Articles from February 2013

Wise money markets consolidate

Yesterday the wise money markets showed signs of consolidation following strong US economic data on Tuesday and evidence that the market has not lost confidence with Italy yet.Wise money markets consolidateItaly went to the well yesterday and their debt auction was relatively positive and encouraging given the political backdrop.

It seems more likely that we will see a Bersani-Berlusconi government but this is far from a done deal and the uncertainty should keep the market on its toes.

In the US, Federal Reserve chairman Ben Bernanke was speaking yesterday and he indicated that he is no hurry to exit the QE programme which also helped ease market concerns.

US equities closed over 1% higher and the momentum continued into Asia with the Nikkei up more than 2%.

Asian markets were also boosted by confirmation that Haruhiko Kuroda is to become the next Bank Of Japan governor and this will undoubtedly lead to a more aggressive Bank Of Japan as already indicated by Prime Minister Shinzo Abe.

We have unemployment data from Germany this morning and a bout of US data this afternoon with initial jobless claims and Chicago PMI.

Italy will also continue to come under the spotlight and the market will be watching the peripheral bond markets closely.

Italian elections weigh heavily on wise money markets

The wise money markets continued to feel the pressure of the looming Italian elections as they closed in the red yesterday, providing strength to the US Dollar.Italian elections weigh heavily on wise money marketsThe elections are at a stalemate with no clear winner and with pretty bleak prospects of any of the parties finding a common ground to form a coalition.

The gridlock is expected to last for a while, and we may see a decision prolonged all the way into May when they will go back into polls.

All optimism and consumer confidence in the Euro markets this year has transformed into a major concern for investors that the resulting paralysis from a hung parliament could see economic and fiscal reforms fall behind schedule and send bond yields back up; which possibly will spread to other peripheral economies.

The bloc’s currency reached to lows of 1.3025 in trade yesterday but has picked up a little this morning to 1.31 against the greenback.

From the US, we witnessed Fed Chairman Ben Bernanke submit his bi-annual report to Congress.

His comments did have a marginally hawkish tone as he continued to stress that the US does not see the potential costs of increased risk taking outweighing the benefits of promoting a stronger economic recovery as he continued to back the current asset purchases and quantitative easing programme stating they were supporting the economy with minimal risk to inflation.

US figures also revealed a jump in consumer confidence and better than expected new home sales which helped to provide some support for US equities and the US dollar.

With the exaggerated selloff in Sterling late last week, after the AAA rating downgrade, the Pound has recovered a little bit of its losses against the euro as it went back to levels of 1.16 yesterday.

However, we have seen a slight slump in the currency as markets factor in the UK GDP figure out later this morning expected at -0.3%. Overnight, we had the UK inflation report after which several Bank of England members suggested they are open to further quantitative easing even with the prospects of rising inflation.

The deputy governor, Paul Tucker also hinted that we may see negative interest rates, as he tries to get banks’ lending more to businesses. Sterling has opened trade this morning fairly weak at 1.5140 against the greenback.

Euro tumbles following the Italian election

In an explosive day for wise money markets, the single European currency was the worst performer of the majors.Euro tumbles following the Italian electionAt the start of the session, the euro opened the week on a fairly solid start, but that quickly faded as headlines grew on the Italian election.

The initial euro rally was a reaction to a solid win for a pro-austerity, pro-euro Nicos Anastasiades as the Cypriot president.

Although not a resolution to the issues the small island-nation faces it does relieve it as an instant danger.

Next on the agenda is the far more critical Italian election.

The likelihood of a clear victory for an individual party never really seemed to develop but there was some cautious expectation that a pro-euro coalition could be created.

Early counts proved that would not be possible and led to a no clear winner which forces either a grand coalition or a re-election.

Additionally, the anti-austerity groups appeared to gain significant momentum – voters clearly displaying their frustration over a deepening recession. A full resolution to Italy’s election issues may not be resolved up for a few weeks.

In the meantime, speculators will start to worry over the renewed fear of fiscal tension in the Euro-area will do to bond yields. If the debt markets dry up, the ECB may have to reverse its contracting balance sheet.

Sterling opened the week with a prominent, 34-pip gap to the downside. Other sterling-based crosses produced bigger discrepancies during the on the opening of official trade yesterday.

The piercing move lower was the first chance for many to respond to the Moody’s rating agency’s downgrade of the United Kingdom’s AAA-rating late Friday evening. This downgrade certainly dents Prime Minister Cameron’s effort to balance his austerity push while warding off recession.

Today we should note an Italian bond auction in the early morning session where €8.75 billion of 6 month debt is on offer and this afternoon we have US Consumer confidence for the month of February where a reading of 62 is expected.

Sterling could dominate the headlines tomorrow morning with a GDP number due tomorrow morning expected to show 0% YOY and -0.3% for the for the Quarter.

