Saturday, March 17, 2012
F/X weekly comment
Still waiting for the move through to 1.2125, and with the budget this week it could be a case of sh*t or bust. Can Osborne navigate axing the 50% tax rate and still keep his austerity flag flying? We ended the week at 1.2030, which is quite reassuring in view of the almost relentless tendency to crash off the 1.20 level whenever we get a look at it. No earth-shattering news this week, but there were a few items of note:
Potential downgrade
Our good friends the rating agencies were at it again, trying to justify their existence. This time it was Fitch , deciding to lower the UK’s long-term outlook to negative from stable, while confirming our AAA rating for the time being. I sometimes wonder who takes any notice of these self-serving leeches.
Real data
The pound has been aided this week by a recent improvement in UK economic data including retail sales and a narrowing of the trade gap reducing the chance of a second recession and further QE by Merv and his gang. Sterling has also been supported against the Euro by a recent widening in the difference between short-term UK and German bond yields, creating an appetite for sterling in long term f/x dealing.
Unemployment
UK unemployment rose by 28,000 to 2.67 million during the three months to January, putting the unemployment rate at 8.4%, according to figures from the Office for National Statistics. Despite these high figures, the rise was the lowest in almost a year. They were actually lower than forecast, and the slowing rise is good news for the pound, which gained following the release.
A quick word about Greece
I know I said I was getting bored with talking about Greece, but an article I read today has pulled me up short. Austerity measures are one thing, and Greeks may have been living in a fiscal cloud cuckoo land for centuries, but they didn't create this mess, Europe did. Greece could have carried on quite happily in its own romantic dream if it hadn't been seduced into the euro under false pretences. Now it faces a 40% reduction in the healthcare budget this year alone, on top of tax hikes and wage cuts. New cases of all kinds of horrible diseases of all kinds are escalating at a truly alarming rate. Greece cannot take this. It is teetering on the verge of collapse and social disintegration. Greece will not be alone in this suffering.
What now?
I'll stick again to last week's forecast of 1.2125. Not that I have any faith in George Osborne, but I do have faith in sterling.
Saturday, March 10, 2012
F/X weekly comment
Wrong again, but hey, get used to it. I have. My forecast last week of 1.2125 now looks a tad optimistic, as we are finishing the week at 1.1970, just 30 points shy of last week's close. It was quite an interesting week though, albeit driven once again by vultures circling high above the Parthenon.
Greek debt - cheap or expensive?
Both actually. Cheap if you're looking to buy it (are you mad?) or very expensive if you already own it. Central to this week's activity has been the attitude of the owners of Greek government bonds. These are promises made by the Greek government to repay debt at set rates at a set time; promises now rather difficult to keep, as the Greek government has run out of money. In order to stand any chance of being able to repay the second bailout, and in fact to sand any chance of being paid the second bailout, they had to persuade the bondholders to 'write off' over half of the money, and accept replacement bonds to repaid further in the future at lower rates. Why would anyone in their right mind vote to accept that deal? Because if they didn't, Greece would collapse into disorderly default on the bonds. In other words, settle for 25% of what you are owed or run a very large risk of getting nothing at all.
And I quote:
Nicolas Sarkozy, renowned sage and Euro leading light (snigger): 'I would like to say how happy I am that a solution to the Greek crisis, which has weighed on the economic and financial situation in Europe and the world for months, has been found.'
Greek Finance Minister Evangelos Venizelos: 'I believe everyone will soon realise that this is the only way to keep the country on its feet and give it a second historic chance that it needs'
Jacob Kirkegaardof the Peterson Institute for International Economics: 'More to protect Europe from Greece than for Greece itself'
Sarkozy is clearly otherwise engaged in planning his retirement from politics. Venizelos is clearly a dedicated optimist. Kirkegaardof lives in the real world. Europe is merely buying time with this charade. The time will be used by European governments and banks to strengthen their financial defences, leaving them less vulnerable when the Greek day of reckoning eventually arrives.
What now?
Greece will go away for now, until the wallpaper starts to show the cracks again. That will leave the field clear for a week or so to let economic data rule the roost for a change. That's as long as Spain or Portugal don't rise to the top of the agenda just yet. UK figures are looking promising. Some of the 'green shoots of recovery' are starting to appear, while in Europe things are still looking messy. Sterling interest rates will stay the same, but the Euro may have to bring rates down, as they started to rise much too early.
