EQUITIES MOVING AND ECB MAKE FOR A HEAVY DAY ON MARKETS
Stalemate was the key word for markets yesterday. EUR/USD, a big driver of major Sterling currency pairs, remained almost entirely undecided on direction for the day, as investors remained ambivalent on political proceedings this week, despite US corporate behemoths GM and Chrysler looking increasingly likely for a juicing by the bailiffs. EUR/USD remained around the 1.30 – 1.31 level for most of the day with close of play looking to be moving in the Dollar’s favour at around the 1.30 level. GBP/USD, as expected, moved up towards the 1.44 level in the morning, helped by some reasonably improved UK Manufacturing data, before ebbing its way towards the mid 1.4350 region for close as traders positioned themselves for today’s events.
Currently though, we have one situation counteracting another in terms of FX drivers. Under normal conditions, sentiment surrounding the two US motoring giants could be expected to fuel some hefty Dollar strength, however, the spectre of US money supply expansion combined with desperate hope over the G-20 is keeping traders from bundling into the currency. In fact, what could be unfolding could be considered epic in proportion as the Euro and the Dollar fight it out over which is more attractive in terms of capital preservation and future growth potential. Tomorrow will certainly be a help in settling this argument, at least for the short-term. Any view given by the ECB which may suggest that the Central Bank is entirely happy with keeping quantitative easing firmly off its agenda could certainly prop up EUR/USD and shield GBP/USD from losses whilst damaging GBP/EUR. However, if investors consider that the Eurozone may be running the same risks of monetary inflation and devaluation as the US in the not too distant future, with the ECB deciding that it has to consider an expansion of its money supply, then the Euro could take a dive. This would benefit GBP/EUR heartily but may spell bad news for GBP/USD.
We will therefore be watching Europe very closely today. There is little doubt that base rate for the region will be cut by 50 basis points. This is however of no concern in light of the Bank’s Press Conference following its decision (1:30 PM GMT), where its views on policy will be aired. As said above, dovishness could prompt some big moves, but hawkishness, with the Bank being belligerent regarding inflation risk, may not shift markets a great deal. Thus far today though, a good spread of decent economic data for both the US and the UK, including a very promising UK Nationwide House Price Index, at its best level since October 2007, are pulling equities up and giving all Sterling pairs some decent velocity. Expect GBP/EUR to hold around 1.0950 – 1.10 before the ECB announcement with GBP/USD moving around 1.45-1.47.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Thursday, 2 April 2009
Tuesday, 31 March 2009
US POLITICAL ACTIVITY CONTINUES TO LEAD MARKETS
US POLITICAL ACTIVITY CONTINUES TO LEAD MARKETS
Financial markets were gripped once again by the zeitgeist of fear yesterday as investors decried comments by the US administration regarding the likelihood of more bank bailouts being on the horizon. In essence, where many commentators jumped on the optimism of last week to call a bottom to the markets and negative growth, Obama and his pals have very kindly reminded them that the grim reaper is still thirsty for blood. In addition to whimpering fear over the main political pronouncement, equities also took a further spanking thanks to news that both General Motors and Chrysler, being two of the biggest and most highly inter-linked companies in the global economy have been denied a rescue by the US Government and now have only one last chance to formulate a viable plan to keep the companies liquid.
As we have come to entirely expect, the current market formula for economic bearishness was followed in response to the above: the Dollar and the Yen were snapped up, with the Euro, the Pound and other riskier currencies being dropped. However, mere weeks ago, the flow into US Treasuries and the Dollar in general would have been much stronger if it weren’t for the Fed’s quantitative easing programme being rolled up. This is what, even in a week where the European Central Bank is fully expected to drop its base rate once again, is keeping the Dollar from bounding all the way back to yearly highs across the Board. The game can therefore be said to be shifting somewhat – so don’t expect the 1.20s on EUR/USD again anytime soon.
However, the ECB could surprise the market into some heavy volatility later in the week. If the Central Bank even squeaks about potential for future expansion of money supply to put a rocket up its regional coffers, the Euro could be sold dramatically. This could quite feasibly drop GBP/USD back down sub 1.40 and give GBP/EUR a shot in the arm to above the 1.10 level. The next couple of days will most likely see market consolidation ahead of what will certainly be a very unpredictable and potentially powerful event.
Today sees fairly little in terms of mainstream economic data. UK Consumer Confidence, released this morning, has given Sterling some good support though, being a much more positive figure than expected, buoyed by a relaxation in general mortgage payment levels over the last month. Expect the rest of the day to see fairly little activity though with GBP/USD likely to stay within 1.42-1.44 and GBP/EUR looking like moving around 1.07-1.08.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Financial markets were gripped once again by the zeitgeist of fear yesterday as investors decried comments by the US administration regarding the likelihood of more bank bailouts being on the horizon. In essence, where many commentators jumped on the optimism of last week to call a bottom to the markets and negative growth, Obama and his pals have very kindly reminded them that the grim reaper is still thirsty for blood. In addition to whimpering fear over the main political pronouncement, equities also took a further spanking thanks to news that both General Motors and Chrysler, being two of the biggest and most highly inter-linked companies in the global economy have been denied a rescue by the US Government and now have only one last chance to formulate a viable plan to keep the companies liquid.
As we have come to entirely expect, the current market formula for economic bearishness was followed in response to the above: the Dollar and the Yen were snapped up, with the Euro, the Pound and other riskier currencies being dropped. However, mere weeks ago, the flow into US Treasuries and the Dollar in general would have been much stronger if it weren’t for the Fed’s quantitative easing programme being rolled up. This is what, even in a week where the European Central Bank is fully expected to drop its base rate once again, is keeping the Dollar from bounding all the way back to yearly highs across the Board. The game can therefore be said to be shifting somewhat – so don’t expect the 1.20s on EUR/USD again anytime soon.
However, the ECB could surprise the market into some heavy volatility later in the week. If the Central Bank even squeaks about potential for future expansion of money supply to put a rocket up its regional coffers, the Euro could be sold dramatically. This could quite feasibly drop GBP/USD back down sub 1.40 and give GBP/EUR a shot in the arm to above the 1.10 level. The next couple of days will most likely see market consolidation ahead of what will certainly be a very unpredictable and potentially powerful event.
Today sees fairly little in terms of mainstream economic data. UK Consumer Confidence, released this morning, has given Sterling some good support though, being a much more positive figure than expected, buoyed by a relaxation in general mortgage payment levels over the last month. Expect the rest of the day to see fairly little activity though with GBP/USD likely to stay within 1.42-1.44 and GBP/EUR looking like moving around 1.07-1.08.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Thursday, 26 March 2009
DEMAND FOR UK GILTS FALTERS AS PUBLIC SPENDING SOARS
DEMAND FOR UK GILTS FALTERS AS PUBLIC SPENDING SOARS
As the Bank of England failed to receive enough bids to cover the whole of a 1.75billion Pound auction for long-dated gilts yesterday, there was one question which sprang to mind in light of the government’s recent fresh plan to raise more cash for a heavily indebted UK this year – guilty of debt mismanagement? Clearly, Gordon Brown’s announcement yesterday to try and raise around 150 billion Pounds of finance for the UK economy over the year from global markets, combined with the fact that the BOE couldn’t find enough demand to sell a small portion of this debt, are linked. The market simply believes that UK finances could be becoming way too leveraged in the face of tumbling growth and rising regional unemployment.
An economy which has relied explicitly on financial services over the last couple of years to finance spiralling public spending and public debt, quite frankly, is not going to look like the best buy as this area of the world economy contracts severely, especially with yields being sought by investors for sovereign debt increasing in the face of overwhelming supply. This, unfortunately, represents yet another piece of market information that does not bode well for the Pound. If it becomes increasingly apparent over coming months that the UK public sector is savagely wasting more money amidst a continued slump in growth and stagnancy in the financial sector, then de facto, the UK currency will continue to be unattractive. Not only will the obvious happen, in terms of global investors shunning UK gilts for fear of default, but traders will continue to conduct raids on the currency in attempts to capitalise on general sentiment in burrowing it further into the floor.
There really is a terrible risk at the moment of a ‘perfect storm’ for the UK. Prices continue to rise as the Sterling sell-off, sparked initially by the financial crisis, puts pressure on importers to recover exchange-rate losses. This combines with deflationary pressure to create a scenario where monetary policy, instead of being effective, merely exacerbates inflation whilst doing little to calm the real effects of negative growth. Investors, who, having already removed vast capital from the UK thanks to the retreat of global finance and equity instruments, also begin to remove fixed-income funds as fear grows that Sterling will be physically devalued by quantitative easing with the UK possibly defaulting on debt. Could all these factors combine for another 1976-esque IMF bailout later this year or next? As Mervyn King noted in Parliament yesterday, only exceptionally stringent management of both figures and public perception by the Government can now avert such a crisis.
