Queensland boosting economic activity. That is stating the blindingly obvious to a large degree but traders are simple folk and they bought into the news. The New Zealand Dollar recovered some of its losses from the previous night as commodity prices rose; boosting the value of NZ exports and the Canadian Dollar did likewise. However, some of the Canadian Dollar’s strength is derived from its reliance on the US economy as an export market and the expectation of improved US employment data due later today.
Today also marks the start of the 6 Nations rugby tournament for 2011. We will get a chance to see if England has learned anything since the southern hemisphere tourists came calling. I sincerely hope so because it is about time England won the grand slam. Come on England...a bit of consistency please.
Quote
The will to win, the desire to succeed, the urge to reach your full potential... these are the keys that will unlock the door to personal excellence.
Confucius
Thursday, 3 February 2011
I wouldn’t want to be P Puff Diddly Daddly Diddy’s shoes (or whatever the American rapper calls himself these days). Joyce Wilson Turks, a 31 year old American mother is suing him for over a trillion dollars for a variety of reasons. He allegedly stole a casino chip of hers which was worth “10 zillion dollars” (an accurate quote) and according to Turk, he “went through Kim Porter and Rodney King and knocked down the WTC (World Trade Centre) and then they all came and knocked my children down. Set me up to be on disability and disabled my baby. He put my baby in a wheelchair". I am offering odds that the rapper wins.
Away from the gravitas of these serious legal arguments, yesterday’s three big data releases were all pretty upbeat so investors were understandably a bit bolder in their slide away from safe havens and into more lucrative investments away from the US Treasury, the Japanese Yen and the Swiss Franc. These currencies weakened as you have already gathered.
So the data showed a sharp rise in producer price inflation within the Eurozone. That should seep into higher retail prices eventually so it is highly significant at a time when the European Central Bank is already wrestling with high inflation and increasing growth but not wanting to risk unsettling the recovery with higher interest rates. Today’s interest rate decision from the ECB looks o be a foregone conclusion; no change is expected but the tone of the statement and press conference will have to reflect a month of improving manufacturing data and a slowdown in the decline in other figures. Will he be bold enough to suggest an imminent rise in interest rates? Nah, this is Jean Claude Trichet we are talking about here. Never has there been a more cautious man but we will still watch his comments with anticipation.
The second of yesterday’s big data releases was the upturn in UK construction sentiment as measured by the Purchasing Managers Index which popped up above the middle ground of 50, indicating potential for growth in the sector. Sterling had a very middling day with little discernable movement other than a slight increase against the US Dollar and the New Zealand Dollar.
The US Dollar was weakened by the flows of funds away from US assets and into higher yielding assets elsewhere and, perversely enough, it was positive US data that helped that flow. The ADP payroll report, a piece of data based largely on office hiring and firing was very positive. We knew that last month’s report showing a rise in employment of 297,000 was going to be revised downward and it was...by 50,000. That’s a pretty big margin of error really but the January figure was still well above market expectations and that may encourage traders ahead of Friday’s official employment report.
The New Zealand Dollar, unlike its Australian counterpart, was weaker on the day. Unemployment rose by 0.4% up to 6.8%. That’s a significant rise and it may delay any plans the Reserve Bank of New Zealand had for interest rate hikes.
The Aussie Dollar, by comparison, had a good day; Cyclone Yasi did a lot of damage but there appears to have been no loss of life. Good preparation is being praised for that. This morning’s strength in the Australian Dollar is being seen as a relief rally and I guess relief doesn’t come much greater than surviving 160mph winds but the data showing building approvals on the rise has also helped the Aussie Dollar.
And a quick word on the Canadian Dollar....it’s still strong. That’s about all that can be said of the Canadian Dollar. It reacts well to good US data because that indicates increased demand for Canadian exports and it reacts well to poor US data because that strengthens the US Dollar and drags the CAD with it. Anyone needing to buy CAD must be wondering what they have to do to get a good exchange rate. All you can do is use the market volatility and place 24 hour orders but choosing the position for those orders is the key.