Britain loses its AAA credit rating

After a difficult fall for Sterling after dovish BoE minutes were released the Pound started to strengthen on weaker than expected LTRO payments and an impending Italian election in the euroland.Britain loses its AAA credit ratingThen came the downgrade to the U.K.’s credit rating, from AAA to AA1 from Moody’s, during Friday’s trading session to spark another run on Sterling with the currency losing all gains against it major trading partners.

GBP/EUR stalled at 1.16 during the week and finished in the 1.14’s, with EUR/USD struggling to stay above 1.31 after a small range traded week and GBP/USD going as low as 1.5131.

A poor end to the week has spelled a difficult start during Asian trade for Sterling as the currency continues to struggle.

Chancellor George Osborne testifies about Banking Standards today to parliament with curve ball’s about the recent downgrade expected which will give him plenty to think about for his next statement in March.

Wednesday’s adjusted GDP figure is expected to remain at -0.3% in line with preliminary data from earlier in the month.

Over in the uS of A- after continued strength last week, markets have a few things to note this week.

Tuesday, US New Home Sales are expected to continue their positive rise.

Wednesday, Durable goods orders expected to show minimal growth at 0.2% from 1% last month.

Pending Home sales also expected to show growth at 1.6% versus a contraction last month. Thursday, the Initial jobless claims figure is expected to show a minimal fall and the GDP figures is expected to come in at 0.5% versus contraction last quarter.

Friday, sees the final Michigan Consumer Sentiment figure and ISM manufacturing index.

In euroland- after last week’s euro strength on German business Sentiment, the Italian Election has bought fears back to the single currency as the possibility of disgraced ex-PM Silvio Berlusconi returning to power could become reality today and possibly undo the austerity measure put in place by currency Prime Minister Mario Monti.

The election will be closely watch throughout the day and Monday evening as speculation and results emerge to indicate who will take the reigns.

Sterling continues it’s devaluation

From the Bank of England’s perspective it’s been a very successful week.Sterling continues it's devaluationThe Bank indicated it wanted a lower exchange rate to ‘rebalance’ the UK economy and the market duly obliged, sending the Pound to multi-month lows across the markets.

Compounding the move was rumours of a credit rating downgrade by S&P & a slight increase in the ILO unemployment rate despite record numbers of people now in work within the UK.

The Federal Reserve minutes showed conflict between members, which the equity markets in particular did not like.

This month was the first hint the Fed gave about the withdrawal of stimulus (and it was nothing more than a hint that they were considering it) and it presents policy markets with rapidly changing macro outlook.

So much of recent risk gains have been fuelled by the prospect of unlimited easing and a slight change to the Fed policy will have large ramifications for asset prices in the future.

There is currently a disconnect between market prices and the underlying economy and that gap was being sustained by the prospect of unlimited QE.

Now we have the prospect of that not happening for as long as the market hoped and so that gap must begin to narrow.

Next week we can look forward to lots of US data including consumer confidence, durable goods orders & GDP.

German data including CPI and unemployment is also due and being increasingly scrutinised in light of the perceived slow down across the Euro zone.

Interestingly a rate cuts from the ECB this year is now being forecast which should help the Pound against the single currency.

The Pound nosedives off the cliff

The Bank of England monetary committee minutes released yesterday compounded the misery for the Pound.The Pound nosedives off the cliffThe Pound has lost further ground against the USD and the euro yesterday as the market digested a bank more than willing to tolerate higher inflation and consider other types of asset purchases.

The vote on QE was also very divided with a 6-3 vote with governor Mervyn King being outvoted for only the fourth time in his long tenure.

The misery continues and if anything is gathering momentum for the pound which has fallen off a cliff and is still falling.

The FOMC minutes were also released yesterday and confirmed that policymakers disagree on the path for the open ended QE programme.

There is a general concern among FOMC members about the dangers of a growing balance sheet and the risks associated with further asset purchases.

Essentially the tone from some in the FOMC is to slow the pace of asset purchases and this has led to USD strength and a downturn in risk sentiment.

The focus for today will be on Eurozone PMI data and overall an improvement is anticipated.

In addition we have US inflation data, US existing home sales and the Philly Fed manufacturing index.

However in the money markets attention will remain on the digestion of central bank sentiment and this should see more pressure on the Pound today and USD strength.

German economic sentiment soars as money markets await Central bank minutes

The wise money markets have rallied on good German news- as the German Investor confidence index climbed by 16.7 points to hit a 38 month high to 48.2.German economic sentiment soars as money markets await Central bank minutesMost investors are upbeat that the worst is over for the economies in the Eurozone and the slow rebound has helped the euro gain considerable strength as it breaches the 1.3425 level, in opening trade.

The main event today will be Federal Open Market Committee (FOMC) minutes which will be released after the European markets close.

In other news from Europe, Moody’s has warned that Spanish banks face continued liquidity and funding pressures despite most of them being able to tap the bond market earlier this year.

From the UK, Sterling has come under renewed selling pressure across the board against most currencies.

