Articles from January 2010



Greece denies a bail out is required

Greece’s Prime Minister George Papandreou has denied speculation that it will have to be bailed out by the European Union.


Reports have suggested that the EU will pump money to help Greece whose public finances are in ruins.
At the World Economic Forum in Davos, he also said countries like his “are being used as the weak link, if you like, of the eurozone.”
European leaders also denied that Greece would be kicked out of the euro.
“Nobody’s going to be leaving the euro,” Spain’s Prime Minister Jose Luis Rodriguez Zapatero said.
“On the contrary, countries will be joining the euro in the future. The same is true for the EU. That is the best proof on how the EU has helped to guarantee stability.”
A report in Le Monde suggested that the EU was considering bailing out Greece because the Hellenic nation’s woes had shaken the euro.
‘Speculation’
European Central Bank President Jean-Claude Trichet said the pact had helped keep the 16 members of the eurozone from experiencing even more strain.
Mr Papandreou said that there had been a lot of “speculation” during the financial crisis and that people were against the euro had targeted countries like his in the bloc.
Greece’s public debt stands at about 300bn euros ($419bn, £259bn).
He also denied a Financial Times report that said Greece had been asking China to buy up to 25bn euros of its debt to help secure its finances.
But Mr Papandreou refused to blame the EU for the country’s troubles.
“We Greeks see it as our problem to put our house in order,” he said. “Greece blames itself, not the EU.”
Mr Papandreou also floated the idea of having EU government bonds for all the members in the bloc.
The crisis is seen as the first test since the euro was created in 1999.
Greece, Spain, Portugal, Ireland and especially Italy together account for 40% of the eurozone’s debt.
Their debt has ballooned as their countries have been battered by the financial crisis, while larger economies have had to spend huge amounts to bail out their key industries.
Since the financial crisis last year, many countries – including the UK, France and Germany – have risen above the EU’s limits on public spending as a proportion of growth.
The EU’s Stability and Growth Pact states that no nation in the bloc should have an annual budget deficit higher than 3% of its gross domestic product.
Greece aims to shrink public debt to 9.1% of overall economic output this year, down from 12.7% last year.

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Greeks bonds tragedy in the making

The “Greek tragedy” continues with rumours swirling that the Greeks  have approached China looking to offload €25 billion of their debt. 
The European dream is starting to crumble when on the back of the warning from the ECB that the Greeks will have to sort out their own finances they look instead to the East for a solution.

The euro has again tumbled on the back of this and €1.40 is now the line in the sand. The spread of the 10-year Greek bond yield over benchmark German Bunds also hit a high not seen since Greece adopted the euro in 2001

The US Dollar moved higher yesterday evening after the Fed’s monetary policy meeting ended. 

As expected, the central bank left interest rates on hold at the historically low range of 0 – 0.25%, and has been worded in previous statements indicated that it will continue to do so for an “extended period”. 
However, it was noted that one member of the committee, Thomas Hoening, voted to eliminate the extended period phrase. It also confirmed the continued plan to unwind its support to financial and credit markets. 
Also of note was its presentation of a brighter economic outlook for the economy than highlighted in its previous statement in December.

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UK the centre of attention

The British Pound came under some selling pressure yesterday as the advanced Q4 GDP reading disappointed with a weaker than expected reading. 
Economic activity in the UK expanded only 0.1% in the fourth quarter of 2009 versus projections of a 0.4% rise, with the annualised rate slipped 3.2% from the previous year versus forecasts for a 3.0% contraction.

The tepid pace of recovery in the UK, could threaten further downward action in the pound if once again the ratings agencies look to cut the UK`s debt rating.

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UK crawls out of recession

UK Quarter 4 GDP growth for 2009 came in at + 0.1 %
Although well below the forecast of + 0.4 %, it signals that the UK has finally emerged from the recession- for now. 
The UK economy contracted 4.8 % in 2009 the biggest fall on record so a year to forget for the UK economy and the Pound. 
The data was much weaker than expected and the Pound fell from a high of 1.6268 against the USD down to 1.61 following the data. 
A spokesman for the Prime Minister ditherer brown affirmed that we are right to be confident but cautious about the economy- I would say more cautious than confident. 
The concern now is that the UK could slip into a double dip recession if the tepid growth experienced cools as we move through 2010. 

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GDP economic data for UK and US awaited

The lull before the storm? There is little economic data today, therefore the markets will be left to their own devices for the next couple of trading sessions. 
Having said that, the Far East continued Friday’s trend in equities to finish lower on the session. Wall Street traders were spooked somewhat by the seemingly ever-more frantic measures that Obama is promoting to try and revive his flagging popularity and news that Bernanke’s re-election for a further term was in doubt just left any bulls side-lined. 
The re-appointment of the dovish Ben Bernanke is seen as vital for the continuation of growth in the US economy going forward…..

At this stage in the week’s trading timetable then, we are very much looking forward to data and events later in the week. The headline catcher will be the release of updated GDP numbers from both the UK and the US with positive revisions expected for both. 

