Posts belonging to Category Swiss Franc

Volatility day expected for UK Budget and FOMC meeting

Today is UK Budget day for George Osborne

Today is UK Budget day for George OsborneTonight brings us the US Federal Reserve (FOMC) interest rate decision. The FOMC are not expected to change interest rates tonight, but the meeting will give clues about the timing of the next move.

The most important aspect of tonight’s meeting will be the ‘dots’ – this closely watched graph shows the central bank’s forecast interest rates.

It’s anticipated that the rate run will contain another two or three hikes this year and four next year. The FOMC could present June as an opportunity to hike, and if so, this is likely to feed into USD strength. Overall, markets expect that the meeting’s sentiment will lean to the hawkish, with a firm focus upon the performance of global markets and the domestic labour market.

A day full of economic data

Before we get to the FOMC meeting we have plenty of economic data to digest. US CPI inflation data is projected to increase by 0.2% in February, and remain unchanged at 2.2% for the year. We also have US industrial and manufacturing production data, which is expected to weaken.

From the UK we have key unemployment data today. The unemployment rate is forecast to remain unchanged at 5.1%. Market focus will be on average earnings data; although numbers were flat in January there is optimism that wages should be now moving higher.

Finally, we get to hear Chancellor George Osborne present the Budget today. The Pound has softened in the run up to the announcement, over concerns for the potential aggressive fiscal tightening that could be delivered.

UK government borrowing deficit falls in May

UK government borrowing debt fell to £10.13 billion in May, the Office for National Statistics (ONS) said, down from £12.35 billion a year earlier.

UK government borrowing debt fell to £10.13 billion in MayA rise in income tax and VAT receipts helped to cut UK government borrowing in May, official figures have shown.
It was the lowest borrowing figure in May for eight years.

Public sector net debt excluding public sector banks now stands at £1.5 trillion, the ONS said, which is 80.8% of gross domestic product (GDP).

“While the deficit in the financial year ending 2015 has fallen by more than a third since its peak in the financial year ending 2010, public sector net debt has maintained a gradual upward trend,” the ONS said in a statement.

Income tax receipts recorded their highest level for May in four years, rising £0.5 billion, or 5.3%, from a year earlier to £10.8 billion. VAT receipts rose by £0.6 billion, or 5.6%, to £10.7 billion.

The ONS also said that it now estimated total public sector borrowing in the financial year to March 2015 was £89.2 billion, or 4.9% of GDP.

While this figure was slightly higher than the previous estimate, it was still £9.3 billion lower than the previous year’s total.

Analysts said the drop in government borrowing during May was good news for Chancellor George Osborne at the start of the new fiscal year.

Last week, the chancellor said he would attempt to bind future governments to maintaining a budget surplus when the economy is growing.

However experts say that the rise in public sector debt above £1.5 trillion will be troubling for Mr Osborne.

Obama has a narrow lead in USA presidential election

Money market traders will be preoccupied by today’s US Presidential election and Thursday’s handover of leadership in China.Obama has a narrow lead in USA presidential electionThe US Dollar appears to be rallying in spite of a narrow lead in the polls by President Obama.

The general view is that a Romney win would be US Dollar positive given that it may imply a more restrictive Fed in the form of less QE but the USD appears to be ignoring such polls.

The single European currency is the weakest performing currency so far this month after the Swiss Franc.

Greek and Spanish fears are mounting pressure on the euro- the former due to tomorrow’s vote on austerity procedures and the latter due to worsening economic data and a lack of traction towards requesting a bailout and therefore triggering the ECB’s bond purchase program.

If we look to the bond markets, a switch in Germany 2 year bond yields have turned negative, producing a widening US yield gain and in turn a weaker EUR/USD.

Certainly, the relationship across 2 year US – German yield differentials is very high, suggesting that the EUR will struggle below its 200 day moving average around 1.2828 until German yields move higher.

A generally firmer US Dollar has also dealt a blow to Sterling, with the currency slipping below 1.60.

