Articles from December 2011

Wise Money wishes you a prosperous New Year

Wise Money wishes you a prosperous New Year.Wise Money wishes you a prosperous New Year in 2012.Wise Money wishes you a prosperous New Year in 2012.

2011 was the year of the crab- if the Chinese had one in their calendar- with many sideways darts. Some of which might have been obvious. Some of which were obvious to investores, but not it seems politicians.

Here’s hoping that those supposedly in charge of our economies get their act together. Otherwise the money armageddon suggested by this video may come true.

Italian debt interest rates remain in danger zone

Italy’s cost of borrowing has remained too high as worries about the eurozone debt crisis continue. Italian debt interest rates remain in danger zoneThe Italian government raised around 7 billion euros (£5.86 billion) of medium and long term debt today.

The interest rate on Italian 10 year bonds was 6.98%, viewed as unsustainably high by investors.

The interest rate on Italy’s ten year debt was just over 0.5 percentage points lower than the 7.56% it had to pay at its last auction of 10 year bonds on 30 November.

Economists had hoped for a larger fall to make Italy’s interest repayments more sustainable.

Italy has 161bn euros in debt repayments due between February and April, all of which it will have to finance through new borrowing.

The auctions were the first since the European Central Bank provided European lenders with 489bn euros of its new three year loans just before Christmas.

Just over half of the money was used to service banks’ existing debts leaving lenders with around 190bn euros in spare cash to invest elsewhere, possibly including government bonds.

The injection of money into the banking system may have reduced Italy’s short term borrowing costs.

Following the auction the euro fell to its lowest level against the dollar for 15 months, at $1.287, ending at $1.29 on Thursday.

European markets closed up on Thursday despite the concerns over Italy’s financial future.

The FTSE-100 ended 1.08% up, while the Paris CAC rose 1.84% and the German Dax edged up 1.34% at the close.

Scared euro banks park cash back with ECB

Only days after gifting european banks nearly half a trillion euros, the European Central Bank (ECB) has reported receiving record cash deposits of 412bn euros (£344 billion). Scared euro banks park cash back with ECBThe total beat the previous record of 384 billion euros set in June 2010.

The rising usage of the ECB deposit facility since the summer reflects nervousness among Europe’s banks about lending the money to each other.

The latest jump in deposits comes from cash lent to the banks by the ECB itself last week in order to ward off a fresh banking crisis and credit crunch.

The central bank provided 489 billion euros of its new three year loans just before Christmas, of which banks used some 200 billion euros to repay existing debts.

The rest has gone into cash accounts, including the deposit facility.

Cash from those loans arrived in the banks’ accounts on Friday 23rd- just before Christmas.

The ECB’s decision to offer the three-year loans – as well as a significant broadening of the types of collateral that the ECB would accept from the banks as security for its loans – had appeared to settle financial markets in the run-up to Christmas.

Prior to the ECB’s interventions, there had been growing fears in the international financial community that a major European bank was about to run out of money and go bust, threatening to spark a full blown money market meltdown.

The ECB has in effect had to fill the role of a safe intermediary in the market for short-term lending between the banks – which is crucial to their functioning – by receiving their spare cash as deposits, and then lending it back out to those banks that find themselves short of ready money.

But the banks have to pay a price for the safety provided by the ECB.

They must pay approximately 1% interest on the loans they receive from the central bank, whereas the ECB pays them only 0.25% annualised interest on the spare cash they put in the deposit facility.

ECB gives banks an early Christmas present

Banks jumped at the chance of “free money” yesterday as the European Central Bank flooded the markets with low interest 3 year loans. ECB gives banks an early Christmas presentA total of 523 banks borrowed €489.2 billion in the ECB’s biggest ever funding exercise.

The total surged over €100 billion above the expectations as regulators encouraged lenders to take advantage of the cheap money on offer.

The upswing in demand for funding comes as Europe descends into another credit crunch where banks have been refusing to lend to each other for fear that the borrowing bank could be insolvent.

This comes as many banks have continued to write down the value of the sovereigns bonds they hold. Italian banks are believed to be the biggest borrowers as data came out revealing their economy shrinking by 0.2% over the 3rd quarter of this year.

Apart from this, there has been very little out in the way of news or data.