Today sees UK Retail Sales in the morning with US Unemployment Claims certainly providing some interest for the afternoon. Combined, both sets of figures ought to keep the pressure on GBP/USD, currently trading around the 1.46 mark, whilst also capping GBP/EUR gains, trading this morning around 1.07.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
As the Bank of England failed to receive enough bids to cover the whole of a 1.75billion Pound auction for long-dated gilts yesterday, there was one question which sprang to mind in light of the government’s recent fresh plan to raise more cash for a heavily indebted UK this year – guilty of debt mismanagement? Clearly, Gordon Brown’s announcement yesterday to try and raise around 150 billion Pounds of finance for the UK economy over the year from global markets, combined with the fact that the BOE couldn’t find enough demand to sell a small portion of this debt, are linked. The market simply believes that UK finances could be becoming way too leveraged in the face of tumbling growth and rising regional unemployment.
An economy which has relied explicitly on financial services over the last couple of years to finance spiralling public spending and public debt, quite frankly, is not going to look like the best buy as this area of the world economy contracts severely, especially with yields being sought by investors for sovereign debt increasing in the face of overwhelming supply. This, unfortunately, represents yet another piece of market information that does not bode well for the Pound. If it becomes increasingly apparent over coming months that the UK public sector is savagely wasting more money amidst a continued slump in growth and stagnancy in the financial sector, then de facto, the UK currency will continue to be unattractive. Not only will the obvious happen, in terms of global investors shunning UK gilts for fear of default, but traders will continue to conduct raids on the currency in attempts to capitalise on general sentiment in burrowing it further into the floor.
There really is a terrible risk at the moment of a ‘perfect storm’ for the UK. Prices continue to rise as the Sterling sell-off, sparked initially by the financial crisis, puts pressure on importers to recover exchange-rate losses. This combines with deflationary pressure to create a scenario where monetary policy, instead of being effective, merely exacerbates inflation whilst doing little to calm the real effects of negative growth. Investors, who, having already removed vast capital from the UK thanks to the retreat of global finance and equity instruments, also begin to remove fixed-income funds as fear grows that Sterling will be physically devalued by quantitative easing with the UK possibly defaulting on debt. Could all these factors combine for another 1976-esque IMF bailout later this year or next? As Mervyn King noted in Parliament yesterday, only exceptionally stringent management of both figures and public perception by the Government can now avert such a crisis.
Today sees UK Retail Sales in the morning with US Unemployment Claims certainly providing some interest for the afternoon. Combined, both sets of figures ought to keep the pressure on GBP/USD, currently trading around the 1.46 mark, whilst also capping GBP/EUR gains, trading this morning around 1.07.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Tuesday, 24 March 2009
FED PLAN HAZY - GBP/USD STILL GLIMMERS
FED PLAN HAZY - GBP/USD STILL GLIMMERS
The upshot of yesterday’s main event, a fresh and seemingly vigorous new plan by the Federal Reserve to purge the US banking system of its dirty assets, was pretty stale. The scheme, which involves flushing out around 1 trillion Dollars worth of questionable, mainly mortgage-based, instruments by using Government loans to encourage uptake, is theoretically powerful, but sadly lacked the practical technicalities to spur investors into the monster equity rally which we half-expected. Despite being formally vaunted by US Treasury Secretary Timothy Geitner the whole operation simply has not captivated investors enough on the short-term to extend last week’s rally against the Dollar and into equities and riskier market assets. It is simply too vague at the moment and will have to be much more fleshy before it gives the markets enough strength to jettison more Dollar holdings and US Treasuries in favour of the belief in an impending bottoming out of negative growth and the return of cheap equities.
The result of the above then was a very lacklustre day on currency markets. The wild-eyed fervour of last week which saw bumper sell orders on the Dollar was trumped by ghostly silence as traders bemusedly decided to pare bets instead of overextend themselves in a market that has come a long way in a very short time. As EUR/USD fell back to 1.35 from 1.37, it wasn’t necessarily that Dollar-based risk aversion had taken hold again, but more that speculative positions had been pared, for now. GBP/USD, as we would have expected, also pulled back from 1.46 to 1.44, driven by the proxy effect of the Dollar in its own right.
GBP/EUR, currently suffering terribly under the weight of the newly popular single currency moved down to the 1.06 mark as a poor show by the FTSE added to the Pound’s struggle. As we continue to comment though, GBP/EUR will only conceivably experience a hearty renaissance when the ECB, at the very least, shows itself to be intending on joining the global Central Bank money-printing brigade. Currently the single currency is too well insulated in terms of its corresponding monetary policy to be scared by the Pound even if global financials bounce.
Today will likely see another push on GBP/USD as investors tentatively adopt stock market positions and look at emerging market equities further to yesterday’s events. GBP/EUR should also gather some small momentum as a barrage of Eurozone manufacturing data this morning brings the Continental region back into the limelight. Expect a top of 1.4750 on GBP/USD and 1.0850 on GBP/EUR for the morning ahead of some extremely important UK-events including CPI and Inflation Report hearings. Further to these, which may highlight the growth of inflation at a faster pace than expected, Sterling markets may be tentative for the rest of the day.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
The upshot of yesterday’s main event, a fresh and seemingly vigorous new plan by the Federal Reserve to purge the US banking system of its dirty assets, was pretty stale. The scheme, which involves flushing out around 1 trillion Dollars worth of questionable, mainly mortgage-based, instruments by using Government loans to encourage uptake, is theoretically powerful, but sadly lacked the practical technicalities to spur investors into the monster equity rally which we half-expected. Despite being formally vaunted by US Treasury Secretary Timothy Geitner the whole operation simply has not captivated investors enough on the short-term to extend last week’s rally against the Dollar and into equities and riskier market assets. It is simply too vague at the moment and will have to be much more fleshy before it gives the markets enough strength to jettison more Dollar holdings and US Treasuries in favour of the belief in an impending bottoming out of negative growth and the return of cheap equities.
The result of the above then was a very lacklustre day on currency markets. The wild-eyed fervour of last week which saw bumper sell orders on the Dollar was trumped by ghostly silence as traders bemusedly decided to pare bets instead of overextend themselves in a market that has come a long way in a very short time. As EUR/USD fell back to 1.35 from 1.37, it wasn’t necessarily that Dollar-based risk aversion had taken hold again, but more that speculative positions had been pared, for now. GBP/USD, as we would have expected, also pulled back from 1.46 to 1.44, driven by the proxy effect of the Dollar in its own right.
GBP/EUR, currently suffering terribly under the weight of the newly popular single currency moved down to the 1.06 mark as a poor show by the FTSE added to the Pound’s struggle. As we continue to comment though, GBP/EUR will only conceivably experience a hearty renaissance when the ECB, at the very least, shows itself to be intending on joining the global Central Bank money-printing brigade. Currently the single currency is too well insulated in terms of its corresponding monetary policy to be scared by the Pound even if global financials bounce.
Today will likely see another push on GBP/USD as investors tentatively adopt stock market positions and look at emerging market equities further to yesterday’s events. GBP/EUR should also gather some small momentum as a barrage of Eurozone manufacturing data this morning brings the Continental region back into the limelight. Expect a top of 1.4750 on GBP/USD and 1.0850 on GBP/EUR for the morning ahead of some extremely important UK-events including CPI and Inflation Report hearings. Further to these, which may highlight the growth of inflation at a faster pace than expected, Sterling markets may be tentative for the rest of the day.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Wednesday, 11 March 2009
STERLING STILL VERY TENSE AS QUANTITATIVE EASING PRICES EMERGE
STERLING STILL VERY TENSE AS QUANTITATIVE EASING PRICES EMERGE
As anticipated, prices on Sterling pairs relaxed yesterday. GBP/EUR and GBP/USD both drifted slightly upwards as a proportion of big speculative positions being run against the UK currency were closed in the absence of any further major market negativity. Market close saw both pairs left fairly unchanged on the day though at 1.0850 and 1.3850 respectively. In terms of data, the morning did see UK Manufacturing Production, although this didn’t manage to prompt any further heavy staking of positions, despite the figure showing an unbelievably steep contraction of -2.7% in February.
The Manufacturing figure is extremely troubling though, especially given the case continually made by the Government until very recently that Pound depreciation and a competitive UK export sector would heavily support industry this year. If, as we all already know, financial services are swallowed up in the Government’s debt-riddled black hole of bureaucracy, then it is the country’s strength as an exporter that is going to be put to the test in terms of GDP output for coming years. The balance between the two is clearly shifting, and, unlike say Germany, which has a history of comparative advantage for its extremely high quality industrial equipment, the UK quite simply has fairly little to offer. A culture of consumption driven by a hyper credit bubble and an almost complete reliance on global services has left the UK looking pretty naked and alone in the current climate where cash is being hoarded and debts are being called in on a global scale.
So the current question of the moment is with regard to the short and medium-term trajectory of the Pound. The bigger picture is that the UK’s balance sheet is currently ballooning with all variety of defunct credit instruments and new gilt-based debt, all being replaced by fresh notes straight from the printers. This could be good for currency value – if investor belief is that it will kick-start an economy to action. It could though, be very bad for currency value if the view is that the debt is being created but can never be easily serviced or repaid. On the short-term, the current mood is dictating the latter, but on the longer term the former will probably be the reality.
The rest of the month sees a whole smattering of data from the UK, all of which will be bad, with very little from Europe. GBP/EUR can therefore be expected to move between 1.06 and 1.13 for March-April. Onwards from April will be likely to yield upwards of the 1.15 mark as the European Central Bank moves its effective base rate to zero and considers some type of quantitative easing for the summer. From then on, making the assumption that London can still maintain status as the global financial capital, higher rates could be possible. GBP/USD will probably take a fairly similar root, but will be under much more pressure from a continued Dollar strength as the Euro continues to take the strain.
