Articles from November 2012

The wise money sentiment continues to yo yo

UK consumer confidence bounced back to post at 18 month higher earlier this morning, but before getting too excited another way to describe the move would be consumer confidence moving from awful to less awful, and so the Pound is unsurprisingly unchanged in trading this morning.The wise money sentiment continues to yo yoThe move higher in measured consumer confidence is a welcome one, but is probably still the afterglow of the summer Olympics.

It is likely the boost is temporary and will start to wear off over the next few months.

With that in mind the Bank of England will be waiting in the wings with one hand on the printing presses- however the money markets realise this and are refusing to get very excited about positive data releases.

We seem to be trapped by our expectations of doom. Very British indeed.

The euro continues to yo yo around as the pendulum of sentiment for the single currency pushed from one side by the on off Greek deal, and from the other by positive economic data this week.

Euro zone industrial production posted above estimate as did business climate data and we await euro zone unemployment data this morning.

Also speaking today are IMF chief Christine Lagarde and ECB head Mario Draghi, with both likely to paint a challenging but stable outlook for the euro area.

Expect them also to touch on ongoing correction of imbalances and how it is progressing.

Next week is the triple header of BoE, ECB and RBA central bank meetings.

Only the RBA are expected to act, with a quarter point cut to rates on the cards.

Friday is US non-farm payrolls and with Fed policy now tied to the unemployment rate it remains the key number throughout the financial markets.

US budget talks improve money markets optimism

The money markets continued to be nervous yesterday as Fiscal concerns contained any moves into risk and helped firm up the US Dollar. US budget talks improve money markets optimismHowever concerns did in fact ease late yesterday as the Republican House speaker stated that the crisis can be averted sooner rather than later.

Today Treasury Secretary Timothy Geithner will meet with congressional leaders to discuss further the issues of the fiscal cliff and hopefully push the happy talk into an action on an agreement.

At the moment the markets are at the mercy of the fiscal cliff concerns and since the recent optimism we have seen USD weakness against the Pound and the euro.

Outside the on-going wrangling with the US budget, US data has been showing a mixed bag.

The Fed’s Beige book showed that the US economy is expanding at a measured pace, however new home sales data disappointed yesterday.

Today we will see the revision of US Q3 GDP and this is likely to show an upward revision and we also have pending home sales data which is expected to push higher.

EU regulators have given the green light on funding of 37 billion for Spain’s banks in return for cuts in banks balance sheets and payrolls.

The aim of the process is to allow Spanish banks to restructure and refocus on retails banking.

Spanish government bonds have rallied hard on the news and the euro is also starting to show some gains especially following the recent easing of concerns for the US fiscal cliff.

In fact we are seeing strong gains in Eurozone bond markets in a sign that investors are now starting to show significant interest in peripheral bonds.

Greece deal a damp squib for the euro

Money markets across the globe saw a somewhat subdued surge overnight, despite the Greece deal having been passed which was offset by concerns over the fast approaching US Fiscal Cliff decisions to be made.
Greece deal a damp squib for the euroWhile most people expected the euro to gain some strength once the bailout deal had been approved, investors remained cautious and the currency failed to break the 1.30 barrier against the greenback as concerns grow on whether the deal will actually help Greece reduce its GDP target from 144% to 120% over the next 8 years or will it force Greece to remain locked in the Eurozone facing further stark austerity measures and low growth.

The first loan instalment of 34.4 billion will be disbursed this December.

Even though the Greek PM Antonio Samaras has issued a statement that it is a reforming move for Greece, most markets are still sceptical whether Greece actually has the tools and the discipline to ensure that further requirements are met.

For now, the only bit of good news for the Eurozone is that they have managed to keep the country as part of the union.

The build up over the meeting saw the euro move to a high of 1.30 against the dollar, but quickly started losing its initial gains and ended up at 1.2930 levels.

Also, the European Stability Mechanism (ESM), a fund setup to help struggling economies, has been approved by the European Court paving the way for other nations like Spain to request aid.

We had unemployment figures from France, which showed that it hit a 14 year high in November increasing unemployment numbers in the country by 45400 bringing the total to 3.1 million people out of work.