With the year coming to a close, volatility on the markets has slowed and we’re expecting stable trading over the holidays.

The euro’s fallen 5% over the last month looks set to go into 2012 on the back foot with the US Dollar remaining strong as the global favourite “Safe Haven”.

Sterling has been in limbo over the past few weeks as it has strengthened against the weak currencies while losing ground to the strong ones.

ECB is set to start the printing presses and flood the eurozone with money

The ECB is set to flood the eurozone with cheap money on 3 year loan terms.  ECB is set to start the printing presses and flood the eurozone with moneyThe money will be lent at the average of the ECB’s benchmark rate- currently one percent over the period of the loan.

Basically this is free money for banks and the aim is to keep the liquidity cycle moving on to companies and households- the danger and likelihood is of course that the banks take a piece of the cake and do not share.

However the aim seems to be to sure up the banks’ capital requirements.

The euro has pushed higher against the US Dollar on speculation for this move- hitting a high of 1.3185 and yields on Spanish and Italian government bonds have dropped.

The USD which is the largest safe haven currency at the moment has also weakened on the positive news; the risk appetite currencies notably the AUD, NZD completed the cycle and gained.

Over to the UK and the Bank Of England as expected voted 9-0 to keep interest rates and Quantitative Easing unchanged in December.

Overall the MPC saw little change for growth and inflation and thus the news was largely positive for the Pound. In addition UK November public sector net borrowing data came in slightly better than expected again helping the Pound.

Looking at the markets after a crazy year we are amazingly at exactly the same levels as 12 months ago for EUR/USD and very similar on GBP/USD after much volatility in the year.

2012 will start with a heavy focus on US payroll numbers on January 6.

European leaders continue to underwhelm the wise money markets

European finance minsters are struggling to finalise a plan to give extra money to the IMF, with the plan then to lend the money European governments. European leaders continue to underwhelm the wise money marketsThe hope was for €200bn to be pledged by euro Area governments plus money from those outside of the Euro including Britain and Sweden, but the amount committed so far is only €150bn.

Britain, quite rightly, feels since the IMF is a global institution any increase in funding should be global in nature and not confined just to European countries.

The constant disappointment the markets are showing over the lack of any clear resolution is keeping the Euro depressed and stock markets on the back foot.

Traders hoping for a Santa Claus rally look set to be disappointed as the markets wind down into Christmas.

You can tell the various statistic agencies are also preparing for a two week break, as data releases this week are few and far between.

The Bank of England minutes are due tomorrow and continue to be important in gauging when the MPC will expand its QE program, currently expected to be early next year.

Finalised Q3 GDP numbers are also due on Friday expected to show 0.5% growth, not enough to stop the UK re-entering a technical recession in the first quarter of next year.

US Q3 GDP is also due on Thursday along with durable goods orders which will almost certainly show the US economy plodding along at a rate neither low enough to force the Fed to act or improving enough to warrant withdrawal of the current monetary stimulus.

Expect the Dollar to hold on to its strength into the New Year.

US Dollar gains following death of North Korea’s Kim Jong il

The US dollar has gained against the majority of its peers after confirmation came from North Korean state television that leader Kim Jong II had died of a heart attack. US Dollar gains following death of North Korea's Kim Jong ilThe US Dollar gained due to its attraction as a safe haven currency as fear is now growing that instability may arise in the region. The Yen fell against the USD as concern rose for Japan’s economy and security as destabilization of the Korean peninsula will now be a concern.

The Euro has seen no real improvement and is still floundering against the USD. This week the concern for the Euro remains that some of the regions largest economies may have their credit ratings slashed. So we have fear mode prevailing in the markets with the USD akin to gold as it soaks up demand from investors with a lack of appetite as we close the year.

The huge demand for the US Dollar as a safe haven does to a large extent dumb down the fact that the US was stripped of its AAA credit rating by S&P four months ago- maybe Europe need not worry about downgrades!

Mario Draghi the ECB president has certainly not helped ease concerns for Europe as he breached the taboo subject of discussing a Euro break up. His point in discussing was that countries who exit the euro will suffer more than if they remained.

He also sought to play down the ECB’s role in suring up the debt crisis; the financial markets are looking for a more prominent role by the ECB to effectively end the crisis and Draghi has sidestepped this potential solution consistently.