Investors remain extremely watchful and cautious leading into the evening given the expected release of the BOE’s Monetary Policy Committee minutes as well as domestic unemployment figures.

The currency is likely to remain subdued as we lead up to these events later today and any clear direction will be determined by the minutes.

Markets are extremely cautious as a struggling UK economy tries to grapple with salvaging its coveted AAA rating and to try and avoid an almost inevitable triple dip recession.

Political events under the spotlight

Investors have few pointers to trade off following yesterday’s Bank holiday in the United States.Political events under the spotlightNevertheless, it looks like a risk off play is settling ahead of this weekend’s Italian elections, particularly in Europe.

ECB President Draghi’s speech to the EU parliament provided little catalyst to markets as he didn’t elaborate on his post ECB press conference in February.

The most significant remark was that he advised the G20 to employ “strong verbal discipline” on speaking about currency movements.

Despite the Italian election most risk measures appear to be well behaved, Equity volatility has continued to drop and gold prices have steadied after the recent sharp fall.

Under the spotlight today is a likely gain in the February German ZEW survey.

The money markets are range bound but it has been noteworthy that USD/JPY has struggled to maintain rallies above the 94.00 level, with upward impetus in the currency pair seeming to fade.

Remarks by Japan’s Finance Minister Aso that the administrations were not thinking of changing the central bank law at present or buying foreign bonds helped to weaken USD/JPY.

Though the G20 meeting successfully gave the all clear for additional Yen declines, a lot is in the price in terms of policy outlooks and any further JPY weakness is likely to be much more measured.

The Aussie rose slightly over night following the release of RBA policy minutes in February, emphasising inflationary outlook for the economy would afford options to ease policy further.

Specifically, mining industries and the labour market are the major worries for Australia, in which the restricted growth in commodity prices would weigh heavily on the economy.

The minutes have limited effect on the AUD as the content is largely in line with expectation.

Finally, Sterling hit a seven month low on the Greenback yesterday following comments from Martin Weale that the MPC wanted a weaker pound to boost export demand.

He said the Bank should hold off from counteracting any rise in inflation that is caused by a weakening exchange rate. “To do any different would be to veer towards deflation as a means of restoring equilibrium”.

The Pound fell 0.5% during Monday’s session to reach 1.5438 its lowest level since July2012 and 5% lower than where is started the year.

UK’s retail sales figures continue to disappoint

More doom and gloom last week for the U.K. with Retail Sales figures coming in largely under consensus showing a second straight contraction in the figure.UK's retail sales figures continue to disappointIn contrast, as markets continued to soar, we also saw strength returning to the US Dollar after a disappointing start to the week. the

GBP/USD fell below 1.55 for the first time this year. GBP/EUR continued to fall in the opposite direction again struggling to stay about 1.16 and an uneventful week for EUR/USD battling to stay above 1.33.

As the U.K. continues to struggle with high inflation and low to non-existent growth we have Wednesday’s claimant count that is expected to show more positive news on joblessness with the figure contracting again.

Also, the MPC minutes will be released on Wednesday to see the voting from the last interest rate meeting with last week’s inflation report it will be interesting to see if the committee is leaning towards more QE.

Over the weekend, the G-20 Summit in Moscow ended on Saturday with apparent thumbs up for “un-intentional” and no direct weakening of currency rates as part of wider monetary policies.

On the other sode of the pond we have a potentially quiet week this week for the US Dollar with Wednesday’s FOMC meeting minutes being released to see how sentiment is towards the continued monetary policy currently in place and whether or not the Federal Reserve will continue on its current course until the end of 2013.

On Thursday, inflation was expected to have increased with US Existing Home Sales expected to have fallen back again as the property market struggles to get back on its feet.

End of a another unloved week for the Pound

The Pound has endured another unloved week. End of a another unloved week for the PoundComments made by the Bank of England governor Mervyn King were the catalyst of the move lower against the Dollar, where we hit a six month low, and the euro.

But I would suggest it was merely confirmation of what we all really knew, the UK economy is slowly getting better, but it will be a long and frustrating journey.

The reason we are now at new lows is because higher inflation is being tolerated explicitly by the bank in pursuit of growth, and because “rebalancing via external demand” was twice quoted in the inflation report and the money markets have interpreted that as the BoE pursuing a lower exchange rate to achieve this.

The euro and Dollar remain locked in an arm wrestle.

Disappointing GDP numbers yesterday from the Euro zone has pulled the Euro slightly lower, but the combination of large inflows back into the Euro up against a US economy slowly recovering is keeping both currencies well bid.

The outlook for Sterling next week should be slightly more stable, but the Bank of England and Federal Reserve both publishing their respective minutes on Wednesday from earlier this month there is scope for movement.

However, with no change in policy or outlook expected from either a brief pause for Sterling is more likely at this stage. Other key data next week is both German and US CPI & PPI in the middle of the week.