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27, September, 2010
Today marks the start of a busy week in the FX markets. A large amount of important data releases are scheduled for release this week and several prominent central bankers are due to speak. This is set against the backdrop of further intervention by Japanese authorities, aimed at curbing Yen strength and further grumblings by the US of China’s refusal to let the Yuan appreciate to fair levels against the Dollar.
The Greenback is yet to recover from last weeks Fed meeting and continues to struggle across the board, this afternoon the Chicago Fed National Activity Index will probably show a further slowdown in economic activity so expect the Euro and Sterling to cling stubbornly onto the gains from last week until tomorrow.
Later in the week US GDP is announced, with forecasts of a slight increase from 1.6 to 1.8 per cent. The Fed & markets will be following the figures intently, as disappointing figures may mark the start of the “exceptional measures” the Fed mentioned in the last meeting.
UK GDP figures are released on Tuesday; again the number is very important to the future path of Sterling, with positive growth vital in the face of the steep government spending cuts just over the horizon. The fear among some economists is the announced cuts reduce growth below the levels needed to service existing debt payments and we enter into a death spiral of further cuts and further reductions in growth, leading to further cuts etc…. The UK housing market also showed further signs of slowing, all Britain’s regions showed monthly price declines in the Hometrack Housing Survey.
The Euro continues to trade strongly this morning, even in the face of mounting pressure on the Irish banking system and their ability to successfully wind up the loss making Anglo Irish. The Eurozone undoubted wants Ireland to find a market solution to their budget problems, but judging from the price they had to pay at last weeks auction, whether they can keep tapping the market for funds or decide to throw the towel in and access the EU bail out fund in still highly uncertain.
Tomorrow sees German CPI figures & French and Italian consumer confidence data released which is forecast to be broadly positive. The risk for the Euro is the sovereign debt problems again dominating the news flow (which is broadly positive) and forcing the Euro lower again.
Report by Alistair Cotton
Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.
The contents of this report are for information purposes only.
22, September, 2010
The Federal Reserve meeting yesterday evening did not throw up any surprises, but the Fed signalled a more sluggish outlook for the US economy and reiterated its willingness to take additional measures to boost the US economy. There was no mention of concrete action as yet, which given the fact that we are rapidly approaching US mid-term elections, is sensible but the change in tone from “wait and see” to “we stand ready to act” was enough to reverse all of the Dollars recent gains in a broad sell off of the Greenback overnight.
Over the next few days we will see if the market is correctly pricing another bout of QE in the near term or if this move will be shrugged off quickly since central bank threats of action has been spectacularly unsuccessful over the past few months. The Dollar sell off also brings the Japanese FX intervention back into focus, as the USD JPY pair moves back towards levels where intervention initially occurred.
Prime Minister Kan has been quoted as saying the intervention in the FX markets in not yet over, so the fear is fast becoming a beggar-thy-neighbour competitive devaluation as central banks scramble to keep exchange rates low in the hope of stimulating the faltering economic recovery. The only problem is that not everyone can do it at the same time, and we can expect emerging markets and the commodity producing nations (since it will be these currencies that will strengthen as others devalue) to be none to happy about the prospect of significantly reduced competitiveness in world markets.
The Euro is benefiting from the USD weakness, although the Irish and Spanish bond auctions were broadly successful (the only issue was the high interest rate the market extracted for buying the Irish debt) it is Dollar weakness that is the main driver and we have moved past 1.33 in the EURUSD pair and under the 1.18 level in GBPEUR. This afternoon we get to see Eurozone consumer confidence, with another improvement forecast, but with a large amount of Eurozone data out on Thursday and Friday we can expect the Dollar to lead the way today.
Sterling is also benefiting from the Fed statement, dire public borrowing figures initially send the Pound lower in early trading yesterday and today’s publication of the Bank of England minutes (usually something that the market takes notice of) showing another 8-1 split in the voting has passed without much notice being taken. For the rest of the week we will probably see Sterling take a back seat until next weeks GDP figures but we should bear in mind the poor data flow in the UK means the pressure on Sterling is on the Down rather than upside.
Report by Alistair Cotton
The contents of this report are for information purposes only.
13, September, 2010
Global banking stocks are on the rise today as regulators announced details of the Basel III accord, raising the minimum core Tier 1 capital level from 2 to 4.5 per cent with a subsequent 2.5 per cent require as a buffer against future shocks, which is to act in a counter cyclical manner in the sense that Banks will set aside the money when the going is good.
