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.
Showing posts with label europe. Show all posts
Showing posts with label europe. Show all posts
Thursday, 2 April 2009
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.
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.
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