Rapahels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
As anticipated, prices on Sterling pairs relaxed yesterday. GBP/EUR and GBP/USD both drifted slightly upwards as a proportion of big speculative positions being run against the UK currency were closed in the absence of any further major market negativity. Market close saw both pairs left fairly unchanged on the day though at 1.0850 and 1.3850 respectively. In terms of data, the morning did see UK Manufacturing Production, although this didn’t manage to prompt any further heavy staking of positions, despite the figure showing an unbelievably steep contraction of -2.7% in February.
The Manufacturing figure is extremely troubling though, especially given the case continually made by the Government until very recently that Pound depreciation and a competitive UK export sector would heavily support industry this year. If, as we all already know, financial services are swallowed up in the Government’s debt-riddled black hole of bureaucracy, then it is the country’s strength as an exporter that is going to be put to the test in terms of GDP output for coming years. The balance between the two is clearly shifting, and, unlike say Germany, which has a history of comparative advantage for its extremely high quality industrial equipment, the UK quite simply has fairly little to offer. A culture of consumption driven by a hyper credit bubble and an almost complete reliance on global services has left the UK looking pretty naked and alone in the current climate where cash is being hoarded and debts are being called in on a global scale.
So the current question of the moment is with regard to the short and medium-term trajectory of the Pound. The bigger picture is that the UK’s balance sheet is currently ballooning with all variety of defunct credit instruments and new gilt-based debt, all being replaced by fresh notes straight from the printers. This could be good for currency value – if investor belief is that it will kick-start an economy to action. It could though, be very bad for currency value if the view is that the debt is being created but can never be easily serviced or repaid. On the short-term, the current mood is dictating the latter, but on the longer term the former will probably be the reality.
The rest of the month sees a whole smattering of data from the UK, all of which will be bad, with very little from Europe. GBP/EUR can therefore be expected to move between 1.06 and 1.13 for March-April. Onwards from April will be likely to yield upwards of the 1.15 mark as the European Central Bank moves its effective base rate to zero and considers some type of quantitative easing for the summer. From then on, making the assumption that London can still maintain status as the global financial capital, higher rates could be possible. GBP/USD will probably take a fairly similar root, but will be under much more pressure from a continued Dollar strength as the Euro continues to take the strain.
Rapahels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Tuesday, 10 March 2009
FAITH AND HOPE DWINDLE AS BANK SECTOR IS SUCKED INTO GOVT VACUUM
FAITH AND HOPE DWINDLE AS BANK SECTOR IS SUCKED INTO GOVERNMENT VACUUM.
Remember Reagan’s famous quip about the nine most terrifying words in the English language? ‘Im from the Government and I’m here to help’ was the infamous line. What a wonderful phrase that was for yesterday’s events with both Lloyds Banking Group and HSBC moving to seek more assistance from taxpayer insurance schemes for bad debt in response to mounting funeral pyres of ‘toxic’ assets. Then the terror came. A huge equity sell-off saw the FTSE plunging down toward the 3500 mark in as the animal spirits of investors were whipped into frenzy over the clear damage of the public sector-led bailout to the future health of the economy. UK Financials in particular were hit very hard over worries that some Banks may be entirely nationalised, with the rest shrinking beyond recognition over coming years as the global financial crisis continues to swing its scythe.
GBP/EUR managed to finish the day around the 1.09 mark with GBP/USD barely recovering to 1.38 having tested the 1.37 levels. As commented on Monday, if any selling was going to be prompted on Monday, it was going to have potential for explosiveness with a lack of any other real data for market players to fight over. In such dark times though, it may provide some balm, for those on the front-line of the currency markets, to have a concerted consideration of the metaphysics of the situation. By this, we refer to what is really at stake beneath the whole hyperbole of frantic analysis of growth, economies, toxic-debt, value destruction etc.
The media, as a reflection of the hopes and fears of society in general, cannot stop bewailing the destruction of all of the above, but what do these categories really mean? As should be relatively clear, markets are made up of assets, although, in fact, the market is itself an asset, it is an ideological asset. Hyper-speed Capitalism, just like the myriad of products it has created is designed for growth. It was designed to offer an alternative to the boom and bust Keynesian markets of the early twentieth century, as well as to offer an opponent to the Socialist model of the same era. However, like the products it produces (i.e currency prices, equity prices, bond prices, house prices) it is first and foremost a system of the mind – it requires belief and co-operation to be sustained. The UK economy is actually quite unique in that it requires belief and co-operation of an explicitly financial nature to be sustained at past levels (bearing in mind the huge proportion of GDP for the UK in past years coming from the financial sector). What is being reflected in currency markets at the moment is therefore, truly special.
Investors are mulling over the very future of London and the UK in a potentially, completely different ideological and regulatory environment – whether or not anyone has real faith remains to be seen. The problem with falling currency prices is the same problem that began the whole economic slump in the very beginning – it is one of over-extension and over-consumption leading to loss of faith, which then leads to over-extension and over-caution. This system should normally, obviously, be self-correcting. However, in a current climate where the structure of the system is being shifted, in terms of private giving control over to public (which is currently most extreme in the UK) then there is little knowing how the situation may change.
Today will see GBP/USD and GBP/EUR holding at the 1.38-1.39 and 1.08-1.09 levels respectively before UK Manufacturing Production data this morning, which is likely to show further massive curtailment for UK Industry. However, considering the velocity of yesterday’s sell off on the Pound, the rest of the day will probably see some stabilisation and profit-taking with possible slow movements back upwards on both pairs.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Remember Reagan’s famous quip about the nine most terrifying words in the English language? ‘Im from the Government and I’m here to help’ was the infamous line. What a wonderful phrase that was for yesterday’s events with both Lloyds Banking Group and HSBC moving to seek more assistance from taxpayer insurance schemes for bad debt in response to mounting funeral pyres of ‘toxic’ assets. Then the terror came. A huge equity sell-off saw the FTSE plunging down toward the 3500 mark in as the animal spirits of investors were whipped into frenzy over the clear damage of the public sector-led bailout to the future health of the economy. UK Financials in particular were hit very hard over worries that some Banks may be entirely nationalised, with the rest shrinking beyond recognition over coming years as the global financial crisis continues to swing its scythe.
GBP/EUR managed to finish the day around the 1.09 mark with GBP/USD barely recovering to 1.38 having tested the 1.37 levels. As commented on Monday, if any selling was going to be prompted on Monday, it was going to have potential for explosiveness with a lack of any other real data for market players to fight over. In such dark times though, it may provide some balm, for those on the front-line of the currency markets, to have a concerted consideration of the metaphysics of the situation. By this, we refer to what is really at stake beneath the whole hyperbole of frantic analysis of growth, economies, toxic-debt, value destruction etc.
The media, as a reflection of the hopes and fears of society in general, cannot stop bewailing the destruction of all of the above, but what do these categories really mean? As should be relatively clear, markets are made up of assets, although, in fact, the market is itself an asset, it is an ideological asset. Hyper-speed Capitalism, just like the myriad of products it has created is designed for growth. It was designed to offer an alternative to the boom and bust Keynesian markets of the early twentieth century, as well as to offer an opponent to the Socialist model of the same era. However, like the products it produces (i.e currency prices, equity prices, bond prices, house prices) it is first and foremost a system of the mind – it requires belief and co-operation to be sustained. The UK economy is actually quite unique in that it requires belief and co-operation of an explicitly financial nature to be sustained at past levels (bearing in mind the huge proportion of GDP for the UK in past years coming from the financial sector). What is being reflected in currency markets at the moment is therefore, truly special.
Investors are mulling over the very future of London and the UK in a potentially, completely different ideological and regulatory environment – whether or not anyone has real faith remains to be seen. The problem with falling currency prices is the same problem that began the whole economic slump in the very beginning – it is one of over-extension and over-consumption leading to loss of faith, which then leads to over-extension and over-caution. This system should normally, obviously, be self-correcting. However, in a current climate where the structure of the system is being shifted, in terms of private giving control over to public (which is currently most extreme in the UK) then there is little knowing how the situation may change.
Today will see GBP/USD and GBP/EUR holding at the 1.38-1.39 and 1.08-1.09 levels respectively before UK Manufacturing Production data this morning, which is likely to show further massive curtailment for UK Industry. However, considering the velocity of yesterday’s sell off on the Pound, the rest of the day will probably see some stabilisation and profit-taking with possible slow movements back upwards on both pairs.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Monday, 9 March 2009
POUND WELL HUNGOVER FROM WEEKEND OF BANKS BINGEING ON GOV MONEY.
POUND WELL HUNGOVER FROM WEEKEND OF BANKS BINGEING ON GOV MONEY
Foreign exchange markets last week continued to be structured by high Dollar demand as fear over the inefficacy of Central Bank measures to calm the global economy, combined with terrible data on the state of real economies, continued to boost the currency. Despite a small but sharp sell-off on Friday after US Non-Farms, showing a monthly decline of 650,000 jobs in the US, the currency still found favour thanks to its position as the world’s main source of capital funding and its current status as an asset haven which is running in a now largely divorced relationship from the actual performance of the American economy.