All of this is positive for sterling, so as long as Merv doesn't put the boot in, we should be able to have another good run at the 1.20's.
I'll stick to last week's forecast of 1.2125. Let's face it, if I keep that going long enough, it must be right one week, mustn't it?
Friday, March 2, 2012
F/X weekly comment
It's been a low-key week on the F/X markets, and yet sterling has managed to creep up on the blind side and has yet again inched past the 1.20 level. That makes my forecast for last week plainly wrong, so what happened to make the pound exceed my expectations?
To print or not to print, that is the question
To which no-one really seems yet to have an answer. In essence, Merv back-tracked on the subject. He said on Wednesday the BOE will be guided by upcoming data when deciding whether to issue more QE. It had been widely anticipated that another £25bn would need to be printed in the next few months, but it appears that the latest data has cast doubt on these expectations.
On the other side of the Channel, Europe doesn't do QE, or at least says it doesn't. What it does do however is make vast sums of cheap money available to the banking system from time to time, as it did this week. Now you or I would be hard pressed to spot the difference between this and QE, but the markets know a ringer when they see one, and this week's actions have weakened the Euro just as much as they have strengthened sterling.
Back to basics - data, data and more data
Some decent UK figures and some dodgy Euro ones didn't do us any harm at all during the week. Thursday's manufacturing data edged down slightly to 51.2 from 51.8 but held above the key 50 level that divides expansion from contraction. Friday's construction index was very pleasing, coming in at 54.3 against forecasts of 51.3 thus showing expansion in an important area of UK economic activity. A view is starting to emerge that the economy is recovering (say it in hushed tones) and if this is the case it will of course help sterling rally.
German retail sales figures out on Friday showed an unexpected drop as price rises start to hit the consumer. A better figure had been expected s a result of a lowering of tension surrounding the Euro zone debt crisis. Thursdays manufacturing PMI from Germany stayed in positive territory, but wasn't anything to shout about. The Euro has certainly not shaken off doubts as to the peripheral economies, indeed fears for the Greek bailout are bubbling under the surface again.
Gissa job
Eurozone employment data showed that unemployment in the region rose to its highest level in the Euro's history in January, to touch a scary 10.7%. It is beginning to look as though pan European austerity measures are bringing an unwelcome side effect on growth and jobs across the whole economic area.
What now?
Can this be seventh time lucky? Can Greece stay out of the headlines for two weeks running? Will Merv be able to resist pulling the plug on sterling yet again? Maybe, just maybe, I'm going for 1.2125 next week. Fingers crossed!
Saturday, February 25, 2012
F/X weekly comment
So I get to pay out on the evens bet last week. Shame, but no real surprise. Nice to be right two weeks running though. There were some familiar factors involved:
Sixth time unlucky
Last week I pointed out that this was the sixth time that Sterling has poked its head up above the 1.20 level in the past three years, and of course on each of the previous five occasions it fell back, sometimes sharply. And here we are again, back at 1.1800.
Greece to the rescue
An unlikely headline, at best, but that in effect is what happened for the Euro last week. The Greek government took it upon themselves to sign away even more of the ordinary Greek-in-the-street's ability to cope on a day to day basis. To be fair, the alternative is even less attractive in substance, even though it might be difficult to persuade the public of that fact. To rub salt in the wound, the EU, IMF and ECB also demanded, and got, a monitoring post in Athens so that they can keep an eye on things. Well I for one hope that the building they choose isn't too flammable, and I wouldn't be too happy if I were a German accountant given the Athens posting. ECB president Mario Draghi chipped in, saying that 'backtracking on fiscal targets would elicit an immediate reaction by the market'. Go Mario.
Under Sentance of Debt
Actually I can spell, usually. This is Andrew Sentance, who until last year was one of Merv's Merry Men. His gloomy forecast this week was that the UK will continue to struggle with poor growth and sporadic phases of recovery until at least 2016. He anticipates annual growth of 1% or less per year until then.
MMM
Talking of Merv and his crew, they also managed to contribute to sterling's relapse this week, with the release of the last Bank of England minutes to the decision two weeks ago to keep interest rates on hold. During that meeting the decision was taken to issue another £50bn of QE, and that was taken favourably by the market at the time. In the minutes it was revealed that two members of the committee wanted even more money pumped into the economy than the £50bn. The two voted for a £75bn slab of QE, but the other seven went for £50bn. The reason this has caused a problem for sterling is that the market had assumed that the decision would have been unanimous, and that recent good economic data would mean that we could put the printer away now. It now appears however that the door is still open for even more QE in the future, and this has helped weaken sterling as increasing the amount of currency in the system must inevitably devalue it.