And finally, I don’t know who funds this kind of research but there must be a fund to support research into the blindingly obvious. University of California researchers have discovered that holding a loved one’s hand or hugging them can decrease pain. So mothers saying ‘rub it better’ or ‘kiss it better’ or giving their children hugs for all these millennia weren’t wasting their time. Holding hands in times of stress works and thank goodness for that. Billions of teenagers will be glad that the embarrassment of having their mum or dad hug them in front of their friends wasn’t an entirely wasted trauma.
Quote
When you go into court you are putting your fate into the hands of twelve people who weren't smart enough to get out of jury duty.
Norm Crosby
Away from the gravitas of these serious legal arguments, yesterday’s three big data releases were all pretty upbeat so investors were understandably a bit bolder in their slide away from safe havens and into more lucrative investments away from the US Treasury, the Japanese Yen and the Swiss Franc. These currencies weakened as you have already gathered.
So the data showed a sharp rise in producer price inflation within the Eurozone. That should seep into higher retail prices eventually so it is highly significant at a time when the European Central Bank is already wrestling with high inflation and increasing growth but not wanting to risk unsettling the recovery with higher interest rates. Today’s interest rate decision from the ECB looks o be a foregone conclusion; no change is expected but the tone of the statement and press conference will have to reflect a month of improving manufacturing data and a slowdown in the decline in other figures. Will he be bold enough to suggest an imminent rise in interest rates? Nah, this is Jean Claude Trichet we are talking about here. Never has there been a more cautious man but we will still watch his comments with anticipation.
The second of yesterday’s big data releases was the upturn in UK construction sentiment as measured by the Purchasing Managers Index which popped up above the middle ground of 50, indicating potential for growth in the sector. Sterling had a very middling day with little discernable movement other than a slight increase against the US Dollar and the New Zealand Dollar.
The US Dollar was weakened by the flows of funds away from US assets and into higher yielding assets elsewhere and, perversely enough, it was positive US data that helped that flow. The ADP payroll report, a piece of data based largely on office hiring and firing was very positive. We knew that last month’s report showing a rise in employment of 297,000 was going to be revised downward and it was...by 50,000. That’s a pretty big margin of error really but the January figure was still well above market expectations and that may encourage traders ahead of Friday’s official employment report.
The New Zealand Dollar, unlike its Australian counterpart, was weaker on the day. Unemployment rose by 0.4% up to 6.8%. That’s a significant rise and it may delay any plans the Reserve Bank of New Zealand had for interest rate hikes.
The Aussie Dollar, by comparison, had a good day; Cyclone Yasi did a lot of damage but there appears to have been no loss of life. Good preparation is being praised for that. This morning’s strength in the Australian Dollar is being seen as a relief rally and I guess relief doesn’t come much greater than surviving 160mph winds but the data showing building approvals on the rise has also helped the Aussie Dollar.
And a quick word on the Canadian Dollar....it’s still strong. That’s about all that can be said of the Canadian Dollar. It reacts well to good US data because that indicates increased demand for Canadian exports and it reacts well to poor US data because that strengthens the US Dollar and drags the CAD with it. Anyone needing to buy CAD must be wondering what they have to do to get a good exchange rate. All you can do is use the market volatility and place 24 hour orders but choosing the position for those orders is the key.
And finally, I don’t know who funds this kind of research but there must be a fund to support research into the blindingly obvious. University of California researchers have discovered that holding a loved one’s hand or hugging them can decrease pain. So mothers saying ‘rub it better’ or ‘kiss it better’ or giving their children hugs for all these millennia weren’t wasting their time. Holding hands in times of stress works and thank goodness for that. Billions of teenagers will be glad that the embarrassment of having their mum or dad hug them in front of their friends wasn’t an entirely wasted trauma.
Quote
When you go into court you are putting your fate into the hands of twelve people who weren't smart enough to get out of jury duty.
