Articles from June 2013



The US Dollar continues to struggle as interest rates fears persist

There was further turmoil in the market late in trade yesterday as there were hints, again, that the Federal Reserve in America may start to taper or reduce the amount of Mortgage Backed Securities they purchase a month.
The US Dollar continues to struggle as interest rates fears persist
This sent the markets into a flurry of risk off activity with government bond yields increasing across Europe while major European indices lost over 1% on average.

This came after industrial output in the UK came in slightly better than expected across the board citing oil and gas production as a major factor.

Yesterday saw GB Pound/US Dollar rise over 1.56 for the second time in three days this was mainly dictated by the sharp rise in EUR/USD to 1.3315 to hit an almost 4 month high.

The GBP/EUR has continued to remain range bound and after earlier pressure it regained its composure to keep the trading range between 1.1690 – 1.1775.

After the recent flurry of positive data, before new governor Mark Carney takes the reins at the Bank of England, it is expected that today’s claimant count change will have fallen again, for the 7th month, in May in another positive sign that the UK’s job market is finding its feet as the nation continues to hire.

On the other side of the pond – as further hints about the Fed tapering the 85 billion worth of MBS purchased a month continuing to weigh on the greenback we have a quiet session ahead data-wise.

Without any strong positive news or data for the US it is likely the USD will continue to struggle today against GBP and EUR but mostly remain range bound between 1.5550 and 1.57 where key support and resistance levels.

As the legality of the Open Market Transactions continue into their second day in the German Constitutional Court, further negative news for the euro has struck with Greece being downgraded from a developed nation to emerging-market status as the local stock index has fallen 83% since 2007.

This morning’s data release saw inflation figures across the Eurozone’s 4 largest economies remain stagnant with France seeing a slight fall to 0.1% against expectations of 0.3%.

Chinese exports drop as UK recovery gathers momentum

We start this week after a very volatile week for the currency markets.
Chinese exports drop as UK recovery gathers momentum
The US Dollar lost most of it gains after ADP job forecasts came out much lower than expected as well as poor manufacturing numbers earlier in the week.

However, the non-farm payrolls number that was out on Friday, came at a reading of 175k which was much better than expected.

That helped the Dollar claw back some of its losses against most currencies, specifically commodity backed currencies, which have amidst the commodity selloff, lost heavily.

The USD/JPY pair has been the most volatile as it has moved along a 7 percent range in the week.

The Yen clawed its way back under the 100 mark earlier in the week after Prime Minister Abe’s speech that outlined strategies for investors painting a rosy picture, which managed to provide the Yen with some support, though not so for the free falling Japanese equity markets.

The non- farm payroll numbers from the US, though positive, were revised downwards by 12k which adjusted the unemployment rate by 0.1% which now stands at 7.6%.

This has kept the greenback weak and under pressure from most of it’s counterparts in opening trade.

With mixed figures coming out of the US, investors are now less inclined to continue with the sentiment of the Fed cutting back stimulus in the near future, as markets price in the over-reaction to Bernanke’s announcement that the Fed will ease its asset buying programme measures as soon as July.

Last week was also a very positive one for the Euro, on the contrary, as it surged to a 3 week high and the EUR/USD pair trades at 1.32 this morning.

The ECB met on their usual meeting on Thursday and kept rates on hold and revealed a promising outlook on growth forecasts for the region.

Despite weak manufacturing numbers earlier in the week, the ECB decided not to proceed with any plans of negative deposit rates. We had German industrial production figures out on Friday which also came in better than expected, in the wake of which Angela Merkel has urged the rest of the Euro zone to ‘follow Germany’s lead on growth’.

Meanwhile, European stock futures have fallen amidst China’s export figures that sank to a 10 month low in May as a crackdown on fake trade invoices exposed weakness in global demand.

Some good news at last

Some good news at last for the UK economy as new data suggests a welcome improvement in both sentiment and performance.Some good news at lastA growing majority of households are now feeling optimistic on the economy, according to the latest figures from YouGov, the third consecutive month that positive views have dwarfed negative ones.

The figures which assess assurance about household finances, job security and house prices – also suggest people feel more confident in their jobs now than at any point since the survey began in 2009.

The news came alongside released figures yesterday the UK’s struggling construction sector has finally returned to growth.

The building industry grew in May for the first time this year after shrinking by 8.1 per cent last year. The most recent PMI improved to 50.8 in May from 49.4 the month before after house building initiatives boosted firms, leading to the quickest rise in output in 26 months.

It builds on positive manufacturing figures from Monday, which showed the sector growing at its fastest pace in 14 months.