Listen to Alistair Cotton on the podcast >>>
Large British banks already meet the capital benchmarks comfortably, RBS, Lloyds Barclays and HSBC all have core Tier one ratios of around 9-10%, but the announcement will spark a fresh round of capital raising in the worldwide banking sector. Today Deutsche Bank announced it will tap shareholders for cash to pay for it’s acquisition of retail bank Deutsche Postbank and to bolster its own capital position, expect this to be the first of many over the next few months. The announcement has signalled risk-on (at least for today) and Sterling is gaining against the safe haven currencies of the Dollar and Yen.
The gain in the Pound today look likely to be short lived, with the Chancellors controversial budget cuts sparking union discontent and threats of co-ordinated strike action across the country. George Osborne detailed further reductions in the welfare budget, amounting to £4 Billion, but he gave no details on where the axe may fall (this is on top of the £11 Billion of cuts announced in the emergency budget in June).
The strikes would see disruption to the economy on a scale not seen for many decades and will be heavily Sterling negative – this will be on top of the effect on the Pound of a reduction in growth levels when spending cuts begin to take effect.
Better than expected jobless claims figures aided a rise in the Dollar on Friday, but as mentioned above, the Basel announcement has lifted risk sentiment and the Greenback has given back most the gains. The Yen Dollar pair continues to trade close to a 15 year high as Japanese authorities keep up the intervention rhetoric without actually doing anything of substance.
Today is light on releases but tomorrow sees GBP CPI figures & German economic sentiment.
Report By Alistair Cotton
The contents of this report are for information purposes only.
6, September, 2010
Today is Labour Day in the US and in Canada which means very little work will be done anywhere.
Going back to Friday, the stripped out version of the non-farm payrolls figure produced much stronger numbers than had been anticipated. The market now feels that removing the seasonally volatile short-term Government hirings gives a much more relevant picture of the employment situation.
Accordingly, August private payrolls were reported to have grown by 67,000 (against the consensus figure of 40,000) whilst the July number was revised up from the previously reported -131,000 to -54,000. Economists quickly concluded that, although the US economy continues to face problems ahead, and that the unemployment rate will likely remain stubbornly high, Friday’s employment report is an important step in the right direction, and should weaken the case for additional quantitative easing on the part of Federal Reserve.
Listen to the full report with Tim Lewis on the podcast >>>
The contents of this report are for information purposes only.
1, September, 2010
The highlight overnight was the release of the minutes from the August 10th Federal Reserve Open Market Committee meeting. Some Federal Reserve officials were concerned that a decision to keep securities holdings unchanged would inadvertently signal an intention to resume large-scale asset purchases.
Also, a few policy makers said the economic effects of the decision “would be quite small,” but at the same time, some officials saw “increased downside risks to the outlook for both growth and inflation” and voiced concern that further shocks would cause “significant slowing in growth”.
The debate shows the challenge Fed Chairman Ben S. Bernanke may face in achieving consensus for any additional monetary stimulus to reverse a slowdown in growth and reduce joblessness more quickly. In a speech last week, Bernanke said “Policy makers haven’t agreed on specific criteria or triggers for further action”.
The contents of this report are for information purposes only.
27, August 2010
Global markets are in the doldrums and with decreased trading volumes and a lack of positive data there has been little to prevent a downward path this week. The Dow is down 2.23% on the week and just over 6% on the month, slipping below the critical 10,000 level (closing yesterday at 9,985). S&P 500 and Nasdaq have followed suit heading into the end of the month 6.7% and 6% down on the month.
In the UK the FTSE clawed back from the 6 week low of 5070 seen on Wednesday but is still 3.50% down on the month. In Asia, the Nikkei and Hang Seng haven’t bucked the global trend also down 5.5% and 2% on the month.
Yesterday the Labor Department in the States reported a reduction in new U.S claims for unemployment benefits. Initial claims for state unemployment benefits fell 31,000 to a seasonally adjusted 473,000, below market expectations for a drop to 490,000.
However this figure did little to support the dollar as firstly the claimant’s number still remains high and there is still a real concern about the recovery of the States after the horrendous week it has had. Many economists also look at the four week average price of initial claims which is viewed as a better gauge of employment trends; this figure was up slightly by 3,250 from 486,750.
