Articles from December 2012

Wise Money wishes you a prosperous New Year

Wise Money wishes you a prosperous New Year.Wise Money wishes you a prosperous New YearWise Money thanks you for you reading our blog in 2012 and we wishs you a prosperous New Year for 2013.

Fiscal cliff looms as US politicians still divided

The prospects for a fall off the US’s Fiscal Cliff appear to be growing.Fiscal cliff looms as US politicians still dividedUS President Barack Obama has used a last ditch White House meeting to urge Congress to back an interim plan to avoid the “fiscal cliff”.

He reportedly asked Republican and Democratic leaders to back tax cuts for those earning under $250,000.

They have only three days to reach an agreement before across the board tax rises and spending cuts take effect.

Analysts say sliding over the “cliff” could tip the US into recession and set back the global economic recovery.

President Obama cut short his holiday in Hawaii to resume the negotiations. The Senate returned to work on Thursday, with the House due back on Sunday.

Reports ahead of the meeting suggested the president would propose a limited package including the renewal of most expiring tax cuts, and a delay or replacement of some spending cuts.

But as the meeting at the White House began, US media reported that the president was making no new offer, instead seeking a simple vote on extending tax cuts for middle class Americans.

There was no word on whether Republican House Speaker John Boehner and Senate minority leader Mitch McConnell were open to a deal or had a counter offer.

Democratic Senate majority leader Harry Reid and senior House figure Nancy Pelosi were also at the White House.  Earlier, there was upbeat rhetoric from some senators.

Mr Obama’s plans to increase taxes on the wealthiest Americans have remained a point of division between the two parties since he won re-election in November.

Many Republicans oppose new taxes as a matter of principle, and are demanding cuts to what they see as deficit-inflating public spending, putting at risk healthcare and welfare benefit schemes popular with Democrats.

An alternative plan proposed by House Speaker John Boehner – which would have seen taxes rise only on those earning over $1m – failed in the House of Representatives late last week.

In the Senate chamber on Thursday, Mr Reid said the requirement to get at least 60 of 100 votes to move to a vote on any legislation almost certainly doomed any new plan unless Republicans gave it strong backing.

Wise Money wishes you a Merry Christmas

Wise Money wishes you a Merry Christmas.Wise Money wishes you a Merry ChristmasWith the end of the world not coming to pass as some predicted on Friday- we have better prospects ahead.

Wishing that you have a very Merry Christmas.

End of the world is neigh?

If you are reading this then no apocalypse has happened as yet.End of the world is neigh?

Looking out of the window I can so far report no fire or brimstone.

Speaking of the end of the world (at least if you are reading financial media this morning), the fiscal cliff negotiations have stalled after republican opposition to ‘Plan B’ and in particular  tax increases on people earning more than $1 million per year stopped a planned vote yesterday evening.

For the wise money markets the news is risk negative so the US Dollar is clawing back losses suffered earlier in the week against the euro and Pound.

The move is likely to be exaggerated by low volumes in Europe this morning as people begin their Christmas break.

Data out this morning is light – we have the final Q3 GDP number for the UK, public sector net borrowing and business investment.

All three are unlikely to contain any surprises so should not influence the Pound in a significant way today, dependant on the world not ending that is.

If it does, I’m not sure being long the Dollar will help you.

Wise money markets ride on as America looks to thrash out Fiscal Cliff deal

It was another rollercoaster day yesterday on the wise money markets with stock, equity and currency markets finishing in the green.Wise money markets ride on as America looks to thrash out Fiscal Cliff dealThe GB Pound/EUR finished below 1.23 and EUR/US Dollar finished above 1.32 as the euro continues to strengthen on the brightening picture in Europe.

GBP/USD has also continued to climb higher at over 1.6250 on hopes that politicians in America will thrash out a deal before the end of the year.

In the euro this morning, we had German IFO Business Climate Index which came in better than expected at 102.4 and is painting an increasingly rosier picture of the situation coming from Europe’s largest economy.