Although Alistair Darling has been down-playing expectations for the UK figure, the weekend press and market pundits have all (or mostly all) pencilled in a positive figure for the 4th Quarter (+0.3% giving a less negative annualised number of about -3.0%). 
This will no doubt be heralded as the first indication that the trough of UK economic performance has been passed and be greeted with great enthusiasm. The road to full recovery however will remain littered with potholes so expect any Sterling strength on the back of the news to be short-lived.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Euro plunges to 1.40 against US Dollar

It is fair to say that the euro has been well and truly hammered over the last few trading days and is on the ropes. 
The 1.40 level on EUR/USD is today in sight which is a 7% fall from the December highs. 
The demise of the euro was triggered with the economic Greek tragedy and has since been hit with a return to risk aversion which is triggering buying of USD and JPY. 
Concerns are increasing on the maintainability of the ever expanding growth in China and fears that China will act further to slow the rampant growth by raising rates. 
This has taken a lot of risk off the table in the Far East and Australasia and we have seen weakening of the commodity currencies to tie in with this- in particular the Aussie dollar. 
GBP/EUR is hovering around the 1.15 level- a further fall in EUR/USD would lead it cleanly through the 1.15 level. The euro will not be helped by slightly weaker than expected Eurozone PMI this morning.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Sterling strengthens to 1.15 against the euro

Sterling is continuing its rally against the weak euro but has fallen back against other major currencies. 
GBP/EUR is pushing up and has already hit the key 1.15 level in trading today as the euro is pummeled against the major currencies. The move higher for sterling is more related to euro weakness this morning as risk aversion is back in play on further concerns surrounding Greece. 
The failing on the sterling Bull Run against the USD was fuelled by renewed concerns raised by Fitch the credit rating agency on the UK’s fiscal deficit coupled with a blunt warning from Mervyn King on the health of the UK economy. 
Alistair Darling again repeated the need to cut the deficit but the rating agencies are focusing on changes introduced and not to be introduced- the general feeling is that the pre-budget has not gone far enough.

Focusing on UK data we have seen jobless claims come in better than expected and the official unemployment rate has fallen to 7.8% from 7.9%- very good news. 

No surprises from the BoE in their minutes as the MPC voted to keep rates and QE on hold with a 9-0 decision. They also indicated that yesterdays surge in CPI is most likely a blip and CPI levels should wind lower in 2010 and the February inflation report will offer more clues on the real status of inflation. 

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Sterling continues to stride ahead in 2010

Another bright start for Sterling which continues it’s gains. 
Sterling hit a 6 month high against the euro and pushed higher against the USD. The move was initiated with the acceptance and recommendation from the board of Cadbury’s on the offer by Kraft. 
The Kraft offer values each Cadbury’s share at 840p and shareholders will be entitled to receive 10p per share in the form of a special dividend. Sterling gained on the back of the expected benefits from the M&A; flows of the deal. 
Then at 9:30 official UK inflation data came in much better than expected- UK December CPI has come in at +0.6% month on month, +2.9% year on year, demonstrably stronger than median forecasts of +0.3%, +2.6% respectively. 
This has raised the prospects for a Bank of England interest rate rise in 2010 and it certainly offers the Bank of England something to think about in early Feb.

This data also heightens the view on the UK employment data later this week- better data here could reinforce the view that the UK is firmly on the road to recovery. 

The Pound hit a high of 1.1455 against the euro and 1.6457 against the USD before falling back from the highs- Mervyn King is due to speak later and the market will expect a cautious approach which could take the edge off sterling- we will see later..

The Euro is under pressure this morning as the fallout in Greece continues to undermine the single currency and in addition the German ZEW came in weaker than expected for the third month in a row. The euro is closing in on key technical levels against the USD and the EUR with EUR/USD close to breaking below 1.4275 and GBP/EUR targeting 1.15. 

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Big week for Sterling ahead

A very good work for Sterling last week as it pushed higher against the major currencies. 
The push on sterling was largely attributed to improved economic data leaning to a more positive outlook for the UK economy. In addition the National Institute of Economic and Social Research (NIESR) estimated that UK fourth quarter GDP which is due out next week will come in at +0.3%- so therefore the UK will be out of recession! 
The upbeat assessment was mirrored by MPC member Andrew Sentence who commented that the Bank of England may need to raise interest rates this year. So will this good run continue this week?

Hopefully so. We have a plethora of economic data and feedback this week from the UK economy which could galvanize sterling further. 

We start on Tuesday with the Consumer and Retail price index which is a gauge on inflation for the UK- the expectation is that the measures will show an increase in inflationary pressure which will add further to the probability of a rate rise in 2010. 
Following this we have the Bank of England minutes which may offer an insight into the cessation of the Quantitative Easing programme- possibly as early as February. Following this we have retail sales and jobless data followed by public finance data. 
So a big week for the Pound and if we get more positives than negatives we could see a stronger Pound ahead of the official release of Q4 2009 GDP next week. Watch out for the public sector net borrowing data and M4 money supply which could trip up the pound if worse than expected.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

China and Eurozone centres of markets attention

China are scheduled to release their 4th Quarter GDP figure with market consensus looking for reported growth of 10.5%. 
The odds however are for an even stronger outcome and markets could react very positively towards the regions currencies and commodity currencies against those of the industrialised West. 
In The Land of the Rising Sun, this week should see further developments in the winding up of Japan Airlines. Reliable rumour has it that the company’s commercial activities, including their oil and fuel contract will be 100% guaranteed but that their forex hedges will be required to be unwound. This could mean the company needing to sell US Dollars against the Yen.

As expected last week, there was no change to the ECB’s policy interest rate and Trichet’s post-announcement was largely uneventful. 
Although he managed to achieve a balanced tone to his testimony, it was apparent that he was not overly concerned on imminent inflationary pressures within the zone. 
He acknowledged that current fiscal problems are placing a considerable burden on monetary policy but that individual States’ current difficulties would not cause the ECB to require a change in the collateral framework of any country.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.