Articles from May 2012

Spanish woes continue to dominates the headlines

The pattern continues for the euro currency where it has struggled to hold onto gains with the currency hitting new lows, dropping below 1.2500 against the Dollar in recent days. Spanish woes continue to dominates the headlinesDespite a stronger appearance in equity markets and slightly improved risk appetite this has failed to provide any support for the euro as Greece comes in second in the race to grab headlines to Spain.

A latest poll indicating growing support for austerity parties in Greece has helped to ease Greece concerns slightly.

Back in Blighty, a report by the Nationwide claims that house prices remain “fairly stable” in spite of the UK falling back into recession earlier this year.

Figures showed that prices increased by 0.3% in May to an average of £166,022, but still almost a per cent lower than last year.

“Demand for homes remains subdued on the back of weak labour market conditions, but the lack of homes coming onto the market is providing support for prices,” according to Robert Gardner, the Nationwide’s chief economist.

“This is in part a reflection of the low rate of building in recent years which has failed to keep pace with household formation.”

Without any headline UK data, Sterling remains playing third wheel to the decline in EUR/USD pair with cable trading at 1.5521 and unmoved against the Euro trading just below the key level of 1.25 and 1.2494.

If we see a strong Jobs number tomorrow in the states we could see Cable edge closer towards the year’s low of 1.5235.

Finally growth numbers out of India suggested their economy slowed to 5.3% in first quarter of this year which was the slowest pace since 2003.

This has been largely attributed to a widening trade gap and poor investment.

One has also noted the recent weakening of the INR which has fallen over 25% against the Greenback and currently trades at 86.67 against Sterling.

This combined with high inflation and a slow down in global demand has made products within India very expensive.

Currencies fall of a cliff

Sterling has broken below 1.56 against the US Dollar after a sharp move lower in Euro Dollar yesterday afternoon.Currencies fall of a cliffThe move came after the ECB rejected the Spanish government’s plan to inject cash into the struggling lender Bankia, branding the plan ‘unacceptable’.

The news quickly deflated the small rally taking place in the euro and across European equity markets and the single currency remains on the back foot in early European trading this morning.

This morning German unemployment data is released, with a small decrease of around 7K expected in May.

Keeping with the jobs market but moving over the Atlantic, US non Farm-payrolls are due on Friday, with consensus estimates suggesting 150K new jobs will be created this month.

The Fed will continue to be concerned because at these sorts of levels of job creation it will take a significant amount of time to return the economy to any where near full employment.

The problem seems to be that the US economy continues to grow just enough to make further QE unlikely at the moment.

Mirroring the past few years, will it be at Jackson Hole that Mr. Bernanke announces another round of easing?

No clear direct for money markets as fear continues

Despite the lack of liquidity yesterday there was little reprieve for markets, with any gains quickly given back.No clear direct for money markets as fear continuesThis has become a familiar trading pattern over recent weeks and looks set to continue until we get a Greek election result and whilst concerns over Spanish banks gain more attention.

Coupled with the increasing global growth uncertainties this means money markets find themselves in a sticky situation.

The lack of headline data today, with only German inflation and US consumer confidence of note, suggests that there will be little distraction for markets to avoid the Eurozone debt crisis.

This has been reflected in EUR/USD, as this hit a recent high of 1.2625 helped no doubt by the fact that positioning was at record short levels.

Though, the jump was rapidly sold, leaving the single European currency susceptible to a fall below 1.2500.

A second round sell off in Spanish debt as banking sector woes strengthen prevented any helpful impact from weekend polls in Greece indicating further support for austerity parties.

So far today we have seen Spanish retail figures disappoint showing the biggest fall since records began in 2003.

The numbers fell by 9.8% against the same month last year according to figures from the National Institute.

The figure was far worse that expected and was the 22nd successive month of flagging retail sales.