So what now?
Doldrums time again for a while I'm afraid, until we either get more clear signals on the UK economy, or Greece kicks off again, as it surely will. I firmly believe that we will see 1.200 again soon, and sometime soon we're going to breach that level and stay there, but not just yet. Mid 1.1800's for me this week.
Sixth time unlucky
Last week I pointed out that this was the sixth time that Sterling has poked its head up above the 1.20 level in the past three years, and of course on each of the previous five occasions it fell back, sometimes sharply. And here we are again, back at 1.1800.
Greece to the rescue
An unlikely headline, at best, but that in effect is what happened for the Euro last week. The Greek government took it upon themselves to sign away even more of the ordinary Greek-in-the-street's ability to cope on a day to day basis. To be fair, the alternative is even less attractive in substance, even though it might be difficult to persuade the public of that fact. To rub salt in the wound, the EU, IMF and ECB also demanded, and got, a monitoring post in Athens so that they can keep an eye on things. Well I for one hope that the building they choose isn't too flammable, and I wouldn't be too happy if I were a German accountant given the Athens posting. ECB president Mario Draghi chipped in, saying that 'backtracking on fiscal targets would elicit an immediate reaction by the market'. Go Mario.
Under Sentance of Debt
Actually I can spell, usually. This is Andrew Sentance, who until last year was one of Merv's Merry Men. His gloomy forecast this week was that the UK will continue to struggle with poor growth and sporadic phases of recovery until at least 2016. He anticipates annual growth of 1% or less per year until then.
MMM
Talking of Merv and his crew, they also managed to contribute to sterling's relapse this week, with the release of the last Bank of England minutes to the decision two weeks ago to keep interest rates on hold. During that meeting the decision was taken to issue another £50bn of QE, and that was taken favourably by the market at the time. In the minutes it was revealed that two members of the committee wanted even more money pumped into the economy than the £50bn. The two voted for a £75bn slab of QE, but the other seven went for £50bn. The reason this has caused a problem for sterling is that the market had assumed that the decision would have been unanimous, and that recent good economic data would mean that we could put the printer away now. It now appears however that the door is still open for even more QE in the future, and this has helped weaken sterling as increasing the amount of currency in the system must inevitably devalue it.
So what now?
Doldrums time again for a while I'm afraid, until we either get more clear signals on the UK economy, or Greece kicks off again, as it surely will. I firmly believe that we will see 1.200 again soon, and sometime soon we're going to breach that level and stay there, but not just yet. Mid 1.1800's for me this week.
Saturday, February 18, 2012
F/X Weekly Comment
Whew! Got one right last week. I was beginning to forget what that felt like, but here we are, as predicted, back in the 1.20s, in fact at 1.2050 at close of play on Friday. Greece was again a factor, but to be honest I'm getting a bit bored of the attention being heaped on by far the smallest of the PIIG economies. Press and pundits seem less bored though, and determined to keep it in the news, so:
More Greek Woes
The euro was again under the cosh this week as the market concentrated on the news regarding the second Greek bailout. Deadlines came and went throughout the week, and a meeting scheduled for European finance chiefs on Wednesday, during which the deal was to have been finalised, was postponed until Monday due to German (and others) concerns that the Greek’s proposed austerity package didn't come with the required guarantee that the measures would actually be pushed through. A case of 'talk is expensive'. Ominously for Greece, a statement was also issued saying that 'further considerations are necessary'.
Moody Blues for Europe
No, not another comeback tour, but another ratings agency 'strutting its stuff'. This week Moody’s cut the debt ratings of six European countries including Italy, Spain and Portugal whilst placing France, Austria and ,oh yes, the UK on a negative outlook. They did however leave the European Financial Stability Facility’s AAA rating alone. (Why?)