Norm Crosby
Wednesday, 2 February 2011
As traders try to establish what will happen in interest rates around the world, they face all manner of conflicting influences. The National Institute for Economic and Social Research (NIESR) sees UK interest rates being hiked in three separate quarter point steps through 2011. Yesterday’s UK money supply and lending data would suggest this is a very optimistic view. Lending remains subdued as either banks make borrowing conditions too tough or consumers and small businesses are too nervous to get involved in any long term planning. It is probably a combination of both factors but either way, a rise in interest costs would further restrict that sector and I can’t imagine the Bank of England; having suffered rampant inflation and all the criticism that entails, would want to stifle the smattering of fragile growth in this way. Nevertheless, the manufacturing activity report was at a record high and that was enough to boost the Pound. It would appear that Britain may see manufacturing and industrial production being the driving force for the economic recovery, rather than the service sector.
Yesterday’s other data included Eurozone unemployment which seems to have levelled off and many believe it peaked in the last quarter of 2010. We also had the Eurozone purchasing managers’ index which was rather more upbeat than many had expected. The Euro was buoyed by this further strengthened; flattered even, by the weakness of the US Dollar as investors move away from safe havens and seek financial return elsewhere. The Euro strengthened against most currencies but lost a little bit of ground against the Pound as the lure of higher UK interest rates caused a bit of Sterling buying.
The US Dollar weakened yesterday as investors, seeing improving production and output numbers around the world, chose to strike from the safety of the US treasury certificate and sally forth to seek the holy grail of income from slightly riskier assets. We saw that same fall in value in the other traditional safe havens like the Japanese Yen.
Elsewhere, as if Queensland in Australia hadn’t suffered enough, now a hurricane is approaching the coast and threatening to damage whatever wasn’t washed away by the floods. I don’t know what the people of Queensland have done to upset the gods but they ain’t happy. The financial impact on Australia will be calculated as the hatches are battened down and the fact that the mining and agricultural industries will be ht again means there will be an impact on Australian output and growth. However, the Australian Dollar is likely to see some strength as an investment tool because a 4.75% base rate is a very attractive lure when rates elsewhere are so low.
The New Zealand Dollar is also getting a bit of a fillip from investor interest but also from rising commodity prices which have pushed the price of milk products up; a major part of NZ exports. Sterling is struggling once again below NZ$2.07.
Tiff Macklem, the Senior Deputy Governor of the Bank of Canada says he thinks it would be wrong to bet against the Canadian Dollar because he is quite bullish about the future. He was urging Canadian Businesses not to count on a weaker CAD in order to regain a competitive edge. However, with commodity demand and prices rising, the demand for Canadian exports ought to be enough to keep the Canadian Dollar strong.
Today’s data diary is a lot lighter than yesterday’s. The UK construction sector purchasing managers’ report, Eurozone producer prices and US ADP private payroll data are the three headline acts. With a speech by a voting member of the US Federal reserve this evening being the support act. Traders may well be a tad quieter over the next few days though as we await the official US employment data for January and as tension in Egypt appears to be abating. President Mubarak has agreed to step down in September but the pressure is on for him to go sooner than that. Hopefully, the situation will be resolved in the next few days and traders and investors can emerge from their hidey-holes and remove their tin hats with impunity.
As for other news, well I was astonished to hear that Scarborough council is teaching people how to hold a street party for the royal wedding on 29th April. Astonished that is, until I realised that the first lessons were how to do a risk assessment and how to arrange third party liability insurance. I guess we should be surprised; nothing happens these days without a risk assessment does it. Even parties arranged between friends and neighbours clearly carry risks that we have to insure against. Have fun at your parties everyone but for goodness sake, don’t take any risks eh!
Quotes on risk
Nothing will ever be attempted, if all possible objections must be first overcome.
Samuel Johnson
There are those who are so scrupulously afraid of doing wrong that they seldom venture to do anything.
Vauvenargues
It is when we all play safe that we create a world of utmost insecurity.
Dag Hammarskjold
Yesterday’s other data included Eurozone unemployment which seems to have levelled off and many believe it peaked in the last quarter of 2010. We also had the Eurozone purchasing managers’ index which was rather more upbeat than many had expected. The Euro was buoyed by this further strengthened; flattered even, by the weakness of the US Dollar as investors move away from safe havens and seek financial return elsewhere. The Euro strengthened against most currencies but lost a little bit of ground against the Pound as the lure of higher UK interest rates caused a bit of Sterling buying.