Despite the onslaught of poor data Germany continues to shine as German consumer morale increased for the third month running, hitting its highest level since last October. German CPI data is also due out this morning and if it follows the positive trend we may seen the reading come out ahead of expectations however seasonal trends suggest August CPI readings are usually low.
In Euro trading news, money supply growth held steady in July as loans to the private sector steepened. The Conference Board’s leading economic index for the Eurozone (which is used to identify turning points in the business cycle of the Euro Zone) rose by 1% to 112.5 in July. The European Central bank reported loans to the private sector grew at a annual rate of 0.9% up from 0.5% rise in June.
Today should be an interesting day with GDP readings from the UK and US coupled with Bernanke speaking this afternoon. UK GDP Q2 2nd release is expected to be unchanged at 1.1% and US GDP Q2 2nd release is expected to be revised down slightly to 1.3%. This afternoon all eyes will turn to Bernanke who is speaking at a conference at 3pm (GMT) at the Economic Symposium in Jackson Hole, Kansas.
It is anticipated that Bernanke will revise down the US 2nd quarter economic growth figure at this annual conference. The recent flow of disappointing data from the States has fuelled fears of a double dip recession. Finally, the gold market news: Gold has edged higher this week to current levels of 1236 per ounce (Gold has surged this month as investors seek safe havens and is up 4.80% on the month).
Report by Philip Ryan
The contents of this report are for information purposes only.
20, August 2010
Gilts opened lower and Sterling remained on the back foot on Thursday morning ahead of UK Public finances and UK retail sales. The market continues to be concerned about public sector debt so any poor data was expected to see the market react abruptly as investor’s fear the UK government will struggle to meet its target for narrowing the deficit this year.
However, unexpectedly, retail sales actually rose three times faster then had been predicted in July. The Office for National Statistics said retail sales rose 1.1% on the month, the strongest growth since February 2010 and well above analyst forecasts for a 0.4 % rise. On the year, retail sales rose 1.3 %, again above forecasts of 0.6 %.
There was also a sharp improvement in Public Finances mainly driven by strong growth in tax receipts. The Treasury were quick to react after seeming concerned that this figure would be interpreted as more positive for future budget forecasts and they announced that their figures were still in line with the Office for Budget Responsibility full forecast. Sterling strengthened off the back of these figures and moved 1% higher against the Dollar and 0.5% against the Euro.
The UK managed to start the day off on a positive note but unfortunately the States were unable to continue this trend. U.S unemployment claims spiked to a nine month high. The Labour Department reported initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 500,000, the highest since mid-November.
The dollar came under further pressure after factory activity in the US Mid-Atlantic region fell in August to -7.7 from 5.1 in July reported by the Federal Bank of Philadelphia on Thursday. This reading was the lowest reading since 2009.
The Dollar fell further against the Yen and nearly touched the 15 year low we saw earlier on this week as investors continue to remain apprehensive about the pace of the US economic recovery. Obama spoke out yesterday urging the Congress to push legislation to force tax cuts and ease credit for smaller businesses.
Gold benefited yesterday as investors flocked to safety. Gold looks set to climb higher and closed yesterday up at $1235.40. Conversely, Brent Crude Oil slumped by 1% to close at $74.40 as uncertainty in the US may signal lower demand.
Other news in the headlines includes a slew of takeover activity as companies eye up targets. There will be ongoing coverage of BHP’s now hostile takeover bid for Potash. BHP will begin the hard sell of the $40bn hostile bid to their own shareholders next week at road shows across the globe. It wouldn’t come as a surprise if BHP increase their bid after Potash rejected it and due to the likely scenario of a rival bidder entering the market. BHP could probably hike their offer to as much as $165/$170.
Analysts have tipped Brazil’s Vale and rival Chinese and Russian firms to be on the sidelines. Other M&A activity includes Intel’s announcement that it will buy McAfee for $8bn and the $2.9bn hostile bid launched by Korea National Oil Corp for UK explorer Dana Petroleum after it’s takeover offer was rejected. No doubt we will get more stories about this flurry of hostile M&A activity over the weekend.
Today is a quiet day with only Canada’s CPI date for July out at 12.00.
Report by Philip Ryan
The contents of this report are for information purposes only.