We also had a US consumer confidence figure yesterday, the results of which showed that the US economic sentiment has moved to a 4 year high at 73.7 in November.

The currency enjoyed some strength as the Core Durable goods numbers comfortably beat expectations.

However, investors are now beginning to panic, since the talks on the ‘fiscal cliff’ programme have hardly made any progress so far.

Yesterday also witnessed the release of the UK GDP figures, which increased by one percent in the third quarter this year.

Since the figures show an emergence from a double dip recession, the Great British Pound surged to levels over 1.60 against the dollar.

However, with the OECD cutting future growth forecasts from 1.9% to 0.9% for 2013, the Pound has struggled to move beyond the 1.6020 levels, raising concerns that George Osborne will struggle to meet the deficit targets set out.

Positive Greek deal suggested by eurogroup

The Single European currency was unperturbed as Eurogroup members reached a conditional response to Greece’s necessary fiscal measures.Positive Greek deal suggested by eurogroupThey have approved to cut debts by €40 billion and have cemented the way for releasing the next tranche of bailout loan.

EU leaders emphasised during their press conference that Greek uncertainty has been resolved and praised the Greek government for their strong pledge to achieving a sustainable future.

The written statement suggests Greek aid “contingencies” would provide that Greece must continue to form its reserve account which is used to reduce debt, while the IMF is demanding that Greece must give up work a portion of its unpaid sovereign debt.

But, this job may be tough as the statement also documented the “deterioration” to the economy which might lead to cash flow difficulties.

Over to the US and Consumer confidence this afternoon is expected to show the highest reading for four years reaching 73.0 for November.

The data arrives alongside improvements in household sentiment could see further support for the Greenback reducing pressure on the Fed for additional monetary support.

The head of the Fed Ben Bernanke predicts a more broad-based recovery and we should see the central bank move away from its easing policy and the FOMC may continue to sit on the side-lines as the December 12 meeting as the region gets on a more sustainable path.

Back to the UK and yesterday we saw Canadian central bank Chief Mark Carney named as new Bank of England governor.

The former Goldman Sachs manager has a strong reputation and has been praised for this ‘pragmatic’ response to the financial crisis during his reign in Canada.

He is considered more hawkish that King following a rate rise in Canada to offset a housing bubble and may lead to the UK reducing QE and look to a rate increase in the near future.

The appointment is the first foreign head of Britain’s central bank in 318 year history and he will be the one of the most influential unelected officials in the UK.

Third time lucky for the Greek negotiations?

This week we have the resumption of the Euro group meeting to discuss the possible extension to the Greek restructuring plans.Third time lucky for the Greek negotiations?With the meeting last week producing nothing but another meeting there are high expectations on the IMF and Eurozone politicians to thrash out a plan that suits all involved.

With the announcement that Spain will receive €35 billion for the nations struggling banks any deal in regards to Greece will be taken as bullish by the markets.

With what started as a week of hope ended without much resolution from the all important Eurozone and EU Summit’s.

There was, however, a shift in sentiment last week which saw more risk-on in the markets with signs of growth in China as well as the possibility of wide spread Monetary Stimulus in Japan.

In Late trade on Friday we saw markets gain a sudden boost of confidence raising eurov US Dollar to 1.2968 and GB Pound/USD 1.6005.

In the US we have continuing negotiations in Congress over the “Fiscal Cliff” that is due to set in on January 1st.

After, what appears to be, the start of the US recovery these talks will be more prominent.

Tomorrow, US Durable goods orders are expected to show a negative figure with Fed Chairman Ben Bernanke speaking later in the day, likely to centre on the global economy and issues facing the continuing US Recovery.

This week we have the UK GDP being released, expected to show no growth YoY as George Osborne and David Cameron continue harsh budget cuts in place, even though the UK is likely to miss the deficit reduction target with last week’s figure showing Public Sector Net Borrowing actually increasing in October.

Euro strengthens on positive Chinese economic output

Equities across Europe have started strong this morning for a fourth consecutive day following positive signs that China’s manufacturing is improving.Euro strengthens on positive Chinese economic outputThe release overnight signals the first expansion in China’s factory output in 13 months and boosted optimism that growth in the world’s second largest economy is on the road to recovery after a seven quarter slowdown.