The pain in Spain

Spain is feeling the pain this morning as the Spain/German 10 year government bond yield spread widened out to 508 Basis points- the highest since November as the Spanish 10 year yield hits 6.50%. The pain in SpainThere is continuing fear surrounding Spanish banks as shares in Bankia fell another 26.75% when trading resumed this morning.

Bankia is a unique case but it is at the moment dragging down confidence in the rest of the Spanish system- the sooner it is resolved the better and pressure is now increasing with the rising cost of borrowing.

Spain have vowed to implement measures and there is talk of an EU bank rescue fund.

The euro whilst still under pressure against the US Dollar is still holding on to much needed support at 1.25.

Recent polls in Greece have highlighted a flip back to the pro-austerity parties which is a relief for the markets and the euro as we open the week despite concerns in Spain.

However we can expect a few swings to come in opinions as we approach election day on June 17.

This week the markets will be looking for concrete signs of action from the EU group as we move into June.

Markets should be relatively quiet today due to a US holiday and for the remainder of the week again economic data will take a backseat as developments in Europe unfold.

Optimism fading as we end the week

Yesterday’s optimism which lifted risk assets including equity markets seems to waning. Optimism fading as we end the weekIt’s been another difficult week in euroland, and we are still no nearer to getting any sort of resolution to the Greek problem.

In fact, after a week where Greece managed to keep off the front pages, the next few weeks will probably see the Hellenic republic back in the spotlight as we build towards a second election on June 17.

Syriza, the left-wing anti-austerity party, remain front runners and the fear that Greece would leave the euro once a new Government is elected is continuing to drive large scale withdrawals from the Greek banking system.

European politicians will announce a capital injection shortly to shore up the ailing Greek banks, but it is now becoming clear as we’re approaching the point where support for further bail-out funds (official or emergency like the Bank funds) is decreasing rapidly.

With euro sentiment remaining depressed, the UK GDP number coming in slightly lower than expected received much less attention than it would in normal market conditions.

After the announcement yesterday morning, Sterling remains locked in different paths against the Euro and Dollar, as the EUR/USD continues to absorb a large amount of the safe-haven, negative Euro sentiment and looks set to continue to fall. 1.25 still looks to be the key level, with barrier option interest set to be heavily defended into the weekend.

Durable goods orders from the US came in exactly as forecast, rising 0.2% in April.

The lack of any surprise kept the Dollar from advancing too much against its main trading partners.

But the Dollar remains the best performing currency of the last two weeks and will hang on to that crown as long as the large amount of uncertainty hangs over the markets.

UK economy contracts by 0.3%

The UK’s GDP has been revised downwards to 0.3% for the first quarter on this year. UK economy contracts by 0.3%This was 0.1% lower than last month’s figures from the Office for National Statistics and continues the wave of contraction and growth between quarters.

Sterling dropped temporarily against the Greenback but has since shrugged of the news trading above pre-GDP announcement levels at 1.5668 and 1.2480 against the single European currency.

As for the rest of the day we will as usual be focusing on political stories in Europe however traders will have one eye on the Durable Goods Orders from the states where a 0.2% figure is expected latter this afternoon.

Figures over night suggested Chinese manufacturing declined during the month of April indicating the economy is continuing to slow.

The PMI data fell from 49.3 to 48.7 month on month and comes at a time when markets are in turmoil over the Eurozone and there are concerns of how this may hit demand for Chinese exports.

The news is not a great shock to the markets however the rate appears to be faster and bigger than previously thought and consequently places more pressure on the Chinese government to boost domestic growth.

Back to Europe and European Council President Herman Van Rompuy has stated that leaders want Greece to stay in the eurozone however they must “respect its commitments”.

He went on to say, “We are fully aware of the significant efforts already made by the Greek citizens. The eurozone has shown considerable solidarity having already disbursed, together with the IMF (International Monetary Fund) nearly 150bn euros in support of Greece since 2010.”

However the market is becoming increasingly sceptical of Greece remaining in the eurozone.

Most notably today in a Citigroup eurozone forecast: that Greece will leave the Euro in early 2013, Portugal and Ireland to gain second aid packages as well as Spain and for the ECB to cut rates to 0.5% following a Greek exit.