The US Dollar weakened yesterday as investors, seeing improving production and output numbers around the world, chose to strike from the safety of the US treasury certificate and sally forth to seek the holy grail of income from slightly riskier assets. We saw that same fall in value in the other traditional safe havens like the Japanese Yen.
Elsewhere, as if Queensland in Australia hadn’t suffered enough, now a hurricane is approaching the coast and threatening to damage whatever wasn’t washed away by the floods. I don’t know what the people of Queensland have done to upset the gods but they ain’t happy. The financial impact on Australia will be calculated as the hatches are battened down and the fact that the mining and agricultural industries will be ht again means there will be an impact on Australian output and growth. However, the Australian Dollar is likely to see some strength as an investment tool because a 4.75% base rate is a very attractive lure when rates elsewhere are so low.
The New Zealand Dollar is also getting a bit of a fillip from investor interest but also from rising commodity prices which have pushed the price of milk products up; a major part of NZ exports. Sterling is struggling once again below NZ$2.07.
Tiff Macklem, the Senior Deputy Governor of the Bank of Canada says he thinks it would be wrong to bet against the Canadian Dollar because he is quite bullish about the future. He was urging Canadian Businesses not to count on a weaker CAD in order to regain a competitive edge. However, with commodity demand and prices rising, the demand for Canadian exports ought to be enough to keep the Canadian Dollar strong.
Today’s data diary is a lot lighter than yesterday’s. The UK construction sector purchasing managers’ report, Eurozone producer prices and US ADP private payroll data are the three headline acts. With a speech by a voting member of the US Federal reserve this evening being the support act. Traders may well be a tad quieter over the next few days though as we await the official US employment data for January and as tension in Egypt appears to be abating. President Mubarak has agreed to step down in September but the pressure is on for him to go sooner than that. Hopefully, the situation will be resolved in the next few days and traders and investors can emerge from their hidey-holes and remove their tin hats with impunity.
As for other news, well I was astonished to hear that Scarborough council is teaching people how to hold a street party for the royal wedding on 29th April. Astonished that is, until I realised that the first lessons were how to do a risk assessment and how to arrange third party liability insurance. I guess we should be surprised; nothing happens these days without a risk assessment does it. Even parties arranged between friends and neighbours clearly carry risks that we have to insure against. Have fun at your parties everyone but for goodness sake, don’t take any risks eh!
Quotes on risk
Nothing will ever be attempted, if all possible objections must be first overcome.
Samuel Johnson
There are those who are so scrupulously afraid of doing wrong that they seldom venture to do anything.
Vauvenargues
It is when we all play safe that we create a world of utmost insecurity.
Dag Hammarskjold
Tuesday, 1 February 2011
Monday brought a batch of positive data from all corners of the world. The Eurozone inflation data kicked things off. This was the first estimate of January inflation and it came in at 2.4%; above the market consensus of 2.3%. As mentioned previously, it doesn’t mean the European Central Bank will start hiking interest rates because they have a lot of liquidity unwinding to do before that would have any appreciable effect but it is a positive for the Eurozone. However, the fact that the ECB can’t really act does mean the Euro weakened a tad on the day. Sterling managed to recover some of its recent losses and ended the day flirting with €1.17.
Other positive data included the Chicago Purchasing Managers Index; a business sentiment survey which posted its highest level since 1988. New orders, employment, inventories and prices paid are all measured and almost all elements of the survey were in the positive zone. We also had figures for US personal income and consumption and that too was a positive report. American’s, it seems, defied the poor weather and went to the malls. Income was up 0.4%, as forecast but expenditure rose 0.7%; well above expectations. US Dollar strength probably ought to be the market response but we have to remember that the US Dollar had been bought as a safe haven in the past few weeks so, as investors moved away from safety and into higher yielding assets elsewhere, the USD weakened on the day. The weakness in the USD and Euro flattered the Pound which rose right across the board and remains rather well supported this morning.