Meanwhile Back 'Home'
The market had the unusual task of assimilating some good news for Sterling. The CBI came out with a bullish statement forecasting that the UK will avoid a double dip recession and that the recovery will gain momentum during the year. This was presumably based partly on the release of better than anticipated UK Retail Sales data for January. The annualised figure was posted at +2.0% versus expectations of a growth in shop sales of only 0.6%, raising investor’s expectations that the Bank of England will have to raise British interest rates sooner rather than later. Strange really, as only on Tuesday the headlines were that the sterling base rate would remain unchanged for at least two more years! The pound was also benefitting from the fact that only £50bn (only?) was issued last week instead of £75bn.
What now?
Well, this is now the sixth time that Sterling has poked its head up above the 1.20 level in the past three years, and of course on each of the previous five occasions it fell back, sometimes sharply. Last time though it only fell back into the 1.18's, and then only for a short time. Can this be sixth time lucky?
Bored of new from Greece I might be, but it will be Greek news that dictates which way Sterling goes from here. If a deal is reached on Monday, and Greece's gonads are wrung even tighter, the chances are that the Euro will strengthen and the rate will fall back again. If however, and this is possible, the Greek politicians decide that if they give any more ground it will be their gonads on the line, not the public's, we could have a very messy week indeed.
On balance, I think a deal will be struck. As the Dutch PM said this week 'It's cheaper to bail Greece out than to let it default'. I can see what he means, but Greece will default, by any reasonable description, whatever happens. The choice is between orderly default, with debtors agreeing to write off debt, and disorderly default, where the Greeks just decide they can't repay.
So I'll give you two prices this week, with betting odds:
1.2450 by next Friday 8/1
1.1825 by next Friday Evens
You can tell I've been to Monaco, can't you?
More Greek Woes
The euro was again under the cosh this week as the market concentrated on the news regarding the second Greek bailout. Deadlines came and went throughout the week, and a meeting scheduled for European finance chiefs on Wednesday, during which the deal was to have been finalised, was postponed until Monday due to German (and others) concerns that the Greek’s proposed austerity package didn't come with the required guarantee that the measures would actually be pushed through. A case of 'talk is expensive'. Ominously for Greece, a statement was also issued saying that 'further considerations are necessary'.
Moody Blues for Europe
No, not another comeback tour, but another ratings agency 'strutting its stuff'. This week Moody’s cut the debt ratings of six European countries including Italy, Spain and Portugal whilst placing France, Austria and ,oh yes, the UK on a negative outlook. They did however leave the European Financial Stability Facility’s AAA rating alone. (Why?)
Meanwhile Back 'Home'
The market had the unusual task of assimilating some good news for Sterling. The CBI came out with a bullish statement forecasting that the UK will avoid a double dip recession and that the recovery will gain momentum during the year. This was presumably based partly on the release of better than anticipated UK Retail Sales data for January. The annualised figure was posted at +2.0% versus expectations of a growth in shop sales of only 0.6%, raising investor’s expectations that the Bank of England will have to raise British interest rates sooner rather than later. Strange really, as only on Tuesday the headlines were that the sterling base rate would remain unchanged for at least two more years! The pound was also benefitting from the fact that only £50bn (only?) was issued last week instead of £75bn.
What now?
Well, this is now the sixth time that Sterling has poked its head up above the 1.20 level in the past three years, and of course on each of the previous five occasions it fell back, sometimes sharply. Last time though it only fell back into the 1.18's, and then only for a short time. Can this be sixth time lucky?
Bored of new from Greece I might be, but it will be Greek news that dictates which way Sterling goes from here. If a deal is reached on Monday, and Greece's gonads are wrung even tighter, the chances are that the Euro will strengthen and the rate will fall back again. If however, and this is possible, the Greek politicians decide that if they give any more ground it will be their gonads on the line, not the public's, we could have a very messy week indeed.
On balance, I think a deal will be struck. As the Dutch PM said this week 'It's cheaper to bail Greece out than to let it default'. I can see what he means, but Greece will default, by any reasonable description, whatever happens. The choice is between orderly default, with debtors agreeing to write off debt, and disorderly default, where the Greeks just decide they can't repay.
So I'll give you two prices this week, with betting odds:
1.2450 by next Friday 8/1
1.1825 by next Friday Evens
You can tell I've been to Monaco, can't you?
Sunday, February 12, 2012
F/X weekly comment
Not a vast amount to report this week in terms of currency movement. We've ended up a centime down on the week at 1.1950. To me this feels a bit like a lull before a big storm. Interest rates in both the UK and Euroland were kept on hold again, but the BoE came in with a new slug of QE, more on that below. The big story though, not for the first time this year:
Greece is still the word...
