Theresa May wastes no time in planning UK’s Brexit strategy

Theresa May is wasting no time in planning the UK’s Brexit strategy as she travels to Germany and France for discussions.

Theresa May is wasting no time in planning the UK's Brexit strategy as she travels to Germany and France for discussions.

Two of the more significant economies of the EU are keen to meet and begin discussions about an exit plan with the new PM. They have both stressed that no in depth proposals will be looked at until Article 50 is triggered.

Canada is the latest country to have ‘shown interest’ in the form of a trade deal to the UK since the referendum outcome, which if true will no doubt have investors starting to believe in the pound again. Other stronger nations such as the US, Australia and India to name a few have also potentially sounded out a trade deal.

London mayor launches #LondonIsOpen

London Mayor Sadiq Khan has been on the front foot this week, launching #LondonIsOpen, aimed to keep investors ploughing their funds into UK Markets and hoping to keep tourists flocking to major parts of the UK. The campaign has been backed by senior political figures, business leaders and celebrities alike.

Today we get to digest data from the UK & EU, with GBP Consumer Price Index figures out at 0.5% against previous showing of 0.3% which has boosted the pound slightly plus German ZEW Survey.

Wise money markets buoyed by data releases

A combination of better than expected Chinese export growth and German Industrial production has boosted appetite in the markets and led to euro/ US Dollar driving higher yesterday.
Wise money markets buoyed by data releases
In addition overnight it has been confirmed that Australian employment data came in hugely better than expected again boosting risk appetite and leading to gains in the AUS Dollar in early trade.

In other news the NZ Dollar fell after the central bank confirmed that they intervened last month to protect the NZD from further appreciation.

However with interest rates still high compared to the west at 2.5% and limited ability to intervene on a large scale the NZD is not expected to depreciate too much but the move will make speculators think twice before going long NZD.

Elsewhere the Polish Zloty gained ground after the central bank cut interest rates in a surprise move to try to boost growth.

The focus for today will be on the Bank Of England interest rate decision, however it is not expected that we will see any change to interest rates or to QE which will hold at £375 billion.

The recent uptick in economic data in the UK through PMI and GDP coming in better than expected underlines the reasoning to hold firm.

We also have industrial and manufacturing production data due out of the UK this morning which is expected to be weaker than previous releases. From Europe we have the ECB monthly report which although not likely to surprise will be eyed just in case and finally we have US jobless claims which are expected to show an increase in claims.

Euro rallies on economic data

The euro has rallied to a high of 1.3130 following German Factory Orders which surprisingly rose a further 2.2% in March, coupled with rumours that Portugal will auction 10-year bonds for the first time since the 2011 bailout amidst easing finance costs in Europe.Euro rallies on economic dataNevertheless, it appears as though the powers that will be working under the single currency are becoming gradually more dependent on monetary support as Spanish Prime Minister Mariano Rajoy requests the European Central Bank (ECB) to announce extra packages to support small businesses, while Euro Group President Jeroen Dijsselbloem said the region needs more tools to recapitalise commercial banks as the ECB plans to conduct asset-quality review of financial institutions.

Following comments from Mario Draghi last Thursday, it appears as though the ECB are ready to firm up the ailing economy; we should see the Governing Council continue to embark on its easing cycle over the coming months and the central bank may show a greater willingness to apply negative interest rates in the euro-area as the region struggles to return to growth.

Therefore, the ECB monthly report due out Thursday may fuel speculation for additional monetary support, and the EURUSD remains poised to face additional headwinds over the near to medium-term as the outlook for growth and inflation remains weak.

Finally, back to the UK the Pound has found a catalyst by the better than expected GDP number which eradicates some of the short term fears regarding a triple dip recession.

Attention will now turn to the NIESR (National Institute of Economic & Social Research) estimate of GDP for April for further clues on the state of the UK economy.

The Bank of England Interest rate decision will also be a key event. Recently there has been the view that more QE could become available but as yet we have failed to see it. If we this were to be announced expect rates to be pretty choppy following this news.