Overnight news that the Reserve Bank of Australia left its base interest rate on hold at 4.75% came as no real surprise but the RBA was very upbeat and that was a little unexpected. They say they will look beyond the immediate impact of the Queensland Floods and that, whilst this will cause a slowdown in the short term, they consider interest rates need to remain on hold for some time to come. The Governor said that they see inflation remaining within acceptable ranges for at least the next year. This is in contrast to higher inflation seen elsewhere but the Australian Dollar has been exceptionally strong, cutting the cost of imports. Whether Mr Stevens will be quite so relaxed if the Aussie Dollar weakens is open to debate. For now, Sterling is just about maintaining its hold on A$1.60.
Today is another big day for data with German and Eurozone wide unemployment figures, UK manufacturing and lending data and from the US we get manufacturing and construction figures. It looks set to be a lively one and we should be ready for surprises and upsets - yesterday taught us that.
I would imagine this is of little consequence to the Premiership football clubs who seem hell bent on losing money through lunatic levels of transfer fees. I am also sure none of this is important to Egyptians who are planning to get a million people on the street to demand the resignation of President Mubarak. Their actions, as laudable as they are, are also causing a great deal of uncertainty in other countries in the region and amongst western governments who have become used to dealing with Mubarak’s regime. Thankfully, the army says it will not fire on protesters. Let’s all keep our fingers crossed that this can all end without further loss of life.
Quote
A 'No' uttered from the deepest conviction is better than a 'Yes' merely uttered to please, or worse, to avoid trouble. Mohandas Gandhi
Other positive data included the Chicago Purchasing Managers Index; a business sentiment survey which posted its highest level since 1988. New orders, employment, inventories and prices paid are all measured and almost all elements of the survey were in the positive zone. We also had figures for US personal income and consumption and that too was a positive report. American’s, it seems, defied the poor weather and went to the malls. Income was up 0.4%, as forecast but expenditure rose 0.7%; well above expectations. US Dollar strength probably ought to be the market response but we have to remember that the US Dollar had been bought as a safe haven in the past few weeks so, as investors moved away from safety and into higher yielding assets elsewhere, the USD weakened on the day. The weakness in the USD and Euro flattered the Pound which rose right across the board and remains rather well supported this morning.
Overnight news that the Reserve Bank of Australia left its base interest rate on hold at 4.75% came as no real surprise but the RBA was very upbeat and that was a little unexpected. They say they will look beyond the immediate impact of the Queensland Floods and that, whilst this will cause a slowdown in the short term, they consider interest rates need to remain on hold for some time to come. The Governor said that they see inflation remaining within acceptable ranges for at least the next year. This is in contrast to higher inflation seen elsewhere but the Australian Dollar has been exceptionally strong, cutting the cost of imports. Whether Mr Stevens will be quite so relaxed if the Aussie Dollar weakens is open to debate. For now, Sterling is just about maintaining its hold on A$1.60.
Today is another big day for data with German and Eurozone wide unemployment figures, UK manufacturing and lending data and from the US we get manufacturing and construction figures. It looks set to be a lively one and we should be ready for surprises and upsets - yesterday taught us that.
I would imagine this is of little consequence to the Premiership football clubs who seem hell bent on losing money through lunatic levels of transfer fees. I am also sure none of this is important to Egyptians who are planning to get a million people on the street to demand the resignation of President Mubarak. Their actions, as laudable as they are, are also causing a great deal of uncertainty in other countries in the region and amongst western governments who have become used to dealing with Mubarak’s regime. Thankfully, the army says it will not fire on protesters. Let’s all keep our fingers crossed that this can all end without further loss of life.
Quote
A 'No' uttered from the deepest conviction is better than a 'Yes' merely uttered to please, or worse, to avoid trouble. Mohandas Gandhi
There was a subtle change in the mood of the market last week. The riots and attempts of political change in Egypt and elsewhere following the seemingly successful civil action in Tunisia have unsettled things. So whilst the data was pretty good from everywhere except the UK and US, the market mood seemed to turn towards less risk and more safe-haven trading.
As a consequence, we saw the US Dollar regain some stability, the Australasian Dollars lose some of their early gains and the likes of the Japanese Yen and Swiss Franc strengthen in fairly regimented fashion. Neither the Japanese nor the Swiss authorities will be pleased with that result; a strong currency damages export prospects and increases demand for overseas goods, unsettling the trade balance with the rest of the world.