Caught between a rock and a hard place, it's difficult not to feel some degree of sympathy for the Greeks this week. No? OK, it is difficult. They desperately need more EU money, but first they've got to prove that they will make at least some attempt to pay (a bit) of it back, and they're struggling. They thought they'd come up with a decent new austerity package this week, but those stern nasty Germans weren't impressed, and they were sent packing to drum up some more riot-fodder. As I write this, on Friday evening (10th Feb), a headline has just burst onto my computer screen:
Marilisa Xenogiannakopoulou
I wouldn't bother even trying to annunciate it, and no it's not the Greek version of countdown, it is in fact the name of the fourth Greek government minister to resign today in protest over the debt negotiations. Yes, today. Giving a flavour of current sentiment, George Karatzaferis, a coalition party leader said, "Greece must not and cannot be outside the EU. But it can do without the German boot." Unfortunately the German boot is in fairly close proximity to the German hand that is shelling out most of the money.
Back in Blighty...
Some decent figures out this week, and an expected old friend reared his head in the form of another tranche of QE (Money printing to you and me). Now the theory goes that QE doesn't mean higher inflation, but personally I'll take more convincing than I've seen so far. Another £50bn chucked into the system this week would have hurt sterling even more, but the market was quite relieved that it wasn't the £75 bn that they'd been expecting.
More on Greece...
Update Sunday pm. The austerity cuts include under discussion now include:
• Another 15,000 public-sector job cuts
• liberalisation of labour laws (hire and fire)
• lowering the minimum wage by 20% from 751 euros a month to 600 euros
These were presented to a eurozone ministers in Brussels, but were rejected unless a further €325m in savings for this year are promised, and the Greek leaders give "strong political assurances" on the implementation of all of the packages. Unions are holding a 48-hour strike, and thousands of protesters are rallied in central Athens against the measures. Riot police are on standby. Watch this space.
What now?
Back to guesswork in the short term, so back into the 1.200s next week for me...
Greece is still the word...
Caught between a rock and a hard place, it's difficult not to feel some degree of sympathy for the Greeks this week. No? OK, it is difficult. They desperately need more EU money, but first they've got to prove that they will make at least some attempt to pay (a bit) of it back, and they're struggling. They thought they'd come up with a decent new austerity package this week, but those stern nasty Germans weren't impressed, and they were sent packing to drum up some more riot-fodder. As I write this, on Friday evening (10th Feb), a headline has just burst onto my computer screen:
Marilisa Xenogiannakopoulou
I wouldn't bother even trying to annunciate it, and no it's not the Greek version of countdown, it is in fact the name of the fourth Greek government minister to resign today in protest over the debt negotiations. Yes, today. Giving a flavour of current sentiment, George Karatzaferis, a coalition party leader said, "Greece must not and cannot be outside the EU. But it can do without the German boot." Unfortunately the German boot is in fairly close proximity to the German hand that is shelling out most of the money.
Back in Blighty...
Some decent figures out this week, and an expected old friend reared his head in the form of another tranche of QE (Money printing to you and me). Now the theory goes that QE doesn't mean higher inflation, but personally I'll take more convincing than I've seen so far. Another £50bn chucked into the system this week would have hurt sterling even more, but the market was quite relieved that it wasn't the £75 bn that they'd been expecting.
More on Greece...
Update Sunday pm. The austerity cuts include under discussion now include:
• Another 15,000 public-sector job cuts
• liberalisation of labour laws (hire and fire)
• lowering the minimum wage by 20% from 751 euros a month to 600 euros
These were presented to a eurozone ministers in Brussels, but were rejected unless a further €325m in savings for this year are promised, and the Greek leaders give "strong political assurances" on the implementation of all of the packages. Unions are holding a 48-hour strike, and thousands of protesters are rallied in central Athens against the measures. Riot police are on standby. Watch this space.
What now?
Back to guesswork in the short term, so back into the 1.200s next week for me...
Friday, February 3, 2012
F/X weekly comment
Two weeks on from my last blog on the single currency duel with sterling. Two weeks on, and precious little has changed, in fact the rate has moved by just 10 centimes, ending this week at 1.2050. A bit like my two weeks really, here I am in exactly the same place, but in the intervening period I found myself mixing with it the high-rollers in Monte Carlo. I didn't make my fortune though, and like sterling I'm back down at square one, if you can call it that (what would you call 1.05 then?). So what will change things from here?