The Aussie dropped against the majors, falling to retest the 0.96 figure against the Greenback, after first-quarter Gross Domestic Product figures disappointed below expectations.

Output added 0.6 percent in the three months through March compared with the final quarter of 2012, falling short of forecasts calling for a 0.7 percent increase.

The news fuelled speculation about another interest rate reduction from the Reserve Bank of Australia (RBA) at the July meeting.

The central bank said the outlook for inflation afforded “scope for further easing should that be required to support demand” at its latest policy announcement earlier this week.

After the ECB gave the signal for easier deficit-reduction in Italy all eyes will be on the policy statement and interest rate decision on Thursday to see what the central bank stance is towards other nations and also the concept of negative rates to stimulate lending to the real European economy.

Thursday’s Bank of England interest rate decision is the last policy meeting and statement from outgoing governor Sir Mervyn King before Mark Carney take control in July. This is unlikely to be a significant event with investors waiting until next month’s policy statement for any direction on further QE and economic health of the UK.

Global growth forecasts hit by weak manufacturing data

The wise money markets have gone back into their usual mode, taking their cue from the US Dollar.
Global growth forecasts hit by weak manufacturing data
Amidst weak ISM manufacturing figures from the US, which came out at a figure of 49, markets are not expecting the likelihood of the Federal Reserve to cut back on the asset purchases anytime soon.

This has also weakened the Greenback against most of its counterparts, after the contraction number was the worst since May 2009.

Any expectations for the forecasts for the Fed to scale back on the stimulus has been cooled till later this year as markets are of the opinion that Ben Bernanke will wait till he sees substantial growth before he can act on the stimulus package.

The Japanese Yen has been the most significant mover, recovering a few of its losses against the US dollar as we are back under the 100 mark that was breached a few weeks ago.

We have a fairly quiet day today from the US with minor interest expected from trade balance figures. Most of the attention will remain on the Non-farm payroll figures due to come out on Friday.

We also had manufacturing figures from the eurozone, with Germany, France and Italy all ticking higher. However, even though the positive results helped the euro gain against the weak dollar, the figures are still a glaring insight into the recession struck bloc of nations.

All reading, throughout Europe were under the 50 mark, which signifies contraction. The Euro has retained its strength against all commodity based currencies amidst the commodity sell off.

We expect Euro zone PPI figures today but most investors await the GDP figures from Eurozone, which are out tomorrow. In other news, the Australian Dollar managed to recover some of its losses as Chinese manufacturing PMI came out at 50.8 – a marginal move upwards.

The robustness of the global growth story has also taken a hit, with Chinese PMI data much lower than expected and the Euro zone index remaining in contraction territory.

Sterling has enjoyed a bullish run after the weak US data compounded by its own manufacturing figures.

UK factory orders are on the rise and we had a reading of 51.3, coming in higher than the forecast for 50.2 which is a healthy 1.1 percent increase in May. The British Retail Consortium has also indicated that retail sales grew in May on furniture demand.

The better than expected reading and positive sentiment has managed to push GBP/USD above the 1.53 level and against the Euro, it has managed to stay above the 1.17 level.

Wise money markets look to central banks for future direction

After the positive US Confidence figures to start last week US Dollar suffered as the week came to a close, so did the Dollar rally and strength that was sustained for the past 3 weeks.
Wise money markets look to central banks for future direction
With mixed messages coming from America, the USD suffered as investors continue to look for further hints at reductions in the Fed’s current cycle of monetary stimulus, as stock markets start to suffer.

This morning, April Chinese Manufacturing PMI was revised downwards, in further signs that momentum in the Republic is continuing to falter as domestic demand is flagging.

Also, this morning weaker then consensus retails sales data from Australia is continuing to weigh on the currency ahead of tomorrow’s interest rate decision.

In the UK there is a quiet week data wise to follow with Manufacturing PMI this morning expected to show slight growth at 50.2 and Services PMI on Wednesday showing growth at 53.

Thursday’s Bank of England interest rate decision is the last policy meeting and statement from outgoing governor Sir Mervyn King before Mark Carney take the reins in July.

This is unlikely to be much of an event this month with investors waiting until next month’s policy statement for any direction on further QE and economic health of the UK.

Over the channel after the ECB gave the signal for easier deficit-reduction in Italy all eyes will be on the policy statement and interest rate decision on Thursday to see what the central bank stance is towards other nations and also the concept of negative rates to stimulate lending to the real European economy.

Manufacturing PMI data today and Services on Wednesday are expected to come in line with releases late last month to show a brighter picture in the Eurozone but that the area is still struggling to find growth in the sectors.