13, August 2010
Global stock arkets look set to end the week well in the red. Across the globe indicies are about 4% down on the week wiping a whopping USD $1.7trillion off global stock values in the past 4 days.
An unexpected rise in US jobless claims yesterday ironically caused the dollar to make further gains as the world’s most liquid currency benefitted off the back of risk aversion. Disappointingly US new claims for jobless benefits rose to a six month high as the labour market in the States continues to struggle.
The labour department figures showed the initial jobless claims rose by 2,000 to 484,000 when a significant reduction was expected. Freddie Mac also reported further disappointing figures as home loans in the States hit new lows off the back of a soft US economy.
European Industrial Production figures out yesterday did little to boost confidence in the market. Output in the Euro area dropped 0.6% from May versus expectations of a 0.3% gain suggesting the Euro Zone economy is still far away from making a recovery. Coupled with extremely poor growth figures from Greece, EUR came under pressure reversing early gains.
The Greek economy shrank by 1.5% in the second quarter, this figure was significantly lower then economists had expected. The Greek economy is expected to contract by 4% this year according to the EU and IMF.
However, this morning’s data shows more positive signs for the Eurozone with Germany and France reporting better then expected GDP. Starting with Germany their GDP grew 2.2% (compared to the 1.3% expected) in the second quarter driven mainly from strong investment and exports.
Impressively this figure was the biggest gain in 23 years and economist are expecting at least a 3% growth this year. France’s GDP figures, although not nearly as superior as Germany’s, were still marginally better (by 0.1%) than the market had predicted coming out at 0.6%. French consumer prices fell less than expected in July at -0.3% month on month (up 1.9% on an annual basis).
In Asia, all eyes have been upon the Yen which reached a 15 year high on Wednesday of 84.73. Yen has since sold off slightly to current levels of 85.90. It is being very closely watched by, no doubt, anxious officials. in an unscheduled press conference yesterday, the Finance Minister, Yoshihiko Noda pledged that “appropriate action” would be taken against the strength of the yen. Exactly what the action will be however is unknown but one would expect this to signal possible intervention.
With very little data out elsewhere this Friday, focus today will be on the Eurozone GDP out at 10am followed by US data later this afternoon.
Report by Alistair Cotton
The contents of this report are for information purposes only.
11, August 2010
The Dollar strengthened overnight after the Fed took steps to try and bolster the fragile US economy, saying they will maintain their holdings of securities to stop money from draining out of the financial system. (see Tuesday’s post) In a bid to avoid a double dip recession, The US central bank said it would reinvest between $200-300m of proceeds from maturing mortgage bonds from the first $1.2 trillion QE cycle.
It left its policy rate unchanged and renewed its pledge to keep rates low for an extended period. Following the fed announcement, treasuries surged and stocks pared losses as markets anticipated a renewed round of asset purchases should the economy slow further. Figures since the last FOMC meeting in June indicates that the pace in recovery in output, manufacturing, retail, employment and housing has slowed significantly.
The pound fell against the Dollar to its lowest level in more than a week after data signalled Britain’s economic recovery may be slowing. A UK housing market gauge showed the first decline in prices in a year in July, while a separate survey reported stores showing slower sales growth in July.
UK consumer confidence dropped in July, a third month in a row to its lowest level in 15 months. The biggest budget cuts since World War II, faster inflation and resilient unemployment have undermined consumer confidence.
This morning’s Bank of England inflation report accompanied by the usual speech from Governor Mervyn King will be closely watched along with UK jobless claims. Other data released today is this evenings US trade balance along with a monthly budget statement.
Report by Tim Lewis
The contents of this report are for information purposes only.
10, August 2010
Speculation over the announcement of QE2 at tonight’s Federal Reserve meeting is reverberating around the market at present. The consensus seems to be that that additional liquidity will be added to the system through reinvestment of maturing assets already on the Fed balance sheet, rather than return to fully blown quantitative easing.
The recent surge in commodity prices after Russia placed a halt on exports of grain is a worrying development for the Fed, it will need to consider that further down the road after it may find certain parts of the economy experiencing inflation at the same time as others are suffering from rampant deflation. This is why this Fed meeting is seen as so important– we wait to here which way the inflation/deflation needle is pushed (unless we end up waiting until next month!).
Sterling continued its climb against the Dollar yesterday as momentum from Fridays disappointing US jobs figures continued in early trading. But the Dollar has regained some ground this morning after the announcement from the Royal Institute of Chartered Surveyors that UK house prices have declined for the first time in a year.