Dollar pressure contributed hugely to a considerable decline in GBP/USD over the week, which retreated heavily from a push to the 1.44-1.45 area at the beginning of the week to hold at the psychologically important 1.40 mark at its end. However, as very poor performance over the week from GBP/EUR showed, Sterling put in an extremely poor show in its own right. Despite the European Central Bank being very dovish in a forecast for its interest rate curve on Thursday, the market’s main concern was focused on the health of the UK economy in light of the Bank of England commencing its first ever quantitative easing programme this month. To put it simply, Sterling investors are concerned over two dangers that accompany measures to try and enhance UK money supply. The one is that the measures, which are beginning at the creation of around 100 billion Pounds of gilts, will be very difficult to control in the long-term, possibly leading to unbridled inflation. The second is simply that the measures will have no effect and are actually indicative of an economy sliding into the abyss.
However, despite the above, GBP/EUR has still managed to hold itself above the 1.11 mark for open this week. This reflects, first and foremost, the appalling outlook on an extremely weak Eurozone and a highly questionable recent history of European Central Bank Policy. Secondly though, there is certainly an argument out there at the moment that, given the dilapidated nature of the global outlook, the Bank of England may simply be ahead in a game of last resorts to stoke a failing economy. If this proves to be the case and conditions do continue to deteriorate, then, while Sterling may not rebound on the short-term, it certainly has girding for the medium-term.
Following a further increase in the UK Government’s stake in Lloyds Banking Group over the weekend, Sterling will probably take a short-term pasting this morning. Though the currency will probably recover later in the week, the lack of any major economic data today to turn investors attention elsewhere, a focus on the UK Governments fiscal strains and falling credit rating will probably push GBP/USD sub 1.40 again with GBP/EUR likely struggling to hold onto 1.10.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Friday, 6 March 2009
NEW TERRITORY FOR BOE MEANS POSSIBLE NEW HORIZONS FOR POUND
NEW TERRITORY FOR BOE MEANS POSSIBLE NEW HORIZONS FOR POUND
The Bank of England announced yesterday that it would be utilizing its first raft of Quantitative easing measures, essentially creating money and using the funds to stimulate economic growth by purchasing government and corporate bonds. The UK also saw its benchmark interest rate cut to its lowest-ever level of 0.5 % from 1% with the European Central Bank also cutting by half a point to 1.5%.
BoE policy-makers are hoping that buying government securities, which will be done to a total of 75 Billion Pounds-worth over the next three months will encourage more liquidity in the economic system as a whole as money supply increases and prices expand from the top-down. The move reflects a conviction that the standard policy tool of short term interest rates has become increasingly ineffective. Purchases will be focused on corporate credit markets, so as to improve lending to the private sector, and medium- and long-term government bonds. The BoE said it would "monitor the effectiveness of this purchase program in boosting the supply of money and credit and in due course raising the rate of growth of nominal spending, adjusting the speed and scale of purchases as appropriate. With the latest 0.5% reduction, the BoE rate is rapidly approaching that of the US Federal Reserve, which has set its benchmark at a range from 0 to 0.25%.
In Europe, the ECB's reluctance to bring down interest rates more quickly has attracted widespread criticism from economists, who argue that the economy of the 16-nation euro zone is contracting so sharply that little would be lost by lowering borrowing costs faster. Senior officials on the ECB's rate-setting Governing Council are split over where to go next. Athanasios Orphanides, the central bank governor of Cyprus and a former economist at the Federal Reserve, has emerged as a spokesman for considering pushing short-term rates down fast and considering new policy tools. The German members of the council, Jürgen Stark and Axel Weber, have been more skeptical and have tended to worry that ultralow interest rates helped cause the current crisis in the first place. On Thursday, the European Union's statistics office confirmed its earlier estimate that quarter-on-quarter GDP in the euro zone shrank 1.5% during the October to December quarter, after a 0.2% drop in the previous quarter.
The FX market reaction to the above events was fairly muted, with most fun being had on equity markets with main indices across the world dipping sharply in response to a general despondency over the potential efficacy of the Central Bank measures. The reduction in both European and UK interest rates was widely anticipated by speculators and interest rate futures which resulted in very little overall movement with GBP/USD continuing to hang on to the 1.41-1.42 mark and GBP/EUR looking sheepish around 1.12.
Data out today is mainly US based with Non-Farm Unemployment and the US unemployment rate both out at 2:30 GMT, both of these are expected to be negative and may therefore prompt some dollar weakness in the run upto the afternoon. This may however fade into Dollar strength though as Dollar-denominated market positions are pared for the weekend and as the potential horror of the US data sinks in prompting some heavy risk aversion trades. Expect GBP/USD to continue in its channel of 1.41-1.43 for the day with GBP/EUR possibly testing 1.1150.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
The Bank of England announced yesterday that it would be utilizing its first raft of Quantitative easing measures, essentially creating money and using the funds to stimulate economic growth by purchasing government and corporate bonds. The UK also saw its benchmark interest rate cut to its lowest-ever level of 0.5 % from 1% with the European Central Bank also cutting by half a point to 1.5%.
BoE policy-makers are hoping that buying government securities, which will be done to a total of 75 Billion Pounds-worth over the next three months will encourage more liquidity in the economic system as a whole as money supply increases and prices expand from the top-down. The move reflects a conviction that the standard policy tool of short term interest rates has become increasingly ineffective. Purchases will be focused on corporate credit markets, so as to improve lending to the private sector, and medium- and long-term government bonds. The BoE said it would "monitor the effectiveness of this purchase program in boosting the supply of money and credit and in due course raising the rate of growth of nominal spending, adjusting the speed and scale of purchases as appropriate. With the latest 0.5% reduction, the BoE rate is rapidly approaching that of the US Federal Reserve, which has set its benchmark at a range from 0 to 0.25%.
In Europe, the ECB's reluctance to bring down interest rates more quickly has attracted widespread criticism from economists, who argue that the economy of the 16-nation euro zone is contracting so sharply that little would be lost by lowering borrowing costs faster. Senior officials on the ECB's rate-setting Governing Council are split over where to go next. Athanasios Orphanides, the central bank governor of Cyprus and a former economist at the Federal Reserve, has emerged as a spokesman for considering pushing short-term rates down fast and considering new policy tools. The German members of the council, Jürgen Stark and Axel Weber, have been more skeptical and have tended to worry that ultralow interest rates helped cause the current crisis in the first place. On Thursday, the European Union's statistics office confirmed its earlier estimate that quarter-on-quarter GDP in the euro zone shrank 1.5% during the October to December quarter, after a 0.2% drop in the previous quarter.
The FX market reaction to the above events was fairly muted, with most fun being had on equity markets with main indices across the world dipping sharply in response to a general despondency over the potential efficacy of the Central Bank measures. The reduction in both European and UK interest rates was widely anticipated by speculators and interest rate futures which resulted in very little overall movement with GBP/USD continuing to hang on to the 1.41-1.42 mark and GBP/EUR looking sheepish around 1.12.
Data out today is mainly US based with Non-Farm Unemployment and the US unemployment rate both out at 2:30 GMT, both of these are expected to be negative and may therefore prompt some dollar weakness in the run upto the afternoon. This may however fade into Dollar strength though as Dollar-denominated market positions are pared for the weekend and as the potential horror of the US data sinks in prompting some heavy risk aversion trades. Expect GBP/USD to continue in its channel of 1.41-1.43 for the day with GBP/EUR possibly testing 1.1150.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Thursday, 5 March 2009
QUANTATIVE EASING - IS IT A CAR CRASH IN THE MAKING?
QUANTATIVE EASING - IS IT A CAR CRASH IN THE MAKING?
Observing this recession is rather like watching slow-motion footage of a car crash. The front bumper of the vehicle is share prices and money growth. Shares started really sliding in the autumn, around the same time that Lehman Brothers declared itself bankrupt. This coincided with a sudden and unprecedented collapse in world trade. The impact of the collision is still travelling through the frame of the car however, shattering both corporate and individual fortunes with inexorable inevitability as it passes on. Investors have abandoned the markets because of their fright about the slide in profits and the rise in redundancies that lie ahead in the coming months. It will only be at the end of this year, when unemployment is closer to three million than two million, that we will truly know how it feels to be in the thick of a recession. Sir Fred Goodwin may be viewing himself both a scapegoat and a victim, but how would the revelation of his £700,000 pension have gone down eight months ago with 10% out of work for the first time since the 1980s. Considering the amount of expendable cash in an economy is directly related to growth and inflation, If BoE policy makers had looked at money growth in 2006, as it soared by a massive 14.5%, they would have been able to heed a warning about the un-sustainability and scale of the boom. Looking at it now policy makers would see that it is growing by a mere 3.8%, which is still severe recession territory.
At midday today emergency measures to prevent the depression-scenario will culminate here in Britain when the BoE will confirm that it is about to start printing money for the first time in its history. Quantative Easing is a terrifying prospect for those aware of how easily governments can trigger hyperinflation by employing the printing presses, but it may also provide the catalyst necessary to turn the economy around. The BoE’s aim is very simple: to increase the amount of cash flowing around in the UK, which should, in turn, enable companies and people to spend a little more, and to avoid the prospect of deflation.