The continuing story of Greece....
More like a soap really. How long can this drag on for? We were promised that a full resolution to the Greek debt problem would be in place by, let me see, which date shall we choose? Anyway, the latest promise is Monday. Dream on. Apparently there will be announcements on three issues. Firstly, the size of the haircut that private investors must take on their holdings (in addition to what hit the ECB will take). Secondly, the size of yet another bailout (MK111), which is going to have to be somewhere in the region of €130bn, and lastly another tranche of austerity measures announced by the Greek government for the Greek public to welcome with open arms.
A sideshow from Portugal...
Another fairly dismal round of bond refinancing during the week reminded the markets that Greece isn't where all the action is. In fact there is fun to be had wherever you look in southern Europe, if you like that sort of thing.
Can the UK and sterling capitalise on all of this?
Do bears defecate in Milton Keynes? Is the pope a Mormon? No, of course not. The latest apology for sterling is of course that we need the EU debt problem resolved quickly and positively in order to reassure the markets that the UK economy will not suffer. Lord preserve us from procrastinating apologists disguised as economists. Are we to believe that sterling is now inextricably tied in to a range between 1.0500 and 1.2050 against the lumbering school bully that is the Euro?
What now?
Maybe I should go and lie down for a while. Maybe then I'll wake up and the world will have come to its senses. Newt Gingrich will be US President, Greece will be the only currency left in the Euro, and there will be DM4 to the pound (and FF13). Gazole will be 20 cents a litre, but no-one will use it as cars run on air..
And why is this room all padded?
Still 1.200s next week folks.
The continuing story of Greece....
More like a soap really. How long can this drag on for? We were promised that a full resolution to the Greek debt problem would be in place by, let me see, which date shall we choose? Anyway, the latest promise is Monday. Dream on. Apparently there will be announcements on three issues. Firstly, the size of the haircut that private investors must take on their holdings (in addition to what hit the ECB will take). Secondly, the size of yet another bailout (MK111), which is going to have to be somewhere in the region of €130bn, and lastly another tranche of austerity measures announced by the Greek government for the Greek public to welcome with open arms.
A sideshow from Portugal...
Another fairly dismal round of bond refinancing during the week reminded the markets that Greece isn't where all the action is. In fact there is fun to be had wherever you look in southern Europe, if you like that sort of thing.
Can the UK and sterling capitalise on all of this?
Do bears defecate in Milton Keynes? Is the pope a Mormon? No, of course not. The latest apology for sterling is of course that we need the EU debt problem resolved quickly and positively in order to reassure the markets that the UK economy will not suffer. Lord preserve us from procrastinating apologists disguised as economists. Are we to believe that sterling is now inextricably tied in to a range between 1.0500 and 1.2050 against the lumbering school bully that is the Euro?
What now?
Maybe I should go and lie down for a while. Maybe then I'll wake up and the world will have come to its senses. Newt Gingrich will be US President, Greece will be the only currency left in the Euro, and there will be DM4 to the pound (and FF13). Gazole will be 20 cents a litre, but no-one will use it as cars run on air..
And why is this room all padded?
Still 1.200s next week folks.
Saturday, January 7, 2012
F/X weekly comment
Another year, another pound, and maybe even a few more centimes thrown in for good measure. What a way to start 2012, basking in the relative wealth of 1.2130 and looking forward to even better things to come. Can it be true?
Not so fast...
I hate to be a killjoy about this, but I think we have to keep a grasp on reality here. The pound isn't worth 1.2130 Euros because it represents a vibrant economy bursting with growth potential, low debt and healthy surpluses. Far from it; the pound is at this level because the Eurozone economies are in an even worse shape than ours, and that's saying something. Takes the gloss off a bit, doesn't it?
But on the other hand...
A pound will still be a pound when we get to the end of 2012; a Euro may not be quite the full shilling when we get to that stage. I've listened to lots of pontificating over the last few weeks from political commentators, economists, traders and the like, and it strikes me that I've never heard so many people (not all though), who are convinced that the Euro cannot survive in its present form. Personally, I have no doubt that the Euro will exist in a year's time, but I do think things will have changed. I can't for the life of me see how Greece can possibly continue as a Euro country. I think that even after two bailouts (should that be bailsout?) it will still struggle to avoid default, maybe as early as Aril this year. Lending billions to an ailing economy is brave indeed, expecting to get your money back is downright foolish.