These data outcomes along with Industrial and Manufacturing results will shape Sterling’s performance for the rest of the month.

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.

Positive consumer confidence in Germany bucks eurozone trend

Consumer confidence in Germany will increase in February from a 7-month low, suggests the GFK survey.Positive consumer confidence in Germany bucks eurozone trendThe survey stated 5.8 marginally above expectations of 5.7 and better than January’s revised 5.7 survey result.

The news will come at a good time as the German economy has been feeling the brunt of the European debt crisis and only grew 0.7% in 2012, down from 3.0% growth in 2011.

The European Central Bank has predicted that the eurozone economy will start its recovery later this year, which should support activity in Europe’s largest economy.

A jump in German GDP growth would lead to a Euro rally. Despite the news, the Euro has not moved significantly and instead fell below 1.3450 in trading against the Greenback. EUR/USD set a new 11-month high in Forex trading on Friday at 1.3479, which may now provide resistance.

As we look to the rest of this week it’s hectic in terms of US data releases keep investors entertained however there should be little to harm the optimistic attitude to risk over coming days.

Key events include the US January jobs report (forecast +160k) and Fed FOMC meeting (no change expected) alongside manufacturing confidence and Q4 GDP.

Finally, Sterling has fallen further and was not assisted by the larger than projected fall Q4 GDP exposed last week which now genuinely increases the possibilities of a ‘triple dip’ recession.

The lack of room on the fiscal front suggests the possibility for more forceful Bank of England monetary policy particularly under the watch of a new governor and potentially further GBP weakness.

FTSE rallies on fears over US debt ceiling and Eurozone growth

The US debt ceiling discussions continued into a busy trading session yesterday, which prompted a stark decline in the S&P 500 as US stocks continued to slide over concerns on the discussions.FTSE rallies on fears over US debt ceiling and Eurozone growthIn what is becoming a far too familiar story, President Barack Obama rejected any negotiations with the Republicans over raising the borrowing limit for the US accusing them of trying to ‘extract a ransom’ which threatens to ruin the economy.

Economic data wise, Manufacturing contracted for a sixth month in the region, however retail sales provided some cheer as it increased by 0.5%. The Greenback has managed to strengthen against the Euro in early trade and sits at 1.3280 from levels of 1.3350 yesterday.

Further volatility across currency markets was witnessed with the JPY moving from highs of 89.62 to a low of 88.27 against the US dollar after comments from Japan’s economic minister that excessive weakness in the currency (Yen) can have a negative influence on the living standards of the public.

Moving over to the eurozone, most of the data that was released was gloomy, with figures showing that the German economy had contracted in the final quarter of 2012, fuelling fears of a prolonged recession as the biggest and strongest economy in the Eurozone also showed signs of declining growth.

Inflation in the region has also edged up as German GDP fell by 0.5% for the quarter. Amidst all this, Eurozone trade figures provided a glimmer of hope for the bloc as the currency bloc expanded its trade surplus in November, exporting €13. 7 billion more than it imported from the world.

In news from the UK, consumer prices rose 2.7 percent from a year earlier, figures yesterday revealed.

The inflation figures remained above the Bank of England’s target of 2 percent. This reading is the highest since May last year as analysts attribute it to rising energy and gas bills.

As the UK tries desperately to meander through its weak economic scenario, there are also concerns to the AAA credit rating, if growth happens to slow down in March.

The FTSE however edged up yesterday despite concerns over the US debt ceiling and growth- or lack of  in Europe.

German inflation hits 2% for last year

Inflation in Germany hit 2.1% for the month of December and 2% as an average for 2012 according to the Federal Statistics Office.German inflation hits 2% for last yearThe driving forces behind the figures can be attributed to increases in energy products and alcohol beverages which rose 5.7% and 3.2% respectively over the year.

The numbers sit in line with the Eurozone’s 2.2% figure for December and follow last week’s comments from the European Central Bank which suggested a rate cut is unlikely.