The ECB is also looking increasingly likely to follow suit. It has argued, quite reasonably, that quantative easing will potentially generate high inflation in the coming years. But the more pressing prospect of impending European economic collapse, and indeed the threatened disintegration of the euro itself, are compelling enough arguments for it to change its mind. Preventing high inflation is a worthy aim, but useless if, after all your efforts, there's no functioning economy left. Add to this that retail sales in Germany, Europe’s largest economy, unexpectedly fell in January as consumers fretted about job security and reined in spending.The Germans are battling their worst recession since World War II. The IMF expects their economy to contract 2.5%. Unemployment was up for a fourth month in February as a collapse in foreign demand prompted companies to shed jobs. This prompted the German government to spend €80billion on measures to stimulate growth, including tax cuts and subsidies to get consumers to buy new cars. With the ECB looking at a probable lowering of its main lending rate by 50 basis points (down to 1.5 %) when policy makers meet in Frankfurt today major currencies should be looking to make some ground against the Euro. The euro fell against the dollar on speculation that Trichet will lower interest rates today and signal further cuts are needed to curb the deepening recession.
The markets are obviously dominated by the Bank of England rate announcement at midday. This will be closely followed by the ECB rate decision at 12:45. Other data out today includes US initial jobless claims at 1:30 this afternoon
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Observing this recession is rather like watching slow-motion footage of a car crash. The front bumper of the vehicle is share prices and money growth. Shares started really sliding in the autumn, around the same time that Lehman Brothers declared itself bankrupt. This coincided with a sudden and unprecedented collapse in world trade. The impact of the collision is still travelling through the frame of the car however, shattering both corporate and individual fortunes with inexorable inevitability as it passes on. Investors have abandoned the markets because of their fright about the slide in profits and the rise in redundancies that lie ahead in the coming months. It will only be at the end of this year, when unemployment is closer to three million than two million, that we will truly know how it feels to be in the thick of a recession. Sir Fred Goodwin may be viewing himself both a scapegoat and a victim, but how would the revelation of his £700,000 pension have gone down eight months ago with 10% out of work for the first time since the 1980s. Considering the amount of expendable cash in an economy is directly related to growth and inflation, If BoE policy makers had looked at money growth in 2006, as it soared by a massive 14.5%, they would have been able to heed a warning about the un-sustainability and scale of the boom. Looking at it now policy makers would see that it is growing by a mere 3.8%, which is still severe recession territory.
At midday today emergency measures to prevent the depression-scenario will culminate here in Britain when the BoE will confirm that it is about to start printing money for the first time in its history. Quantative Easing is a terrifying prospect for those aware of how easily governments can trigger hyperinflation by employing the printing presses, but it may also provide the catalyst necessary to turn the economy around. The BoE’s aim is very simple: to increase the amount of cash flowing around in the UK, which should, in turn, enable companies and people to spend a little more, and to avoid the prospect of deflation.
The ECB is also looking increasingly likely to follow suit. It has argued, quite reasonably, that quantative easing will potentially generate high inflation in the coming years. But the more pressing prospect of impending European economic collapse, and indeed the threatened disintegration of the euro itself, are compelling enough arguments for it to change its mind. Preventing high inflation is a worthy aim, but useless if, after all your efforts, there's no functioning economy left. Add to this that retail sales in Germany, Europe’s largest economy, unexpectedly fell in January as consumers fretted about job security and reined in spending.The Germans are battling their worst recession since World War II. The IMF expects their economy to contract 2.5%. Unemployment was up for a fourth month in February as a collapse in foreign demand prompted companies to shed jobs. This prompted the German government to spend €80billion on measures to stimulate growth, including tax cuts and subsidies to get consumers to buy new cars. With the ECB looking at a probable lowering of its main lending rate by 50 basis points (down to 1.5 %) when policy makers meet in Frankfurt today major currencies should be looking to make some ground against the Euro. The euro fell against the dollar on speculation that Trichet will lower interest rates today and signal further cuts are needed to curb the deepening recession.
The markets are obviously dominated by the Bank of England rate announcement at midday. This will be closely followed by the ECB rate decision at 12:45. Other data out today includes US initial jobless claims at 1:30 this afternoon
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Wednesday, 4 March 2009
WHAT’S AT STAKE IS WHETHER RECESSION TURNS INTO DEPRESSION
WHAT’S AT STAKE IS WHETHER RECESSION TURNS INTO DEPRESSION
The U.K. economy contracted 1.5% in the fourth quarter, the biggest contraction since 1980, as consumers cut spending. Brown’s government last month ordered Northern Rock, the nationalised bank, to expand lending to help the economy. Ministers also agreed to guarantee £325billion of Royal Bank of Scotland Group Plc’s investments. Chancellor of the Exchequer Alistair Darling suggested yesterday that the Bank of England could start printing money as soon as this week, as interest rates lose their ability to revive growth. Policy makers may lower the key rate by a half point to the lowest since the bank was founded in 1694.
BoE Governor Mervyn King said in February he’ll buy up to £50billion pounds of debt “as soon as possible,” after cutting interest rates to a record low failed to open debt capital markets to the companies that need cash most. The last borrower with non-investment grade ratings to sell bonds in pounds was Dutch electric-generation company Intergen NV in July 2007, when credit markets froze for all but the safest borrowers. The bond-buying program comes after the central bank started to purchase commercial paper last month, and is the next stage toward quantitative easing, where Governments increase money supply to reduce its cost and stoke the economy. Policy makers are trying to ease access to funding after banks worldwide lost or wrote down $1.2 trillion since the start of the credit crisis. Investment-grade companies including Tesco Plc, the U.K.’s biggest supermarket operator, and Imperial Tobacco Group Plc, the maker of West and JPS cigarettes, have sold £27.9 billion of bonds in Britain’s currency this year. This almost three times the amount issued in the same period of 2008.
Policy makers have reduced the U.K.’s interest rates from 5.75% to an all-time low of 1% since the end of 2007; and are expected to further cut it to 0.5% on March 5. Britain’s economy shrank 1.5% in the fourth quarter of last year, the biggest contraction since 1980, as consumer spending declined. Chancellor of the Exchequer, Alistair Darling, yesterday suggested in an interview in the Daily Telegraph that the BoE could start quantitative easing, or printing money to buy bonds, as soon as this week. . Gordon Brown has also given banks loan guarantees and pushed them to make more finance available to help the economy weather its worst slump in three decades.
U.K. consumer confidence stayed close to the lowest level in at least four years in February as the recession persisted and companies cut jobs, Nationwide Building Society said. An index of sentiment rose to 43 from 41 the previous month, which was the worst result since data began in 2004, the mortgage lender said in a statement today. “Consumers’ views about the current economic and labour market conditions are in line with the recessionary climate in the U.K,” Fionnuala Earley, chief economist at Nationwide, said in the statement. The confidence gauge still rose on the month for the first time since October. A measure of attitudes on buying household goods and making major purchases rose seven points to 92, the highest since October 2006, while an index on expectations for the future increased 5 points to 57. The gauge of attitudes on the present situation fell 2 points to 22.
How does that this affect the markets? The severe stresses in global equities are adding extra weight and support to the "safe haven" US dollar. However, given that the dollar is already trading strongly, and given the latest reports from AIG insurance and the car manufacturers, in financial markets and the US economy, it could be seen that there are limits to the market's appetite to buy dollars. Add to this that in US yesterday; there was more bad news for the housing market. Pending home sales for January fell 7.7% hitting a new all-time low going back to the start of the index in January 2001.
Today’s data sees UK PMI at 09:30 GMT and US ISM non-manufacturing this afternoon at 15:00 GMT.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
The U.K. economy contracted 1.5% in the fourth quarter, the biggest contraction since 1980, as consumers cut spending. Brown’s government last month ordered Northern Rock, the nationalised bank, to expand lending to help the economy. Ministers also agreed to guarantee £325billion of Royal Bank of Scotland Group Plc’s investments. Chancellor of the Exchequer Alistair Darling suggested yesterday that the Bank of England could start printing money as soon as this week, as interest rates lose their ability to revive growth. Policy makers may lower the key rate by a half point to the lowest since the bank was founded in 1694.
BoE Governor Mervyn King said in February he’ll buy up to £50billion pounds of debt “as soon as possible,” after cutting interest rates to a record low failed to open debt capital markets to the companies that need cash most. The last borrower with non-investment grade ratings to sell bonds in pounds was Dutch electric-generation company Intergen NV in July 2007, when credit markets froze for all but the safest borrowers. The bond-buying program comes after the central bank started to purchase commercial paper last month, and is the next stage toward quantitative easing, where Governments increase money supply to reduce its cost and stoke the economy. Policy makers are trying to ease access to funding after banks worldwide lost or wrote down $1.2 trillion since the start of the credit crisis. Investment-grade companies including Tesco Plc, the U.K.’s biggest supermarket operator, and Imperial Tobacco Group Plc, the maker of West and JPS cigarettes, have sold £27.9 billion of bonds in Britain’s currency this year. This almost three times the amount issued in the same period of 2008.