This decline was supported yesterday by poor service activity in the UK which increased at the slowest pace since a temporary decline in activity nearly two years ago.

The PMI Index for services in October fell to 50.6 from the prior month’s 52.2 PMI, lower than the expected 52.0.

The number is a reminder that despite the recent strong GDP number the UK still has problems within manufacturing and service industry.

Therefore attention will return to the Bank of England decision on Thursday, where the decision will be a close call but there is a possibility of an additional GBP 25 billion in asset purchases could be announced.

Sterling could encounter some problems in this event but given that the currency has not been particularly impacted from QE in the past, it is unlikely it will suffer any severe setbacks.

Greek election on Sunday is the focus of attention

The Greek election over the weekend looms large over the money markets. Greek election on Sunday is the focus of attentionThere is a genuine feeling of unease over what will happen to Greece over the coming months.

But as ever with the money markets, uncertainty over the outcome is the main driver rather than the prospect of a Greek exit from the eurozone.

The water was muddied further by an article in the FT by Alexis Tsipras, leader of the Syriza Party, suggesting he would keep Greece in the eurozone if elected.

A month ago the dominant thought was that if an anti-austerity party formed a government, Greece would then start along the road to leaving the euro.

However, it is possible that Greece could remain inside the eurozone even if they were to default.

Whatever happens on Sunday, next week will likely be an interesting one.

Across the major pairs the euro has gaining ground in Asian trading overnight as details leaked (what a surprise….) that European leaders are prepared to discuss a European banking union at the next EU summit.

It strikes us as yet another game of chicken between EU politicians and the money markets.

Let’s hope they can actually deliver what is needed this time, rather than just proposing something and then thinking it wouldn’t matter if they yet again fail to deliver.

The Swiss Central Bank held interest rates this morning and also reaffirmed it will defend the 1.20 level against the euro.

If Greece were to leave the SNB’s resolve would be tested to the max as people dumped euros and piled into the Swiss Franc. Although the SNB suggest that they will buy euros in unlimited quantities, would that work in practise?

Weak euro continues to fall

The euro has opened lower this morning, sitting below the critical 1.30 barrier as markets remain nervous as to the steps that the eurozone will take to curb the crisis. Weak euro continues to fallIn major trading, the US Dollar managed to gain further strength last week trading to a low of 1.2860 at the end of 2011, which was the lowest in the final quarter of 2011.

Data from the region, saw manufacturing figures come in from France, Germany and Switzerland, which was higher than previous months for all countries, though not reflecting a drastic expansion as it lay below the median figure of 50.

With regional banks stepping up their deposits in the ECB, panic had started to set in, but the announcement from the ECB last week that these deposits were receding, have calmed fears momentarily.

We have had some positive data from Germany, as far as unemployment figures go, pushing the euro towards the critical support level of 1.30 against the greenback.

As we go into the week, we expect further data from Europe on Services PMI and construction figures, which will lend to trading patterns of the Euro, intermittently.

We are straight back into a busy week for the US Dollar with ISM manufacturing out this afternoon along with the minutes of the previous Federal Reserve meeting from the 13th December.

On Friday the US non-farm payroll number is also released, with the consensus for around 150K jobs being added over the previous month.

Today also marks the official start of the presidential elections with the voting beginning in the first republican primary in Iowa. A victory by the favourite, Mitt Romney may mean the race is over before it began with Mr Romney holding a 20 point lead in the next state to vote, New Hampshire.

Wise money markets try to figure out next move

Chaos ensued across the markets yesterday following the SNB’s (Swiss National Bank) decision to announce they target minimum exchange rate to the Euro will be 1.20.Wise money markets try to figure out next moveThis led to a huge switch with traders and investors alike scurrying to get funds out of Geneva and into other safe havens.

The US Dollar was the main beneficiary from all of the panic with the Greenback gaining between 1 and 2% across the board.