Higher inflation will support this view and could therefore be seen as euro positive.

Despite the news, the euro has not moved significantly currently trading 1.3367 against the Greenback. EURUSD jumped briefly to 1.3400 for the first time in nearly a year yesterday, and could continue to see resistance by the key figure.

Continuing on the Inflationary tone  the UK is expected to hold CPI at 2.7% for last month but increasing price pressure in the UK may produce a stronger than expected number as the economy recovers from the double dip recession.

As the Bank of England (BoE) sees above-target inflation over the medium term, an increasing number of central bank officials are beginning to adopt a hawkish tone for monetary policy.

The Monetary Policy Committee is no different and looks to be slowly moving away from its easing cycle as the bounce in economic activity raises the view for price growth.

The Pound continues to trade range-bound against the Greenback, remaining between 1.6000 and 1.6200.

Pressure is building over how Prime Minister Cameron will change the UK’s relationship with the EU and whether or not the UK will consider a referendum.

Sterling has begun trading in correlation with yield spreads again, with both the 2 and 10 year gilts trading off of their recent highs.

German export data disappoints wise money markets

German exports suffered their biggest drop in over a year in November, according official figures this morning.German export data disappoints wise money marketsExports dropped 3.4%, significantly worse than the predicted 0.5% fall and a setback compared to October’s reviewed 0.2% rise in exports.

The trade balance still rose to 17.0 billion euros, as imports dropped 3.7% in November.

Against last year, exports to the EU are lower by 4.0%, while exports to the eurozone are down 5.7% yearly.

Outside of the European Union, exports have risen 5.6% from November 2011, as there is no variance in total export levels from November 2011 to November 2012.

The data reveals that beyond German taxpayers somewhat paying for bailouts of weaker eurozone countries, the debt crisis has also affected the German economy by stopping an increase in exports over the preceding year.

The ECB forecasts that the eurozone will only become stable well into 2013, which would be positive for the German economy.

Evidence of economic growth in Germany or the eurozone would also be Euro-positive.

The single European currency sits slightly higher than 1.3100 against the Greenback. Resistance might be provided by 1.3158, which has provided resistance over the past few months.

Elsewhere there is some good news for UK retail sales specifically boosted by online transactions which were up 1.5% according to the British Retail Consortium (BRC).

They explain that many retailers have invested significantly in their online systems which have boosted consumers’ confidence and overall experience.

The importance of online is becoming more important and without the 17.8% rise online sales the overall retail figure would have fallen.

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.

Monti resignation upsets Italian stability

Mario Monti, the Prime Minister of Italy, has announced that he will resign after the 2013 Italian budget is passed prompting the elections to likely be moved forward to February.Monti resignation upsets Italian stabilityThis has continued to weaken the Euro with last week’s announcements that German and EU growth is likely to falter moving into 2013 with Spain flirting with a full bailout if their expectations are met.

A good Non-Farm Payroll figure out of the US last week helped to shock the markets to shore up with many analyst’s expecting a sharp pull back on the figure, mostly related to Hurricane Sandy but it appears Santa Claus may have had a helping hand with employment in the run up to Christmas.

This is likely to produce another fall in US unemployment figure.

As recent trends suggest, the markets will be awaiting the US Fiscal Cliff negotiations and Wednesday’s interest rate decision.

After last week’s Autumn Statement from Chancellor Osborne the news continued to be negative in the UK with industrial and engineering data triggering a sell off on the GB Pound.

With the interest rate decision last week to keep rates and QE on hold likely to continue, the markets will be looking for a positive unemployment figure on Wednesday and looking towards the 19th December for the minutes from this month’s BoE meeting.

A busy week ahead for interest rates with them reaching over 1.31 EURUSD, 1.61 GBPUSD and below 1.23 GBPEUR earlier in the week then once Mario Draghi hit the wire on Thursday fell back to below 1.29 EUR/USD and pushing GBP/EUR above 1.24 again.