The initial reading was 50.4 for a Chinese purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics and falls above the last reading of 49.5 in October. A reading above 50 indicates growth.

A recovery in manufacturing would support prospects for a continued pickup in economic growth that slowed last quarter to the weakest pace in more than three years.

Over to Europe and data tomorrow will indicate modest growth in Germany and the euro area, as leaders of the 27 EU nations gather for negotiations in Brussels.

Today we have a Spanish bond sale (€3.5 billion) maturing in 2015, 2017 and 2021 today.

The euro rose 0.23 percent to $1.2865 after earlier touching $1.2868, the highest since early November.

European politicians who are squabbling over Greece, the destiny of the euro, banking amalgamation and EU development need to reach agreement on a proposed $1.3 trillion package lasting until 2014.

The euro debt crisis and a deadlock over Greek aid raise the stakes for the talks, testing whether the bloc is heading for more integration.

Yesterday the Bank of England minutes were released revealing an 8-1 split on maintaining quantitative easing at £375 billion as David Miles sought an increase of £25 billion.

This comes in the wake of inflation being much higher than forecast than the targets that are set out by the BOE, for the next 2 years.

Eight members of the MPC decided that upholding the size of the asset purchase programme was appropriate.

Furthermore, the committee voted unanimously to keep its key lending rate at a record low 0.5%.

As for the rest of the day, we have the US Thanksgiving bank holiday so the headline calendar looks light.

Euro weakens as meeting for Greece ends in deadlock

Market sentiment was boosted yesterday evening as the Eurozone leaders gathered for the second time in a week to try and chalk out an agreement with the IMF in order to unlock bailout funds for Greece.Euro weakens as meeting for Greece ends in deadlockAt the European close yesterday, markets in Germany rose and the French market recovered somewhat marginally, after they were downgraded by Moody’s in anticipation of a deal being reached.

However, the meeting that stretched on into the early hours of this morning ended in a deadlock as the Eurogroup ministers failed to reach a decision and wrangle out a scheduled disbursement of funds.

The outcome of the euro leaders failing to do so has weakened the euro from 1.2825 levels, down to 1.2750.

There are reports that the leaders are considering allowing Athens to buy back up to €40 billion of its own bonds at a discount, to try and reduce their GDP figures to the 120% level within the next 8 years.

This muddled up, indecisive conclusion has brought back fears into the market that the eurozone crisis is not going away, and just prolonging the inevitable pain.

Martin Weale, of the Bank of England, issued a statement yesterday saying that inflation will continue to be much higher than estimated, for the next 2 years.

This has quashed any rumours of quantitative easing for the time being, as it would further aggravate inflation, which the UK economy can ill afford.

This morning, Sterling has been trading just above the 1.59 mark.

Any sort of clear direction from the 1.5850-1.59 range will come once we get some concrete information from Europe.

Meanwhile, in the US, Federal Reserve Chairman, Ben Bernanke issued a warning to markets stating that the US economy faces a substantial threat unless the government finds a way to avert the fiscal cliff due to kick off in January, as he admitted the Central Bank lacks the tools to avert it.

The greenback has strengthened largely due to safe-haven inflows as the Euro-zone crisis lingers on and a series of stronger than expected housing data releases out of the US, earlier in the week.

Construction of new homes in the US reached a 4-year high in October. We await employment figures later today from the US.

Wise money markets’ eyes on EU Greek meeting

News that France’s credit ratings was cut by Moody’s dampened the mood, before a meeting by Eurozone officials to resolve the fate of Greece’s €31.5 billion loan tranche.Wise money markets eyes on EU Greek meetingThe French downgrade may weigh on markets this morning but expectations of progress towards a resolution to the fiscal cliff will keep markets lifted.

News from the Eurozone will do little to help the euro given anticipated weak PMI and a further drop in the German IFO business confidence survey this week.

Finally we may see some encouraging news on the Greek front if the country’s loan tranche is permitted today.

However, any boost to euro sentiment will be short lived as negotiations about Greece’s sustainability and differences among its creditors dominate the limelight.

There was a switch in sentiment overnight as the prospect of a US Budget deal appeared to be on the cards.