The announcement by the SNB caught the market by surprise and they are the first central bank to properly stand up for their currency.

Whether they actually had to use any of their own money to weaken the Franc or if it was other investors and banks, we will have to wait and see once traders test that 1.20 level for a reaction.

Sterling suffered yesterday as the rush from the Swiss Francs into the most liquid currencies led to losses against most of its rivals.

The Pound hasn’t recovered today with the release of the Manufacturing and Industrial Production numbers.

Manufacturing came out as expected at 0.1%, but the Industrial number was worse at -0.2%, yet another set of weak figures for the UK economy.

Chancellor George Osborne came out fighting insisting he will continue with plans to cut the UK Government’s annual deficit and rejected calls from Labour’s Ed Balls for another tax on the financial sector.

Rollercoaster money markets

The FTSE fell dramatically yesterday losing nearly £50 billion (-3.7%) as traders were bombarded by bad news.Rollercoaster money marketsRBS was one of the worst performers, dropping 12 % after it was announced over the weekend that it is being sued by the US Federal Finance Housing Agency over allegations it misled buyers of mortgage portfolios.

Barclays and HSBC, are also in the firing line over a combined $11bn of suspect mortgage packages, lost 6.7 % and 3.8 % respectively.

The banking sector overall hit a two year low.

In addition to the banking news a deeper fall than expected fall in service sector growth also hit the FTSE, with the Markit/CIPS services purchasing managers’ index dropping from 55.4 in July to just 51.1.

The bad news was set against the familiar backdrop of Eurozone fears, with German and French indexes also suffering.

Angela Merkel’s government faces a court ruling tomorrow over claims Berlin is breaking German law and European treaties by contributing to bailouts.

This morning has seen dramatic events continue, the Swiss National Bank (SNB) set a minimum EURCHF exchange rate of 1.20, citing the recent strength as a threat to their overall economy.

SNB officials claim they have unreserved quantities to enforce the minimum exchange rate of 1.20.

So far this has been successful as we saw the EUR rise of from 1.10 to 1.21 in a matter of minutes.

This has been the latest attempt by the SNB to weaken its “Safe Heaven” currency as export limitations are beginning to hurt their overall economy.

This is dramatic move by the Bank as previous attempts of increasing deposits available to commercial banks coupled with a cut in interest rates has had limited success.

Finally overnight we saw the National Australia Bank maintain interest rates on hold at 4.75% where it has sat for almost one year.

Following the decision, RBA Gov Glenn Stevens said a key question for economic policy makers now is the extent to which global recession fears temper inflation pressures within Australia.

“The uncertainty and financial volatility is reducing confidence and may result in more cautious behavior by firms and households in major countries… At this stage, little evidence is available to gauge any effects of the European and U.S. problems on other regions,” he said.

Swiss Franc keeps gaining ground

The Swiss franc hits record highs against the US Dollar and the euro as attempts by the Swiss National Bank prove unsuccessful in slowing the currency’s rise. Swiss Franc keeps gaining groundThe decision to expand their liquidity policy did very little to ease pressure as traders looked for more aggressive action including the pegging to the Euro or US Dollar.

Following the announcement the CHF continued to strengthen which reiterated the point additional steps will be required and currently sits at 1.3118.

In what has been a reverse of the overnight session, the Greenback continues to recover lost ground with EUR/USD back on its lows and AUD/USD down to 1.0480.

Equities are falling further led by Seoul down 2.6%, Taipei down 2.0%, Sydney and Tokyo just over 1.0%.

EUR/USD touched a fresh low overnight removing the buying interest at 1.4390.

On the face of it, there appears no reason for today’s moves but then again there was nothing apparent for the overnight moves.

Elsewhere USD/SGD has surged higher today after the MAS flooded the forward market with domestic funds. Negative interest rates are really catching on amongst the strong currencies.

Today in the UK we had retail sales at 9.30am which saw weak growth for the month of July as cash strapped consumers cut back on spending.