The Bank of England has announced it is to overhaul its macroeconomic model (excitingly named the Bank of England Quarterly Model) after a glut of large revisions to GDP figures and because inflation has been above target for 42 of the 51 months, triggering seven letters from BOE Governor Mervyn King to the Chancellor over the same period.
A chat over three pints of warm lager and a packet of crisps are no longer deemed an acceptable method of assessing the health of the UK economy and the Bank plans to spend £3.5 million (or 350,000 magic eight balls) on overhauling and improving their forecasting model.
The announcement has led some commentators to suggest the markets may start to lose credibility in the Banks ability to forecast inflation – this could feed into Sterling weakness, but since the story broke Sterling has hardly budged and along with us, the market probably sees the announcement as good rather than bad news. UK trade balance figures were better than expected
The release of better than expected German June trade data helped the euro remain on a firmer footing for most of yesterday against the US Dollar . The strong 3.8% m/m increase in exports aided the idea of a Germany export led recovery. It is also worth noting that the rise in imports was better than expected; a factor which may support growth elsewhere in the Euro zone. On the data front later today we have the Nationwide & ABC consumer confidence surveys from the UK and US respectively.
Report by Alistair Cotton
The contents of this report are for information purposes only.
09, August 2010
In the final session of trading on Friday, US Employment fell for a second straight month in July as more temporary census jobs ended, as private hiring rose less than expected, pointing to an stunted economic recovery and a potential requirement for further Quantitative Easing. The main points were as follows: Non-farm payrolls fell 131,000 the Labor Department said on Friday, as temporary jobs to conduct the decennial census dropped by 143,000.
Private employment, considered a better gauge of labor market health, rose 71,000 after increasing 31,000 in June. The government revised payrolls for May and June to show 97,000 fewer jobs than previously reported. Analysts polled by Reuters had forecast overall employment falling 65,000 and private-sector hiring increasing 90,000. The unemployment rate was unchanged at 9.5 percent in July for a second straight month, just below market expectations for a rise to 9.6 percent.
It was a similar sentiment in the UK as both consumer and business confidence dipped again. The most recent purchasing managers’ index from the services sector indicates that, while growth continues business expectations have suffered a fall of about 10% since Spring. Friday’s PMI data showed a rise in cost of 5% which is rather high and pulls inflationary pressures into focus.
The other area of alarm for most is the idea that whilst interest rates remain low and are expected to stay as such until 2011 there seems to be greater comment around the fact that when they start to move they are likely to move quickly. It is still a very fine balance to control inflation, implement spending cuts and tax hikes whilst in the meantime not cause a double dip.
The general market view seems to be that interest rate rises back towards more ‘normal’ levels can only be implemented if the economy grows confidently the idea of pushing an already fragile economy back into recession is simply not palatable.
This week we have Mervyn King also know as Merve the Swerve will be speaking and The Bank of England is expected to give a gloomy assessment of Britain’s short-term prospects this week, forecasting weak growth and high inflation. This has been the case viewpoint-wise for a while and they are quite correct the market was heavily positioned short and we have seen sterling recover dramatically; the popular view is we may see further gains before the market renews its negative view and momentum.
It’s a key week for the majors, with the Federal Reserve meeting on Tuesday for their monthly policy announcement with speculation intensifying of further support for the economy to be announced. Also in the US we await the release of July’s retail sales, June’s trade balance and the latest inflation report.
In the Euro zone we await the results of growth figures for Q2 with flash GDP estimates for April to June expected on Friday. In the UK, the BoE release their quarterly inflation report on Wednesday which will be watched very closely to see what effects the government’s tightening fiscal policies are having on the economy.
Report by Philip Ryan
The contents of this report are for information purposes only.
2, August 2010
On Friday, the Dow Jones fell by as much as 120 points after annualised growth in gross domestic product (GDP) was found to have slowed from 3.7% in the first quarter to 2.4% in the second. That came on the back of growth of 5% in the final three months of 2009. (see Friday’s post)
The US was initially thought to have grown by 2.7% in the first quarter but that was revised upwards on a day of surprises for economists. The US Commerce Department also revised downwards GDP figures all the way back to the beginning of 2007. The second-quarter slowdown led economists to question whether the US might be poised to enter a period of negative growth later in the year, leading to a much-feared double-dip recession.