Policy makers have reduced the U.K.’s interest rates from 5.75% to an all-time low of 1% since the end of 2007; and are expected to further cut it to 0.5% on March 5. Britain’s economy shrank 1.5% in the fourth quarter of last year, the biggest contraction since 1980, as consumer spending declined. Chancellor of the Exchequer, Alistair Darling, yesterday suggested in an interview in the Daily Telegraph that the BoE could start quantitative easing, or printing money to buy bonds, as soon as this week. . Gordon Brown has also given banks loan guarantees and pushed them to make more finance available to help the economy weather its worst slump in three decades.
U.K. consumer confidence stayed close to the lowest level in at least four years in February as the recession persisted and companies cut jobs, Nationwide Building Society said. An index of sentiment rose to 43 from 41 the previous month, which was the worst result since data began in 2004, the mortgage lender said in a statement today. “Consumers’ views about the current economic and labour market conditions are in line with the recessionary climate in the U.K,” Fionnuala Earley, chief economist at Nationwide, said in the statement. The confidence gauge still rose on the month for the first time since October. A measure of attitudes on buying household goods and making major purchases rose seven points to 92, the highest since October 2006, while an index on expectations for the future increased 5 points to 57. The gauge of attitudes on the present situation fell 2 points to 22.
How does that this affect the markets? The severe stresses in global equities are adding extra weight and support to the "safe haven" US dollar. However, given that the dollar is already trading strongly, and given the latest reports from AIG insurance and the car manufacturers, in financial markets and the US economy, it could be seen that there are limits to the market's appetite to buy dollars. Add to this that in US yesterday; there was more bad news for the housing market. Pending home sales for January fell 7.7% hitting a new all-time low going back to the start of the index in January 2001.
Today’s data sees UK PMI at 09:30 GMT and US ISM non-manufacturing this afternoon at 15:00 GMT.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Tuesday, 3 March 2009
RISK AVERSION REACHES NEW CRESCENDO - DOLLAR FLIES
RISK AVERSION REACHES NEW CRESCENDO - DOLLAR FLIES
Currencies tied to any level of perceived market risk were burnt into the ground yesterday as the financial world was shaken by two major artillery shells. The first and the most damaging of the two was the news that AIG Group incurred the biggest ever US Corporate loss in history, a frankly inconceivable sum of 61 billion Dollars. The second was word that London-based HSBC Group was all at the ready to try and shore up its dwindling capital base with a monster 12 billion Pounds rights issue. Combined, these two announcements were monumental in gravity, meaning only one thing to investors – ‘run’. And run they did, with the FTSE plummeting to fresh ten year lows of 3600 as the S&P in the US did the same. As we have come to expect, crashing equity burnouts invariably also equate to stark sell-offs in risk-associated currencies, so the Pound unsurprisingly lost a tremendous amount of value over the day.
GBP/USD and GBP/EUR, the latter being thrashed particularly hard by a general overall high-appetite for Dollars, both whimpered to 1.40 and 1.11 levels respectively at close of play. Being driven by the rule that, ‘if it’s bad for the global financial economy then its worse for London,’ how could we have expected Sterling to react any differently? The UK currency, over the last number of years has quite simply been hyper-inflated by the success of London in providing a hub for the co-joining of global industry. If any Initial Public Offerings had to be made, if any Mergers & Acquisitions were on the horizon, or indeed, if you wanted your company in the thick of the action, London and the UK was the place to be. Now, if what they’re shouting from the rooftops is true, and the depression is going to last for years and not months, then GBP/USD and even GBP/EUR can be expected to have a bit of a slog in any bounds to make a recovery anytime soon.
Despite the four horsemen taking a clear fancy to the UK currency as a snack before they continue their tour of the world, there is still plenty of hope for GBP/EUR, even after a day like yesterday. Fans of the European Union will be most upset to learn that yesterday saw the rejection of a proposed 200billion Euro bailout of its Eastern bloc as EU officials snubbed the plan largely over regulatory restrictions. This is bound to put even more stress on the single currency in time, particularly with the exposure that Central Europe has to Asia on top of its Eastern neighbours. Word also that the Bank of England may surprise us all on Thursday by a hold on interest rates, largely with a view to protecting spreads on Bank mortgage lending could also be a salvation for GBP this week as this would certainly prompt some paring of interest rate bets as well as presenting a bottom of the current down-cycle in the interest rate curve. Eyes will certainly be peeled for this at the end of the week.
Overnight saw a paring of shorts on emerging market and higher risk currencies, mainly as a result of an over-extension of moves yesterday, but also thanks to a hold in rates by the Reserve Bank of Australia which spurred some move back into carry trades. In turn this has brought GBP/USD back up to 1.41-1.42 with GBP/EUR also managing to cling on to the 1.11 level. This afternoon and late this morning will probably see a resumption in risk aversion though, with US Pending Home Sales being likely to spook investors once again. Expect 1.40-1.42 on GBP/USD and 1.11-1.12 on GBP/EUR.
Currencies tied to any level of perceived market risk were burnt into the ground yesterday as the financial world was shaken by two major artillery shells. The first and the most damaging of the two was the news that AIG Group incurred the biggest ever US Corporate loss in history, a frankly inconceivable sum of 61 billion Dollars. The second was word that London-based HSBC Group was all at the ready to try and shore up its dwindling capital base with a monster 12 billion Pounds rights issue. Combined, these two announcements were monumental in gravity, meaning only one thing to investors – ‘run’. And run they did, with the FTSE plummeting to fresh ten year lows of 3600 as the S&P in the US did the same. As we have come to expect, crashing equity burnouts invariably also equate to stark sell-offs in risk-associated currencies, so the Pound unsurprisingly lost a tremendous amount of value over the day.
GBP/USD and GBP/EUR, the latter being thrashed particularly hard by a general overall high-appetite for Dollars, both whimpered to 1.40 and 1.11 levels respectively at close of play. Being driven by the rule that, ‘if it’s bad for the global financial economy then its worse for London,’ how could we have expected Sterling to react any differently? The UK currency, over the last number of years has quite simply been hyper-inflated by the success of London in providing a hub for the co-joining of global industry. If any Initial Public Offerings had to be made, if any Mergers & Acquisitions were on the horizon, or indeed, if you wanted your company in the thick of the action, London and the UK was the place to be. Now, if what they’re shouting from the rooftops is true, and the depression is going to last for years and not months, then GBP/USD and even GBP/EUR can be expected to have a bit of a slog in any bounds to make a recovery anytime soon.
Despite the four horsemen taking a clear fancy to the UK currency as a snack before they continue their tour of the world, there is still plenty of hope for GBP/EUR, even after a day like yesterday. Fans of the European Union will be most upset to learn that yesterday saw the rejection of a proposed 200billion Euro bailout of its Eastern bloc as EU officials snubbed the plan largely over regulatory restrictions. This is bound to put even more stress on the single currency in time, particularly with the exposure that Central Europe has to Asia on top of its Eastern neighbours. Word also that the Bank of England may surprise us all on Thursday by a hold on interest rates, largely with a view to protecting spreads on Bank mortgage lending could also be a salvation for GBP this week as this would certainly prompt some paring of interest rate bets as well as presenting a bottom of the current down-cycle in the interest rate curve. Eyes will certainly be peeled for this at the end of the week.
Overnight saw a paring of shorts on emerging market and higher risk currencies, mainly as a result of an over-extension of moves yesterday, but also thanks to a hold in rates by the Reserve Bank of Australia which spurred some move back into carry trades. In turn this has brought GBP/USD back up to 1.41-1.42 with GBP/EUR also managing to cling on to the 1.11 level. This afternoon and late this morning will probably see a resumption in risk aversion though, with US Pending Home Sales being likely to spook investors once again. Expect 1.40-1.42 on GBP/USD and 1.11-1.12 on GBP/EUR.
Friday, 20 February 2009
BOE GIEVE PROPOSES POSSIBLE UK JAPAN-STYLE RECESSION
BOE GIEVE PROPOSES POSSIBLE UK JAPAN-STYLE RECESSION
There was a distinct scent of risk hunger in the air for global money markets yesterday, weakening the Dollar and the Yen and boosting higher risk currencies including the Euro and the Pound. As anticipated, GBP/USD moved upwards to the low 1.44 region before pulling back to settle in the 1.43s with GBP/EUR also testing the mid 1.13 level before pulling back to the high 1.12 area. This came largely off the back of short Dollar positions as investors pulled funds out of the currency to make some tentative emerging market and Eurozone purchases, although a cutting of speculation on a rising Dollar also had a large part to play in the moves which brought EUR/USD back to 1.27 once again.
What prompted the above was a reaction to a bundle of economic data from the US which attested to a growth in money supply in the region over the last month. This information, largely comprised of US leading economic indicators and Producer Price Indices, which were both out at much better than expected, could potentially be taken as one of the first faint glows of a return to healthy inflation later in the year as the money supply is boosted and consumers begin to resume normal levels of spending. Bearing in mind that this is no means a given, the market has only reacted very cautiously, but there does seem to be a sense of some optimism out there that, at the very least, the Fed and US Government monetary and fiscal measures of the last months are having some positive effect in destroying the brunt of deflation.