This coming after, credit ratings agency, Standard and Poor upgraded Greece from “Selective Default” to B Minus with a Stable Outlook in a sign that things may be looking up for the struggling nation.

In Sterling, nothing is expected from the MPC minutes but investors will be paying attention to the voting patterns of its 9 members for any indication on further monetary easing.

Yesterday, we had inflation data out which remained stubbornly high at 2.7% while growth remains anaemic with Eurozone headwinds remaining on the fore.

Tomorrow wes will be watching for the Retail Sales figure to see if the holiday season has given the UK a much needed boost after last month’s disappointing figures.

In US Dollar, we have a quiet day today with no data of note coming out today but the USD has weakened on apparent news that a US Fiscal Cliff deal could be imminent and save the country from the mountainous spending cuts and tax rises lingering from the Bush Administration.

Tomorrow the markets will be watching the US GDP and initial jobless claims with Existing home sales for a direction before the year comes to a close.

Tomorrow the Japanese interest rate decision will be announced and is expected to remain on hold at 0.1% but more aggressive stimulus measure are expected after newly elected Premier Shinzo Abe has vowed to end Japan’s 15 years of deflation and return the nation to growth and inflation.

Sterling under the spotlight

Sterling is expected to show some resilience over the coming year specifically against the euro however we may see it struggle against the Greenback.Sterling under the spotlightThe chief threat to the Pound revolves around the UK economy as all indications suggest the UK economy has contracted in the final quarter of the year.

Ominously, a weaker external environment taken together with the comparative resilience of Sterling has caused in a worsening trade deficit, which could eventually impose pressure on the Pound.

In the near term we will focus on inflation data today and Bank of England minutes tomorrow for guidance price rises concerns and the split if any within the MPC.

This alongside eagerly anticipated retail sales data and GDP on Friday will shape Sterling’s performance this week

There were some signs of progress over fiscal cliff negotiations admittedly at slow pace yesterday.

Talks between President Obama and House speaker Boehner seemed to go fairly well but the probabilities of an agreement by year end remain unlikely.

Meanwhile US equities rallied as risk measures improved, overlooking the weaker than expected reading for the December Empire manufacturing survey.

Overnight the Reserve Bank of Australia attributed a softening labour market as the main driver for its latest 0.25% interest rate cut.

The central bank added that resource-sector investment was close to a high as the inflation view allowed scope for easier policy to support demand.

It now looks likely that further rate cut will take place in February.

Today there is little else in terms of significant impact with highlights including a vote on the Italian 2013 budget, UK inflation data and an interest rate decision in Sweden. The overall tone is likely to continue to be constructive for risk assets.

Japan election result weakens the Yen

In Japan the Liberal Democratic Party (LDP) has won a landslide victory in the lower house election. Japan election result weakens the YenThis opens the door for a significant change of policy by the Bank Of Japan in an effort to try to assist the economy and weaken the Yen to encourage exports.

The LDP is in a strong position to push through its agenda as it will have a two third super majority in the lower house and this raises the pressure on the Bank Of Japan at this week’s meeting to step up to the plate.

The overall long term sentiment will now favour a weaker Yen as the new government will aggressively support a weaker Yen through monetary and fiscal policy.

In other news the US’s Fiscal cliff negotiations are still dominating the markets as we get closer to the deadline.

According to press reports there are some signs of concessions and this seems to have led to optimism for the week ahead for an agreement to be formed.

However there is a risk that if negotiations stall then we may see the markets flip back into risk off mode later in the week.

We have later in the week the info survey from Germany and Mario Draghi addressing the European parliament committee on economic and monetary affairs.

The markets will be looking for signals from Draghi on whether the ECB intends to cut rates or whether it will introduce negative deposit rates.

In the US we have inflation, durable goods and PMI data which will be closely eyed especially if we are not seeing progress on the cliff.

Economic data drags euro lower

Eurozone PMI data released this morning continues to paint a picture of a general slow down across the continent.Economic data drags euro lowerTaken as a whole Europe may already be in recession but that will not be confirmed until early next year.