In this melee, the various arguments over whether the Eurozone is in a good state or not were kind of lost. I have covered this in more detail below. But suffice to say, this is a big week for the Euro.
Sterling was weaker this morning than it was a week ago. The Pound was hit quite hard by last week’s very poor economy contraction data and harsh rises in inflation. Traders will focus very closely on this week’s released of the Purchasing Managers reports but, with the service sector being the larger part of the economy and last week’s GDP data showing a sharp downturn in the service sector, guess where most attention will be centred! A poor reading on this report could well see another couple of percentage points shaved off any Sterling related exchange rate.
The big US data this week will be the Employment report due for release, as it traditional, on the first Friday of the month. An improved figure is forecast and that may well calm some nerves but recent data from all point of the compass has held significant surprises so don’t go counting those chickens just yet. Today’s personal income and expenditure data may well rock the boat ahead of Friday’s data.
The move towards more risk-averse trading styles has had a detrimental effect on the Australian and New Zealand Dollars. Both are in demand when optimism rules the roost but the fear of sharp exchange rate correction means investment funds tend to abandon the high Australasian interest rates when traders get nervous. Last week’s Euro debate and the problems in Egypt have caused just such a nervous mood and both the Aussie and Kiwi Dollars are a tad weaker this morning. However, against the Pound, neither is exceptionally weak because the Pound is not exceptionally strong.
In addition to all the hard data, this is also an end of month day and, according to a group of psychologists, this is the happiest day of the year. They call it happy Monday because people have had their 1st payday of the year and many have looked at booking a holiday so we are all supposed to be really really happy. So cheer up and enjoy yourself. That’s an order.
Finally, satellite navigation systems should come with all manner of health warnings in these health and safety conscious times. The main warning should be “Don’t believe the satnav if your eyes tell you different”. People seem to override any common sense they might have when they switch the TomTom on. A 70 something couple in Germany were on a back road near the Austrian border when the satnav in their hire care suggested then need to turn left... so they did....straight into the side of a Church. You would think a church was a large enough object and that common sense would have been put ahead of blind subservience to the satnav but No. The hire car was written off and the church needed tens of thousands of Euros spent on resetting the foundations. “Attention, you have reached the end of your hire car’s life and your IQ. Please call the RAC at your earliest convenience.”
Currency - GBP / Euro Christine Lagarde, the French Economy Minister claimed that the success of Tuesday's € 5 billion five-year bond auction had boosted confidence in the 17 member Eurozone. The funds were being raised to support Ireland and to settle nerves in the market and it has to be said that they were oversubscribed with 9 times as many bids as there were funds but her Mme Lagarde’s claim that this was “an indication that on the market, confidence, the Eurozone has turned the corner," may be perhaps overstating the matter. When the whole of the EU, including Germany as well s the International Monetary Fund are standing four square behind a bond, I can’t help thinking it isn’t the Eurozone that is being supported; more a case that the guaranteed return that is being taken advantage of.
Today we get the first estimate of December inflation from the Eurozone and, if the German data is to be seen as a guide, we may well get a slight dip compared to expectations. That would be negative for the Euro, especially if, when they have their press conference on Thursday the European Central Bank remains sanguine about the prospects of interest rate rises. No change in rates is expected this month but traders are desperately trying to assess when interest rate hikes will commence. It has to be said though that even if the ECB hiked interest rates in May, which appears to be the earliest expectation, the amount of liquid cash washing around the system means banks would not need to go to the ECB for funds and would find their money cheaper elsewhere. The effect would be almost imperceptible. Reducing the amount of fiscal support first would appear to be the most likely scenario. And that would certainly strengthen the Euro if done well. The problem is that the last thing the ECB wants to be seen to do is strengthen the Euro, so they have a very interesting high wire act to perform.
Quote
The man that sets out to carry a cat by its tail learns something that will always be useful and which will never grow dim or doubtful.”