The Dow Jones fell sharply after the release of the GDP data before recovering ground to settle down 40.72 at 10,426.44 in lunchtime trading. Economists had predicted second-quarter growth of 2.5pc, but their disappointment was compounded by the revised data for the first three months of 2010.
The biggest concern in the City was the size of the downward revisions to previous years’ growth. In 2009 the economy was previously estimated to have declined by 2.4%, but the figure was revised to a drop of 2.6%. The disappointing growth numbers were compounded by the International Monetary Fund’s (IMF) annual report on the US economy. The IMF said there may be a need for the Obama administration to increase the amount of fiscal stimulus in order to boost the recovery, warning the “outlook remains uncertain”.
In the UK, George Osborne has said that banks must increase lending to businesses rather than boosting bonuses and dividends now that they have weathered the worst of the credit crisis. Britain’s Treasury chief told the Sunday Telegraph newspaper that banks “have an economic obligation to assist” small and medium-sized businesses. The statement comes in line with half-year figures released this week that are expected to confirm that the major institutions have returned to profit after two years of turmoil.
Lloyds Banking Group, which is 41% owned by the taxpayer, and the 84% state-owned Royal Bank of Scotland are both expected to post a profit. But Osborne questions the ability of British businesses to raise credit from the banks. “The danger is that, particularly next year, when there is a huge amount of refinancing required, that the small and medium-sized businesses suffer from a lack of access to working capital,” he said.
Osborne continued that British banks “are in no doubt that the government wants to see reasonable access to credit on reasonable terms in the small to medium-sized business sector.” The expected bank profits have boosted the recent Cable rally and we are now trading in the 1.58s and well on track to the key 1.60 psychological level.
As we look ahead this week, Interest rates will watched closely with monetary policy meetings taking place in several countries over the next 4 days. Tonight, Australia get the ball rolling followed by the UK, Eurozone and The Czech Republic all on Thursday. Following the softer than expected Australian CPI figure, the Reserve Bank of Australia are now deemed unlikely to move rates – a change away from the previously anticipated tightening – despite the stronger, but very volatile, manufacturing PMI number. No change from the BoE or the ECB is also on the cards but as usual, it will be the post-meeting press conferences that will draw the forex market’s attention.
Report by Philip Ryan
The contents of this report are for information purposes only.
13, July 2010
The British pound weakened yesterday after the S&P said it was maintaining its negative outlook on UK’s AAA credit rating. Data released from the UK included a survey by GfK, which showed 58% of U.K. households expect economic conditions to deteriorate further, with nearly two-fifths of the respondents looking to cut back on consumption.
In addition, the final Q1 GDP reading showed economic activity expanded 0.3% from the last three-months of 2009, which was largely in-line with the initial forecast. However, the growth rate slipped 0.2% from the previous year to mark the slowest pace of contraction since the third-quarter of 2008. Comments from the BoE’s Posen that a continued UK recovery can not be guaranteed also weighed on the currency
The euro consolidated well below two-month peaks against the dollar as investors were cautious about the single currency ahead of Greece’s return to capital markets for the first time since late April. This along with Moody’s cut in Portugal’s rating to A1 with a stable outlook is going to continue to weigh on the euro in the short term and doesn’t bode well ahead of the bank stress test results due next week.
The main focus today will be on UK CPI which is expected to moderate from 3.4% YoY to 3.1% YoY in June. Inflation figures will be key for future rate decisions from the MPC with committee member Andrew Sentance voicing his concerns recently on rising inflation. German ZEW is expected to deteriorate further to 25.3 in July. Swiss combined PPI, Canada trade balance and US trade balance will also be released.
Report by Tim Lewis
The contents of this report are for information purposes only.
This timely video clearly shows the break in the fortune of the mighty Amazon after a 20 month rise dating back to Nov 2008.
The question now is how far will Amazon fall? Indications suggest it could be quite heavy.
Whether it is the technical superiority of the iPad and the loss of e-book sales is as yet unclear but certainly it is something to be aware of. See the detail here.
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28, June 2010
Towards the end of last week concerns over debt crept back into the market psyche. It marked a disappointing end to the week which started so positively in response to China’s de-pegging of the CNY. The good news didn’t last as it became evident that there was still plenty of two-way risk on the CNY.
