7 May 2010
A hung parliament (UK) has been confirmed to the detriment of the pound. We are now awaiting to see if a majority coalition can be formed with the most likely scenario being a Conservative/Lib-Dem majority.
Conservative leader David Cameron said it was “clear that the Labour government has lost its mandate to govern this country”. Gordon Brown may also initiate coalition talks with the Lib Dems, who, Nick Clegg admitted, had a “disappointing night”.
For the financial markets and the pound, the UK needs a quick deal to be struck between the parties. The longer the indecision the more the pound will suffer. We are in no mans land at the moment and the markets do not like uncertainty. This is leading to a sell off in the pound. The pound should bounce if a majority coalition is formed, however horse-trading will only heap more pressure on the pound.
The financial markets and credit rating agencies will want to see action on the UK fiscal policy as a matter of priority regardless of the new government. Procrastination and disagreement will lead us towards the path of a sovereign downgrade.
In euro trading news is better. The euro has risen this morning after Japanese Finance Minister Naoto Kan said that the G-7 plans to hold a conference call today to discuss the Greek debt crisis, after global stocks fell dramatically yesterday. The comments sent the euro rising against the dollar after it hit a 14 month low yesterday. The G-7 has not intervened in the currency market since a coordinated effort to buy the euro in 2000.
The US sell off, triggered by Europe’s debt crisis, was sparked by signs that the Greek situation is spreading. The yields in Spanish and Greek debt rose to the highest level since the euros inauguration. In a flashback to 2008, the Dow Jones Industrial Average tumbled almost 1000 points during the US afternoon session. The SEC and Commodity Futures Trading Commission issued a joint statement after US markets closed that they will inspect ‘unusual trading’ or a bad case of “fat finger” that contributed to this fall.
The main data release today is the Non Farm Payroll numbers for April. Estimates put the net change at a 190k increase, which would be a modest improvement over the previous month’s reading and the best reading since March 2007. The jobless rate is seen holding at 9.7%.
Report by Philip Ryan
Currency Market Updates by Tom Nadir
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<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.
The Results From Goldman Sachs Shocks Markets
21 April, 2010
The results from Goldman Sachs shocked the markets as revenues for the 1st Quarter was $ 1 billion more than estimated. The Greek situation went from bad to worse yesterday with market talk of ever-upwardly spiraling bail-out costs leading to a rise in the country’s debt yields and CDS prices.
The 10-year bond yield broke above 8% for the first time since the Euro’s introduction yesterday and the 5-year CDS level has hit a new high of 476 this morning. With today’s belated start to the IMF/EU investigation likely to last anywhere from 10 – 14 days, there appears little likelihood of positive news over the next few days. True, Greece managed to get away a tranche of 3-month bills into the market but this positive was tempered by the rate that they needed to pay to ensure success – approximately 2 1/2% higher than an equivalent German issue would cost.
The euro has accordingly looked vulnerable, especially given that the US dollar no longer appears to react negatively to positive economic/earnings data from the US. Expect more Euro downside as we approach the end of the month.
Sterling has been the gainer amongst the ‘majors’, picking up against all the others. The ‘hung parliament’ issue is history (for now) and economic data has been buoyant. British consumer price inflation (CPI) rose more than expected yesterday to 3.4% in March from 3% in February against a forecast of 3.2% meaning Mervyn King has yet another letter to write to the treasury. The news of higher inflation raises UK rate rise speculation with the Central Bank acting sooner rather than later although I feel that this interpretation is still tenuous.
Today’s MPC minutes will reveal nothing, the last meeting being too close to the election for anything meaningful not to be interpreted as being political by some faction or other. Tomorrow’s live debate between the 3 leaders will likely prove more interesting for markets with last week’s first offering seen as a bit of a practice run for the ‘Big 2′ and the Lib-Dems probably getting a less easy ride this time.
Yesterday saw the Bank of Canada leave rates steady but come out with a bullish assessment of the economy going forward and as clear a hint as a Central Bank is able to produce, of a rate rise on the 1st June. The CAD surged back below parity to the USD and the AUD reacted in a similar way, strengthening against the US Dollar and testing record highs against the Euro. Both still feature highly in ‘best currencies to be in’ portfolios for the rest of 2010.
A downside for markets was the call from the IMF for the world’s leading economies to impose new taxes on Bank’s balance sheets to pay for the financial clean-up as well as a fresh additional levy on Banks profits and pay.
Report by Tim Lewis
Currency Market Updates by Tom Nadir
Contact Currencies Direct for Corporate or Private Transactions. Open an account today and save money.
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.
Currency Market Updates by Tom Nadir
The contents of this report are for information purposes only.
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