Stability also the name of the game Sterling-side yesterday as a few pieces of data vied to wrestle the Pound one way and the other, leaving the currency pretty undecided overall. On the one hand, Government data showed a truly terrible Public Sector Surplus over the last months of 3.3bn Pounds, in the month of the year that is meant to net the most money from the taxpayer, whilst on the other, figures on UK corporate debt showed a decent decline in yields over the last month. In laymen’s terms, this has broadly been taken by the market as an indication that the Bank of England’s purchase of commercial paper over the last month is working in lowering borrowing costs where liquidity is needed most. The Public Sector figure is extremely disconcerting though.
Today is likely to see GBP/USD pull right back in response to end of the week and year-end corporate Dollar demand. GBP/EUR will likely benefit from EUR/USD weakness although the currency pair can be expected to see an upside of around 1.1350 thanks to comments from John Gieve of the Bank of England last night, which, in his last ever address as a policymaker, highlighted his view that the UK is potentially facing the risk of a decade-long ‘Japan-style’ recession. Also expect volatility this morning around UK Retail Sales which, in combination with some Eurozone manufacturing data will probably lead to quite a stagnant Sterling market with GBP/USD moving around the 1.42-1.43 mark.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
There was a distinct scent of risk hunger in the air for global money markets yesterday, weakening the Dollar and the Yen and boosting higher risk currencies including the Euro and the Pound. As anticipated, GBP/USD moved upwards to the low 1.44 region before pulling back to settle in the 1.43s with GBP/EUR also testing the mid 1.13 level before pulling back to the high 1.12 area. This came largely off the back of short Dollar positions as investors pulled funds out of the currency to make some tentative emerging market and Eurozone purchases, although a cutting of speculation on a rising Dollar also had a large part to play in the moves which brought EUR/USD back to 1.27 once again.
What prompted the above was a reaction to a bundle of economic data from the US which attested to a growth in money supply in the region over the last month. This information, largely comprised of US leading economic indicators and Producer Price Indices, which were both out at much better than expected, could potentially be taken as one of the first faint glows of a return to healthy inflation later in the year as the money supply is boosted and consumers begin to resume normal levels of spending. Bearing in mind that this is no means a given, the market has only reacted very cautiously, but there does seem to be a sense of some optimism out there that, at the very least, the Fed and US Government monetary and fiscal measures of the last months are having some positive effect in destroying the brunt of deflation.
Stability also the name of the game Sterling-side yesterday as a few pieces of data vied to wrestle the Pound one way and the other, leaving the currency pretty undecided overall. On the one hand, Government data showed a truly terrible Public Sector Surplus over the last months of 3.3bn Pounds, in the month of the year that is meant to net the most money from the taxpayer, whilst on the other, figures on UK corporate debt showed a decent decline in yields over the last month. In laymen’s terms, this has broadly been taken by the market as an indication that the Bank of England’s purchase of commercial paper over the last month is working in lowering borrowing costs where liquidity is needed most. The Public Sector figure is extremely disconcerting though.
Today is likely to see GBP/USD pull right back in response to end of the week and year-end corporate Dollar demand. GBP/EUR will likely benefit from EUR/USD weakness although the currency pair can be expected to see an upside of around 1.1350 thanks to comments from John Gieve of the Bank of England last night, which, in his last ever address as a policymaker, highlighted his view that the UK is potentially facing the risk of a decade-long ‘Japan-style’ recession. Also expect volatility this morning around UK Retail Sales which, in combination with some Eurozone manufacturing data will probably lead to quite a stagnant Sterling market with GBP/USD moving around the 1.42-1.43 mark.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Thursday, 19 February 2009
POUND HOLDS FIRM DESPITE BOE PROPHESYING DOOM
POUND HOLDS FIRM DESPITE BOE PROPHESYING DOOM
UK demand for gilts surged yesterday with yields for ten-year Treasuries dropping to multi-year lows amidst news from the Bank of England minutes that Mervyn King has his finger firmly on the button for quantitative means in stimulating spending, possibly for as early as next month. Despite the fact that money was dragged away from equities and into Government debt over the plans, which will involve the Bank making purchases of a variety of market assets, international demand for UK debt actually continued to wane. Investors still take the view that the risk is certainly there for the actual value of the Pound to be hugely eroded in future in response to these highly exotic and unprecedented measures. Whilst this scenario is unlikely to materialise, in a situation where prices are falling and the interest rate mechanism is either broken or not powerful to stimulate demand on its own, the use of money creation certainly represents a potentially lethal dose of medication.
Fortunately for the Pound though, despite the clear negativity of the BOE minutes yesterday in terms of deflationary risk to the UK economy, the fact that financial authorities seem to be taking the bull by the proverbial horns is still providing some good girding. This is especially the case with GBP/EUR, which, despite seeing some downside around the 1.12 mark yesterday, finished the day well up around 1.1330. As we know though, this is mostly thanks to the prevailing view amongst investors at the moment that, despite an elevated base rate, all is not well in Europe. A host of Eastern European Banks and Institutions which are mainly owned and controlled by Western Europe, plus huge bond and credit default spreads on many European countries now, indicative of collapsing GDP and crumbling fiscal health, can be thanked for this.
All in all then, yesterday was a grim day for the UK, but, set in the relative context of the global outlook, Sterling still looks nice and stable. The hotly contested ‘quantitative easing’ measures may be rather shocking and scary for the markets, but, at the end of the day, this action could well be a gamble which pays off in relation to the rest of the world once economic recovery time kicks in. It is however still worth noting that there remains some considerable risk for GBP versus the traditional funding and reserve currencies. This largely explains a falling GBP/USD yesterday which pulled off in response to a falling short-term market risk appetite and a strengthened Dollar.
Today can expect to see some major indices equity interest in the morning, which, alongside cutting of short Sterling positions, should pull the Pound up against both the Euro and the Dollar. Expect an upside of 1.14 on GBP/EUR and 1.44 on GBP/USD. UK Public borrowing figures at 930 GMT will likely halt any greater gains on these pairs though. US Unemployment claims will probably also serve to strengthen the Dollar this afternoon, bringing GBP/USD back down but supporting GBP/EUR.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Wednesday, 18 February 2009
SINGLE CURRENCY ON THE RACK BUT STERLING FEELS SHORT-TERM PAIN
In a week that many expected to be a foul one for Sterling, with the Consumer Price Index due to join Bank Of England MPC minutes in further strengthening the case for heavy continued monetary and fiscal easing, undermining the yield appeal and future real value of Sterling, the currency has not actually fared too badly thus far. Most of this, with GBP/EUR in mind, has been thanks to a huge deterioration in sentiment on the Eurozone, although GBP/USD has smarted hard from risk negativity bolstering the Dollar.
Volatility has certainly been the name of the game for GBP/EUR over the last couple of days, the result of which has been little overall concerted movement. Extreme concern over Eastern European Banks, most of which are owned by Western European Banks, combined with rocketing bond spreads for other smaller Eurozone states has put some heavy pressure on the single currency, giving Sterling some good support against it. Furthermore, on the UK side, a higher than expected Consumer Price Index figure at 3 percent year-on-year for January, reported for the UK yesterday alongside 0.1% growth in the Retail Price Index, has also been beneficial for the GBP/EUR case. This data, which essentially indicates that prices are not dropping as far and as fast as many economists have expected over the last few months, although it does little in the medium and longer term outlook for UK interest rate curves, will certainly take the sting out of quantitative easing talk, which has reached a real crescendo over the last weeks.
Despite the above, Sterling still looks set to take a hammering today ahead of minutes from the Bank of England’s February meeting. Although there will certainly be nothing new in the minutes, which will only confirm that all Members are unanimous in a decision to keep base rate relatively stable whilst enacting incremental degrees of asset buying to try and elevate general market prices, the market’s focus on them will undoubtedly lead many to abandon long positions in the currency on the very short-term just in case of any surprises. Expect GBP/EUR to move down towards the 1.1150 level over the course of the day with GBP/USD also looking vulnerable at 1.41 as the Dollar is bought against most major currencies.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Tuesday, 17 February 2009
TOUGH TIMES ON THE HORIZON
Figures out this week from both sides of the pond are looking like they will confirm that the annual rate of inflation is decelerating. This may on some measures show inflation as negative. This may sound like good news to households where incomes have been squeezed by tax rises and higher bills. But a sustained period of deflation would have huge economic costs. While the risk that deflation will take hold of the Western economies is small, the prospect is powerfully exercising the minds of central bankers and explains the urgency with which the BoE and the Fed have cut interest rates. Deflation would be the worst of outcomes for the global economy.
Unfortunately, easy monetary policy also stimulated an unsustainable boom in asset prices and an irresponsible expansion of credit. The collapse of the housing market bubble and the credit crunch are now pulling the global economy down into recession. Inflation is decelerating sharply, helped by falls in commodity prices. In the UK, the annual rate of CPI declined a full point to 3.1% in December. The BoE expects the figure to fall below 1%. Annual inflation as measured by the retail price index has been falling even more rapidly and is approaching its lowest level since 1960.