Other key events were a new PM in Australia, who faces a difficult start in office over the contentious new mining tax and the G20 summit in Canada which took place yesterday.
The US Assembly confirmed a major regulatory reform bill towards the end of the week and markets, especially financial stocks, reacted positively as the bill appeared to give some support to banks and was not as brutal as feared.
However, equity market drive has clearly faded against the background of new growth concerns including developing evidence of a double-dip in the US housing market in addition to fresh worries about the European banking sector. In line with the bearish news, US Q1 GDP was accordingly revised lower once again, to a 2.7% annualised rate of growth.
Recent US data has managed to hold back the USD, suggesting that cyclical factors and not just risk aversion are beginning to play into foreign exchange markets. This can be seen with Cable breaking through the key 1.50 level and even the flagging Euro is reaching nearly 1.24 against the greenback at the time of writing.
Cable has found further support with talk in the market that a UK clearer needs to buy cable today for dividend payment purposes. The effect is not likely to be excessively large, however it may well be helping underpin the pairing in recent trade.
Sunday saw the biggest non event after a certain football match with the G20 summit which like England, the communiqué failed to get a grip on challenges that face them. Maybe a little harsh as they agreed new targets for reducing deficits and sovereign debt, however questions regarding tougher capital and liquidity requirements for banks were delayed until November’s summit in Seoul, providing leaders with time to work out their individual differences.
All in all, economic data this week is unlikely to lessen growth concerns, with Eurozone, US and UK consumer and manufacturing confidence indicators likely to post declines due to a host of factors. The data will suggest a slowing in growth momentum following Q2 2010, in the short term turning lower, albeit gradually. Whilst a double-dip scenario still seems doubtful there can be no doubt that austerity measures and the weakening of fiscal stimulus measures are starting to weigh heavily on global growth prospects.
Report by Philip Ryan
The contents of this report are for information purposes only.
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21, June 2010
But first the Chinese whispers…
The announcement by the Chinese of an end to a fixed exchange rate regime, allowing the remminbi to appreciate, has given stocks, commodities and risk-on currencies a boost in early trading. Investors moved out of the safe haven USD with Cable reaching 1.49 before falling back slightly and the Aussie Dollar also performing well on the back of the news.
The move by the Chinese is wildly seen to be a political rather than economic one. With the G20 meeting coming up shortly and the current ‘currency manipulation’ bill working it’s way through the US congress, the decision to let the Yuan have a much greater degree of flexibility sends a positive message to the Americans. The markets have open higher as the announcement has released some of the pressure that was building and any potential trade dispute between the US and China is much less likely.
As well as the G20 meeting, the Chinese may have had one eye on pre-empting the forthcoming US Treasury report on FX polices of US trading partners. Tim Geithner may have been ready to single out China explicitly – not something the ruling party in China needs or wants as it tries to gradually integrate China into the world economy.
The Euro has also performed well this morning, the successful Spanish bond auction last week and the announcement that the EU will release the results of stress tests on 25 European banks, has helped the single currency move towards 1.25 against the USD and 1.19 versus Sterling.
EU president Herman Van Rompuy said data on any institution that failed or performed poorly in the stress tests (published in July) will be publicly available. Such a strong commitment to transparency has gone down well in markets, but there are still doubts around. Such confidence by EU leaders on the strength of its banks (some of which are quite clearly struggling to raise funds in the market) either shows serious confidence in the figures banking chiefs are giving them, or that the tests are designed a priori to show banks strength to the markets.
Call me a cynic, but the latter rather than the former seems much more plausible, until we get greater detail on the underlying assumptions of the tests will cannot know for sure quite what the stress tests are telling us.
UK news: The weekend before any budget is always marked by wild speculation on what might happen to taxes or spending over the next year. The theme this time is universally negative as one would expect. What is going to get cut (child tax credits, public sector numbers & public sector pensions if the papers are to believed) and how fast (straight away) has dominated thinking ahead of tomorrow emergency budget.
A hike in VAT to 20% along with the anticipated rise in capital gains tax and also significant increases in taxes on items such as alcohol and cigarettes seems likely. However, it remains speculation and Sterling will likely tread water in the run up to the announcement at midday tomorrow. Whatever happens, it is the most important budget in the UK for many years and investors will be looking to the Chancellor to create the right balance between reducing the deficit and maintaining economic growth.
Report by Alistair Cotton
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