Discussions between Obama and Congressional leaders have been ‘constructive’ suggesting some sign of a potential deal at some point before the deadline.

The switch was supported by positive housing news from the US as home builders’ confidence and existing home sales which both beat their forecasted figures.

Overnight and all eyes remained on the Bank of Japan meeting to see if it delivers on their promise to bring more easing over coming months.

There were no shocks from the BoJ but the Yen remains on the back foot in the wake of calls for “unlimited easing” by the opposition LDP party.

However, the outcome of elections is by no means clear cut and although the LDP will likely garner the lion’s share of the vote its policies may be constrained by coalition partners.

Fiscal Cliff negotiations pleases the wise money markets

We saw a brief glimmer of hope in the wise money markets at the end of last week as it appeared that the struggling Greeks will receive the next tranche of aid from their Troika of lenders.Fiscal Cliff negotiations pleases the wise money marketsThe UK  however did nothing to help ease the situation posting worse than expected retail figures and with Mervyn King’s confirming a negative outlook for the British economy that will likely to drag on well into 2013.

Markets are, however, up this morning after the initial meeting of negotiations over the US Fiscal cliff started well on Friday last week giving a late rally to trade on Wall Street.

This has carried over into European trade with GB Pound/US Dollar over 1.59, euro/Dollar sitting just shy of 1.29 and Sterling/euro tightening its grip on the 1.2450.

The outcome of tomorrow’s EU Summit will be the big news hitting the wire, where the possible EU-wide spending freeze will undoubtedly be on the table amongst further plans for a Spanish bailout and the final sign off of aid and a GDP/Debt ratio for Greece to be decided.

The British Pound is likely to continue its struggle to gain any headway after Governor King’s negative outlook and poor economic performance likely to keep demand for Sterling low.

A likely mover will be the UK Public Sector Net Borrowing figure, likely to show a fall in the surplus this month as the positive effects of the Olympics begin to wear off.

Notable news today we have US Existing Home sales, expected to come in on consensus at 4.75m to continue the economic recovery and remain near the two year high but this will likely take a back seat until Michigan Consumer sentiment figure on Thursday and further information on fiscal cliff negotiations.

Other news this week is: Tomorrow minutes and press conference from the Bank of Japan with Fed Chairman Ben Bernanke speaking after European trade closes.

Wednesday the MPC meeting minutes are released with interest likely to be on the further QE and interest rate votes. Also, UK Public Sector Net Borrowing, US Jobless claims (initial and continuing) and Michigan consumer sentiment.

Thursday – Chinese HSBC Manufacturing PMI, Eurozone Services and Manufacturing PMI with special attention likely to gather around German and French figures.

Friday we have German GDP and Business Climate Index.

Bearish sentiment continues to dominate the wise money markets

Wise Money will start with the positive news- because there is not much of it.Bearish sentiment continues to dominate the wise money marketsAlthough taken as a whole the eurozone officially entered a double dip recession, German GDP remained positive and even beat consensus expectations slightly.

The euro really would be in trouble if the German economy started to seriously falter, but the powerhouse of Europe continues to defy the many predictions of the inevitable slow down.

Now to the negatives this week- and there are many.

The data flow has been almost uniformly below estimates and along with a disappointing earnings season in America, market sentiment is growing increasingly bearish.

The Bank of England and Federal Reserve both gave rather downbeat assessments of the UK and US economy’s respectively and warned the outlook will remain difficult for the foreseeable future with low growth and higher inflation squeezing incomes.

US advance retail sales were particularly disappointing.

Hurricane Sandy was blamed for the number but it will be next month that the super storm’s impact on the data will be felt hardest and the market is already beginning to discount this.

In the currency markets that has translated into Sterling weakness and US Dollar strength as risk assets suffered another poor week.

The normal safe haven Japanese Yen has moved in the opposite direction, which has probably accentuated the move in the Dollar, as a December election was called.

The opposition party in Japan have called on the Bank of Japan to use its power in unlimited quantities to significantly weaken the Yen, and with the possibility of large scale change to the BoJ board after the election, huge intervention by the Japanese authorities is becoming very likely in early 2013.