For this week, we will see final readings on third quarter growth for the US, UK and France with no changes expected. On Wednesday we have the Bank Of England minutes and the markets will be looking for more clues on further QE for the UK.

However in reality economic numbers will be of little importance this week as investors shelve risk and await the new year payroll number from the US on Jan 6.

Wise money markets end week on a quiet note

The euro debt crisis has taken a back seat today with no comments or figures coming from the Eurozone. Wise money markets end week on a quiet noteMaybe it’s because the various European politicians are following the draw of their premier sporting event, the Champions League and have taken the day off. Or maybe it is down to there being no news or progress with sorting out the future of the single currency.

The relationship between Britain and France took a hit yesterday as French Central Bank chief Christian Noyer lashed out at the UK’s economy saying “Britain should be downgraded before any cut to France’s credit rating”.

Prime Minster David Cameron responded by pointing out the UK’s low bond yields and the credible plan in place to cut the mammoth annual deficit.

This aside, the markets are very calm as we finish the week. The US has some inflation figures due out in the form of CPI data as well as some FED members speaking, but these will bring little in the way of movement.

The Greenback has remained strong as invested move funds into the only currency being viewed as a “safe haven” and this will likely continue into the new year as no additional risk will be wanted over the holidays.

Risk fears again dominate wise money markets

They seem to be coming thick and fast at the moment, but there are two more risk events to watch out for today that have the potential to significantly move the currency markets. Risk fears again dominate wise money marketsFirstly and very importantly the Swiss National Bank has just finished its monthly meeting and will keep the EUR/CHF peg steady at 1.20. There was a lot of talk that the SNB would be raising the peg to 1.25 which would have seen significant moves across the board in the Swiss Franc pairs and also the Euro pairs as happened when the central bank first introduced the peg.

The second risk event is a Spanish bond auction taking place at 9.30 this morning. The draining confidence in the Euro has seen large outflows from the single currency over the last week or so and it is very important to see if this leads to yields on Spanish bonds to increase once again.

Thankfully Britain retains its own currency, which is current market conditions seem to count for an awful lot. The UK also has a bond auction this morning but we will be looking for record lows, rather than highs when the auction is completed at 10.30.

In an interesting interview with a French newspaper the head of the Bank of France and ECB member Christian Noyer suggested it should be Britain, not France that loses its Triple-A rating.

It is almost unheard of for a central banker to speak out about another country’s credit rating let alone suggest that the markets should not accept the ratings as a valid guide to the strength of a nation’s financial health. Is Mr. Noyer priming us for an impeding French downgrade?

This afternoon there is a large amount of low importance US data due, which is unlikely to move the markets too much but important to watch out for given the Federal Reserve’s current wait and see stance.

Money markets lose faith in European politicians

Yesterday’s move in the euro tells you all you need to know about the markets confidence in European leader’s current solution to the on going crisis. Money markets lose faith in European politiciansThe fiscal problems of European governments have frozen the eurozone banking system to the point where banks are now almost exclusively only dealing with the ECB rather than other commercial banks, because the uncertainty over who and how much toxic sovereign debt everyone is holding has reached fever pitch.

The Euro-Dollar pair continues to trade towards the 1.30 level this morning which is keeping downward pressure on Sterling against the Dollar and slowly pushing the Pound higher against the Euro. The 1.30 level is key; if we manage to break through it to the downside, there is the possibility of a larger move lower but it is looking well protected at the moment.

The Federal Reserve minutes last night indicated the Central bank is continuing the wait and see strategy, indicating that it will wait for inflation to settle before another round of QE is considered.

The Fed also indicated the severity of the strain in financial markets indicating it posed significant downside risks to the economic outlook. Retail sales data yesterday was disappointing, especially given early reading from Black Friday suggested improving conditions in the American high street.

Two positive data releases in a row, well I never! UK inflation fell slightly yesterday and this morning unemployment data came in slightly better than expected.

The overall unemployment rate held steady at 8.3% but given that expectations were for a significant increase the mere fact that is unchanged feels like a huge positive swing. As with the Dollar the Pound will continue to play a back seat role as events in the Euro-Zone remain the primary driver of the markets.