According to the Office for National Statistics sales volumes grew inline with the 0.2% expected figure but down from last months figure of 0.8%.

The ONS statement blamed a fall in household goods, clothing and footwear as consumer’s battle against the latest CPI figures which indicated a number of 4.4% from June’s 4.2% and well above the Bank of England’s target figure of 2%.

Sterling as a result has fallen from the highs of yesterdays 1.6570 against the US Dollar and currently sits at 1.6487 and 1.1466 against the Euro.

UK interest rates rise? No chance!

We have just seen the release of the minutes from the latest MPC meeting amidst speculation that one of the two members who have been voting for a rate rise will have rejoined the group in opting for no change. UK interest rates rise? No chance!In fact, both Martin Weale and Spencer Dale moved their votes leaving the committee unanimous in keeping rates unchanged for the coming month.

Sterling dropped as a result with it now very obvious that the MPC are much more concerned and united in their views over weak recovery prospects rather than problems arising from the current high inflation numbers.

Adam Posen remained the only member of the committee arguing and voting for an increase from the current level of Quantitative Easing.

Yesterday’s summit meeting between Sarkozy and Merkel produced nothing of real substance.

There was talk about harmonizing fiscal policy across the region- an absolute must if the Euro is to have a viable long-term future, but this is not essentially what the market wanted to hear.

Traders were hoping for was a cunning plan on how the two power houses of Europe were going to stabilise the current debt situation in the Eurozone.

The sentiment in the run up was that the concept of Eurozone bonds would be furthered and in support of this, the first steps to expanding the size of the EFSF would be outlined.

Instead, the duo explicitly denied the need for a bigger EFSF or a Euro-bond and it soon dawned that there was no plan to deal with the current market pressure.

The one measure they did propose was a financial transaction tax although this will meet great resistance from European banks and looks unworkable if the measures are restricted to just Eurozone countries.

The likelihood of the ‘Tobin’ tax proposal making it through into law looks very slim.

Italian and Spanish bonds started negatively again, pushing yields up, equities fell and flows moved back into the safe haven investments like gold and Swiss Francs.

The Swiss National Bank has been in the market again today to try and alleviate demand for their currency.

The Euro itself has held up reasonably well, especially given the weak GDP data released yesterday morning.

It still looks only a matter of time before the weight of negative sentiment has an effect.

eurozone’s desperate attempt to stop the rot- ban short selling

Short selling of financial stocks has been banned in 4 key Eurozone nations for 15 days in a bid to halt the turmoil engulfing the financial markets.eurozone's desperate attempt to stop the rot- ban short sellingFrance, Italy, Belgium and Spain imposed the ban from today to combat volatility hitting banks such as Societe Generale.

The ban even has a different meaning across those 4 countries with Spain including all financial instruments such as credit default swaps, whilst in France it only covers the shorting of bank equities.

The move has led to calmer markets with gains across the board.

Whether this will last once the ban is over is hard to say as there is still plenty of uncertainty surrounding the euro and its debt problems.

We have seen Eurozone data out this morning generally coming below expectations including the French GDP for the last quarter showing no difference to the previous quarter.

This will add to the pressure on French President Nicolas Sarkozy who has already had to cut short his holiday to try and calm the markets.

The UK has been relatively quiet this morning.

The riots, which spread across the country earlier in the week, have subsided and any negativity that was brought on by the unrest has been eradicated.

Chancellor George Osborne was speaking yesterday where he insisted that he had an “utterly unwavering commitment” to cutting Britain’s deficit and would not switch to a plan B in the face of the recent turmoil.

The Swiss Franc was the main mover yesterday as a Swiss Central Bank official hinted that the currency could be pegged to the Euro to prevent further appreciation.

Investors have ploughed into the Franc over the last month as the panic spread to find the safest place to put your money.

The CHF shot up from 1.16 to 1.24 against Sterling as many of the traders who have been buying the Swiss Franc now need a new place to invest.