Although a short period of falling prices does little damage. Consumers will eventually become used to seeing the prices of some items fall consistently, but a long period of general price falls, as happened in Japan in the 1990s, would be damaging. Consumers would star to postpone purchases, as they would have the ability to buy goods more cheaply in the following months or years. This leads on to both employment and investment collapsing. Stocks fall as corporate earnings would contract. Most damaging, households with debt - either mortgage debt or unsecured loans - would suffer intense hardship. Adjusted for inflation, the value of their debt burden would rise. Deflation would cause hardship, eviction and widespread corporate and personal bankruptcy. This is the risk, if not yet prospect, that both central banks will now contend with
In Europe, German investor confidence (out at 11:00 GMT) is looking likely to show that it has improved for a fourth month in February after the government stepped up efforts to bolster the economy and the ECB signaled it will cut interest rates to a record low. The ZEW Center for European Economic Research is expected to say that its index of investor and analyst expectations rose to -25 from -31 in January. The index reached a record low of -3.9 in July. ECB policy makers say they have room to drop borrowing costs further as the euro area battles its worst recession since World War II. The German Chancellor, Angela Merkel, agreed to spend about €80billion over two years to boost the German economy, the largest in the 16-nation bloc. This has led to Germany’s benchmark DAX share index has rising 4% over the past three weeks.
German GDP slumped 2.1% in the fourth quarter of 2008 from the third, the biggest drop in 22 years. The economy is looking to shrink by a further 2.5% this year, according to the IMF. Porsche SE, have reported a 14% plunge in sales, and Volkswagen AG’s Audi luxury division expects a “super difficult” year.The ECB has cut its rates by 2.25% points since early October to 2%, the most aggressive easing since the bank took control of monetary policy a decade ago. This is expected to drop further to 1.5% in their March meeting.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Unfortunately, easy monetary policy also stimulated an unsustainable boom in asset prices and an irresponsible expansion of credit. The collapse of the housing market bubble and the credit crunch are now pulling the global economy down into recession. Inflation is decelerating sharply, helped by falls in commodity prices. In the UK, the annual rate of CPI declined a full point to 3.1% in December. The BoE expects the figure to fall below 1%. Annual inflation as measured by the retail price index has been falling even more rapidly and is approaching its lowest level since 1960.
Although a short period of falling prices does little damage. Consumers will eventually become used to seeing the prices of some items fall consistently, but a long period of general price falls, as happened in Japan in the 1990s, would be damaging. Consumers would star to postpone purchases, as they would have the ability to buy goods more cheaply in the following months or years. This leads on to both employment and investment collapsing. Stocks fall as corporate earnings would contract. Most damaging, households with debt - either mortgage debt or unsecured loans - would suffer intense hardship. Adjusted for inflation, the value of their debt burden would rise. Deflation would cause hardship, eviction and widespread corporate and personal bankruptcy. This is the risk, if not yet prospect, that both central banks will now contend with
In Europe, German investor confidence (out at 11:00 GMT) is looking likely to show that it has improved for a fourth month in February after the government stepped up efforts to bolster the economy and the ECB signaled it will cut interest rates to a record low. The ZEW Center for European Economic Research is expected to say that its index of investor and analyst expectations rose to -25 from -31 in January. The index reached a record low of -3.9 in July. ECB policy makers say they have room to drop borrowing costs further as the euro area battles its worst recession since World War II. The German Chancellor, Angela Merkel, agreed to spend about €80billion over two years to boost the German economy, the largest in the 16-nation bloc. This has led to Germany’s benchmark DAX share index has rising 4% over the past three weeks.
German GDP slumped 2.1% in the fourth quarter of 2008 from the third, the biggest drop in 22 years. The economy is looking to shrink by a further 2.5% this year, according to the IMF. Porsche SE, have reported a 14% plunge in sales, and Volkswagen AG’s Audi luxury division expects a “super difficult” year.The ECB has cut its rates by 2.25% points since early October to 2%, the most aggressive easing since the bank took control of monetary policy a decade ago. This is expected to drop further to 1.5% in their March meeting.
Raphaels Bank CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Monday, 16 February 2009
GRIM OUTLOOK AHEAD AS UK GDP EXPECTED TO CONTRACT 3.3%
The confederation of British Industry have proclaimed that the UK economy will shrink at almost twice the pace previously forecast this year as the credit famine plunges the nation deeper into the worst recession in almost 30 years. GDP will contract 3.3%, instead of the 1.7% predicted in November, the biggest U.K. business lobby said today. This means that by the end of 2009, the economy will have contracted for six consecutive quarters. Richard Lambert, the CBI’s director general, told the press in London that the UK is “Faced with a global confidence crisis, a rapid fall in demand and credit constraints, U.K. firms have been forced to scale back investments and cut jobs.” Government net borrowing will balloon to £148.7 billion in the next financial year, or 10.6% of GDP, and then rise to 11.8% of GDP the following year, the CBI said in the forecasts. This contradicts the view of The Chancellor, Alistair Darling, said in November that borrowing would be 8 % of GDP in the year ending March 2010. Also in a report this morning, Oxford Economics said that the recession will damage Britain’s long-term growth prospects. GDP will grow 2.1% a year on average between the second half of 2006 and the final two quarters of 2018, compared with an average 2.9 % expansion in the previous economic cycle, the report showed.
Asking prices for homes on sale in Britain are said to have risen by 1.2 per cent last month. According to Rightmove, the property website, which revealed the increase, it is down not to a much-wanted revival but to a burst of “false optimism” among those marketing their properties and a chronic shortage of new homes coming on to the market. In the past four weeks 45 % fewer properties were put up for sale than in the same period last year – 75,140 new homes, compared with 137,442, property website Rightmove found. Rightmove believe that this lack of competition had prompted both sellers and agents to become more bullish by increasing asking prices, despite predictions that house prices have a further 10% to fall. Asking prices recorded by Rightmove increased from £213,570 in January to £216,163 this month, compared with an average sales price of £184,333, according to the Centre for Economics and Business Research. Asking prices in London rose by 0.3%, from £386,653 to £387,988. Rightmove said that national asking prices were down by 9.1% on average over the year – the biggest annual fall it has ever recorded – but noted that properties are selling once 25% has been knocked off the peak price.
Elsewhere in the world, Japan has revealed that it sank deeper into recession with its worst quarterly contraction in 35 years, data showed on Monday, its reliance on exports and soft domestic demand dragging down the world's second-largest economy. The G7 financial leaders meeting in Rome, fearing another 1930s-style resurgence in protectionism, pledged at the weekend to do all they could to fight recession, but major world economies still faced the biggest downturn in decades. Such fears were expected to be high on the agenda for the new U.S Secretary of State, Hillary Clinton, when she arrives in Tokyo on Monday for her first foreign trip. New U.S. stimulus measures about to be signed into law include a "Buy American" provision. With both the U.S. and Japanese interest rates already close to zero, G7 leaders are having to look beyond conventional economic tools once they can't cut rates any further, with a possible return to Japan's experiment with quantitative easing earlier this decade. ECB President Jean-Claude Trichet foreshadowed "non-standard measures" to tackle the crisis, but said the ECB had not drawn any conclusions after discussions with other central banks. "I have said that I did not exclude additional non-standard action, but no decision has been taken yet on top of the non-standard action we have already decided to do and we will see." Trichet gave no concrete plans, but it was hoped he would provide more clues with an address later this afternoon.
CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
Asking prices for homes on sale in Britain are said to have risen by 1.2 per cent last month. According to Rightmove, the property website, which revealed the increase, it is down not to a much-wanted revival but to a burst of “false optimism” among those marketing their properties and a chronic shortage of new homes coming on to the market. In the past four weeks 45 % fewer properties were put up for sale than in the same period last year – 75,140 new homes, compared with 137,442, property website Rightmove found. Rightmove believe that this lack of competition had prompted both sellers and agents to become more bullish by increasing asking prices, despite predictions that house prices have a further 10% to fall. Asking prices recorded by Rightmove increased from £213,570 in January to £216,163 this month, compared with an average sales price of £184,333, according to the Centre for Economics and Business Research. Asking prices in London rose by 0.3%, from £386,653 to £387,988. Rightmove said that national asking prices were down by 9.1% on average over the year – the biggest annual fall it has ever recorded – but noted that properties are selling once 25% has been knocked off the peak price.
Elsewhere in the world, Japan has revealed that it sank deeper into recession with its worst quarterly contraction in 35 years, data showed on Monday, its reliance on exports and soft domestic demand dragging down the world's second-largest economy. The G7 financial leaders meeting in Rome, fearing another 1930s-style resurgence in protectionism, pledged at the weekend to do all they could to fight recession, but major world economies still faced the biggest downturn in decades. Such fears were expected to be high on the agenda for the new U.S Secretary of State, Hillary Clinton, when she arrives in Tokyo on Monday for her first foreign trip. New U.S. stimulus measures about to be signed into law include a "Buy American" provision. With both the U.S. and Japanese interest rates already close to zero, G7 leaders are having to look beyond conventional economic tools once they can't cut rates any further, with a possible return to Japan's experiment with quantitative easing earlier this decade. ECB President Jean-Claude Trichet foreshadowed "non-standard measures" to tackle the crisis, but said the ECB had not drawn any conclusions after discussions with other central banks. "I have said that I did not exclude additional non-standard action, but no decision has been taken yet on top of the non-standard action we have already decided to do and we will see." Trichet gave no concrete plans, but it was hoped he would provide more clues with an address later this afternoon.
CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
Authorised and Regulated by the Financial Services Authority.
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