Mark Twain
As a consequence, we saw the US Dollar regain some stability, the Australasian Dollars lose some of their early gains and the likes of the Japanese Yen and Swiss Franc strengthen in fairly regimented fashion. Neither the Japanese nor the Swiss authorities will be pleased with that result; a strong currency damages export prospects and increases demand for overseas goods, unsettling the trade balance with the rest of the world.
In this melee, the various arguments over whether the Eurozone is in a good state or not were kind of lost. I have covered this in more detail below. But suffice to say, this is a big week for the Euro.
Sterling was weaker this morning than it was a week ago. The Pound was hit quite hard by last week’s very poor economy contraction data and harsh rises in inflation. Traders will focus very closely on this week’s released of the Purchasing Managers reports but, with the service sector being the larger part of the economy and last week’s GDP data showing a sharp downturn in the service sector, guess where most attention will be centred! A poor reading on this report could well see another couple of percentage points shaved off any Sterling related exchange rate.
The big US data this week will be the Employment report due for release, as it traditional, on the first Friday of the month. An improved figure is forecast and that may well calm some nerves but recent data from all point of the compass has held significant surprises so don’t go counting those chickens just yet. Today’s personal income and expenditure data may well rock the boat ahead of Friday’s data.
The move towards more risk-averse trading styles has had a detrimental effect on the Australian and New Zealand Dollars. Both are in demand when optimism rules the roost but the fear of sharp exchange rate correction means investment funds tend to abandon the high Australasian interest rates when traders get nervous. Last week’s Euro debate and the problems in Egypt have caused just such a nervous mood and both the Aussie and Kiwi Dollars are a tad weaker this morning. However, against the Pound, neither is exceptionally weak because the Pound is not exceptionally strong.
In addition to all the hard data, this is also an end of month day and, according to a group of psychologists, this is the happiest day of the year. They call it happy Monday because people have had their 1st payday of the year and many have looked at booking a holiday so we are all supposed to be really really happy. So cheer up and enjoy yourself. That’s an order.
Finally, satellite navigation systems should come with all manner of health warnings in these health and safety conscious times. The main warning should be “Don’t believe the satnav if your eyes tell you different”. People seem to override any common sense they might have when they switch the TomTom on. A 70 something couple in Germany were on a back road near the Austrian border when the satnav in their hire care suggested then need to turn left... so they did....straight into the side of a Church. You would think a church was a large enough object and that common sense would have been put ahead of blind subservience to the satnav but No. The hire car was written off and the church needed tens of thousands of Euros spent on resetting the foundations. “Attention, you have reached the end of your hire car’s life and your IQ. Please call the RAC at your earliest convenience.”
Currency - GBP / Euro Christine Lagarde, the French Economy Minister claimed that the success of Tuesday's € 5 billion five-year bond auction had boosted confidence in the 17 member Eurozone. The funds were being raised to support Ireland and to settle nerves in the market and it has to be said that they were oversubscribed with 9 times as many bids as there were funds but her Mme Lagarde’s claim that this was “an indication that on the market, confidence, the Eurozone has turned the corner," may be perhaps overstating the matter. When the whole of the EU, including Germany as well s the International Monetary Fund are standing four square behind a bond, I can’t help thinking it isn’t the Eurozone that is being supported; more a case that the guaranteed return that is being taken advantage of.
Today we get the first estimate of December inflation from the Eurozone and, if the German data is to be seen as a guide, we may well get a slight dip compared to expectations. That would be negative for the Euro, especially if, when they have their press conference on Thursday the European Central Bank remains sanguine about the prospects of interest rate rises. No change in rates is expected this month but traders are desperately trying to assess when interest rate hikes will commence. It has to be said though that even if the ECB hiked interest rates in May, which appears to be the earliest expectation, the amount of liquid cash washing around the system means banks would not need to go to the ECB for funds and would find their money cheaper elsewhere. The effect would be almost imperceptible. Reducing the amount of fiscal support first would appear to be the most likely scenario. And that would certainly strengthen the Euro if done well. The problem is that the last thing the ECB wants to be seen to do is strengthen the Euro, so they have a very interesting high wire act to perform.
Quote
The man that sets out to carry a cat by its tail learns something that will always be useful and which will never grow dim or doubtful.”
Mark Twain
Subscribe to:
Posts (Atom)