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Money markets look to EU informal summit

The markets have fallen ahead of today’s key meeting of European leaders in Brussels indicating that hopes are fading on new measures to help Greece.  Money markets look to EU informal summitThe FTSE, CAC and DAX are all down and the Euro has slumped lower on a lack of optimism.

Today’s summit will be a first for new French President Francoise Hollande and the key issues will be extra measures to support liquidity such as Eurobonds and future plans for growth in context with austerity plans.

We are not expecting anything concrete from today but at the very least the market needs some semblance of a plan.

Spain will also be in the headlines today as it sets outs its plans for ailing Bankia the struggling Spanish lender.

Yesterday the markets seemed to be holding up well before confidence started to wane and the final kicker came when former Greek PM Papademos stated that preparations for a Greek exit are being considered and the risk is real.

The IMF have further ramped up the pressure by noting that Greece has more to do with further structural reforms needed and tax to be collected.

We have just had the Bank of England minutes and the vote was 9-0 to leave rates unchanged and 8-1 to maintain QE at £325 billion.

According to feedback the decision on QE was finely balanced and following yesterdays fall in inflation and euro headwinds the expectation is that the MPC may now shift to move nearer to further QE.

In addition April retail sales for the UK were much weaker than expected at -2.3% months on month against an expected -0.8% month on month.

The retail sales data continues the weak tone for UK data and echoes the call from the IMF yesterday that more needs to be done by the UK to revive growth.

The Pound is relatively unmoved by the news as developments in Europe overshadow UK data.

In other news the Bank Of Japan left rates unchanged but suffered a Fitch downgrade- more negative news for global markets but not much impact on the Yen as Europe eyed.

Money markets becalmed- for a change

The money markets are experiencing a lull across the seas after the whipsaw markets over the past few weeks.Money markets becalmed- for a changeAlthough the situation in Greece is still very worrying, it seems the markets are paying heed to the ‘no news is good news’ saying, with most of the major currency pairs trading in tight ranges.

Lower volatility should persist this week in the absence of any major developments on the macro front (Euro-zone!) with little of the big ticket data due over the coming days.

We had the UK Cost of Purchasing Inflation data this morning; the figure was marginally lower than the consensus estimates at 3%, still at an uncomfortable level for the Bank of England.

The Bank of England minutes are also due tomorrow morning. Completing UK data releases this week is the preliminary GDP number on Thursday.

It is worth noting that the arch dove on the MPC, Adam Posen, has confirmed he will not be serving another term.

Greenback remains above the european mayhem

The Greenback has seen an unvarying rally since the end of April, taking advantage from continuous mayhem in the eurozone and the increase in US Treasury yields. Greenback remains above the european mayhemInvestors have attempted to steer clear of the US economic and political worries as Europe remains centre stage.

Furthermore the Dollar successfully shrugged off a softer April retail sales report and a somewhat more vigilant set of FOMC minutes.

A revival in April durable goods orders, new homes sales and a relatively stable reading for Michigan confidence must bode well for the Greenback’s current route and should remain unhindered.

As the probability for further uncertainty in advance of Greek elections next month, risk aversion and the Dollar are set to remain high.

As you would expect from seeing the weekend papers, it’s all about Greece and the political manoeuvrings ahead of second round voting in mid June.

The single eEuropean currency shows no sign of fight back ahead of these elections.

In the meantime, there is growing pressure on German Chancellor Merkel to agree to measures that were formerly prohibited at an informal EU summit last week.

Such methods consist of direct recapitalisation of banks and/or unrestricted buying of peripheral country debt by the ECB and through the Eurozone rescue fund.

Finally over to the UK where CPI figures will take centre stage Tuesday morning where we are expected to see further declines in the annual figure from 3.5% last month to 3.1%.

The next day we have Bank of England Minutes followed by UK GDP on Thursday will ensure a busy week for Sterling in the middle part of this week.