The single currency is trading slightly lower on the news, but overall hanging on to the gains it made in the earlier part of the week which was driven by the announcement that further steps were agreed by Politicians towards an agreement on a banking union.

The ECB will take the lead role monitoring the continents banks.

Talks are on going between President Obama and house speaker John Boehner over budget talks and the impending fiscal cliff.

US Dollar sentiment suggests the market expects a deal to be agreed so risks remain on the downside should progress stall over the next week or two.

Against the euro the Dollar remains above 1.30, briefly pushing above 1.31 overnight before falling back in early trading this morning.

It is looking like LDP plus New Komeito will win a majority in the Japanese election on Sunday.

LDP leader Shinzo Abe has called on the BoJ to provide unlimited easing to weaken the Yen and expectation of his victory is driving the Yen lower across the board over the last week.

Non action by the BoJ in its upcoming meeting would lead to a sharp retracement with so many people short the yen currently.

Eurozone secures deal on banking union

Overnight we have received news that EU finance ministers have managed to reach a deal for a Eurozone banking union after many months of negotiation.Eurozone secures deal on banking unionStructurally the ECB will have the power to supervise only the largest banks although this brings Europe a big step closer to the goal of integration.

Today EU finance ministers will meet and discuss aid for Greece and Cyprus, yesterday Greece completed its bond buyback programme and overall the euro has been boosted by recent activity back over 1.30 against the US Dollar.

Also today we have Italy and Spain going to the bond markets and it will be important to assess the uptake of the auctions which if positive could boost the euro further.

Elsewhere the US Federal Reserve had their monthly interest rate meeting yesterday.

As expected they replaced the expiring operation twist programme by outright treasury purchases of $45 billion per month confirming a significant expansion of the Feds balance sheet for 2013.

What was surprising however was the announcement of numerical threshold values for unemployment and inflation in relation to rate hikes.

Basically as long as unemployment remains above 6.5% and one to two year inflation expectations are not above 2.5% with long term expectations anchored, then we can safely say there will be no rate hikes.

This is a form of further easing from the Fed by setting clear guidelines and the markets responded positively before being reined in by fears of the looming fiscal cliff.

The focus for today will continue on Europe and any further feedback from EU finance ministers.

In addition progress on the fiscal cliff negotiations will be eyed especially as it is the elephant in the room for the markets at the moment.

Positive Greek bond buyback compounds German economic sentiment

Wise Money Markets in Europe have gained momentum and surged to an 18 month high following the German ZEW economic investor confidence figures released yesterday which showed a jump in December way above market expectations.Positive Greek bond buyback compounds German economic sentimentThe cause was supported in the Eurozone by renewed optimism that Greece has been successful in drawing enough bonds to its sovereign debt buyback to ensure further aid requirements are unlocked by the IMF and EU.

Although the bids attracted €31.8 billion, the price paid for the bonds were higher than expected, meaning the reduction will fall short of expectations.

Consequently, this means that the debt to GDP ratio will be reduced to 126.6% in 2020, contrary to the forecast of 120%-  the currency has raced up to 1.30 levels against the US Dollar.

This positive sentiment in the Eurozone led Spanish borrowing costs to fall, however there are still concerns over the political instability in Italy, which did not seem to stop the surge in the single unit currency.

Over to the US, markets are still trading with cautious fervour as speculation continues to mount that the US Federal Reserve will add to its monthly bond purchases with further QE which also led the currency to weaken.

We still await the results of the 2 day Fed meeting that begins today to hear further details, where they will announce $45 bn of Treasury bond buying.

Though the economy seems to be gradually improving, the Fed continues to add stimulus but may be faced with higher inflation and a weaker dollar in the near future.

The US fiscal cliff talks are also still being discussed as they try and reach an agreement as to the measures taken to reduce their debt, set to come into force in January.

Positive sentiment from the Eurozone coupled with speculation of QE in the US, led Sterling to strengthen against the Greenback as we breached the 1.61 level.

We also expect unemployment figures from the UK later this morning, expected at 7.8%. Any figure that comes out higher than this could lead to a bit of weakness in the pound.