One out...
Not all out maybe, but I have a few candidates. Here is my list of cast iron favourites to still be members of the Euro club at the end of the year: Germany, France, Belgium, Luxembourg, Holland, Austria, Finland and Monaco. That, I agree, leaves quite a few casualties, but I don't expect the rest to be cast to the wolves. As I see it the Eurozone needs a relegation and promotion system. A premier league and first division if you like, with maybe a Doc Martins southern league tagged on for good measure.
I think there is a strong case for arguing that the Euro will reach breaking point this year, and something will have to be done. Anyone remember the ERM? And the Snake? Any country in such a mechanism isn't completely tied to one exchange rate, it has a leeway in which the rate can move. Such flexibility is currently craved by many of the peripheral countries. This would be Division 1. When any of the countries in this division manages to get its finances in order, it can be promoted back to the Premier division, the Full Monti (sorry, Euro).
The Southern league's founder member will of course be Greece, possibly to be joined by the likes of Cyprus and Malta, and any of the PIGS that flounder in Div 1. They, I'm afraid, are the basket cases, consigned to near economic collapse and forced to queue up in the Brussels soup kitchens for handouts. Just like bailouts, but you don't have to pay them back.
Short term?
Make hay while the sun shines. I'm converting at least half of my meagre sterling pittance into Euros. We might see 1.2200 this week.
Not so fast...
I hate to be a killjoy about this, but I think we have to keep a grasp on reality here. The pound isn't worth 1.2130 Euros because it represents a vibrant economy bursting with growth potential, low debt and healthy surpluses. Far from it; the pound is at this level because the Eurozone economies are in an even worse shape than ours, and that's saying something. Takes the gloss off a bit, doesn't it?
But on the other hand...
A pound will still be a pound when we get to the end of 2012; a Euro may not be quite the full shilling when we get to that stage. I've listened to lots of pontificating over the last few weeks from political commentators, economists, traders and the like, and it strikes me that I've never heard so many people (not all though), who are convinced that the Euro cannot survive in its present form. Personally, I have no doubt that the Euro will exist in a year's time, but I do think things will have changed. I can't for the life of me see how Greece can possibly continue as a Euro country. I think that even after two bailouts (should that be bailsout?) it will still struggle to avoid default, maybe as early as Aril this year. Lending billions to an ailing economy is brave indeed, expecting to get your money back is downright foolish.
One out...
Not all out maybe, but I have a few candidates. Here is my list of cast iron favourites to still be members of the Euro club at the end of the year: Germany, France, Belgium, Luxembourg, Holland, Austria, Finland and Monaco. That, I agree, leaves quite a few casualties, but I don't expect the rest to be cast to the wolves. As I see it the Eurozone needs a relegation and promotion system. A premier league and first division if you like, with maybe a Doc Martins southern league tagged on for good measure.
I think there is a strong case for arguing that the Euro will reach breaking point this year, and something will have to be done. Anyone remember the ERM? And the Snake? Any country in such a mechanism isn't completely tied to one exchange rate, it has a leeway in which the rate can move. Such flexibility is currently craved by many of the peripheral countries. This would be Division 1. When any of the countries in this division manages to get its finances in order, it can be promoted back to the Premier division, the Full Monti (sorry, Euro).
The Southern league's founder member will of course be Greece, possibly to be joined by the likes of Cyprus and Malta, and any of the PIGS that flounder in Div 1. They, I'm afraid, are the basket cases, consigned to near economic collapse and forced to queue up in the Brussels soup kitchens for handouts. Just like bailouts, but you don't have to pay them back.
Short term?
Make hay while the sun shines. I'm converting at least half of my meagre sterling pittance into Euros. We might see 1.2200 this week.
Saturday, December 17, 2011
F/X Weekly comment
Another fascinating week in the F/X markets, with my forecast of 1.1800 falling quite a way short of the mark as we saw the pound burst through the 1.1940 level at one point on Thursday. At least I managed to get the direction right! The week ended at 1.1910, leaving many licking their lips in anticipation of the magic 1.20 level. More about that later.
The Hangover
David Cameron’s, that is. It must have been hugely dispiriting to arrive back home to a hero’s welcome on his trusty steed to find that all his new lackeys are the same bunch that he’s been trying to ignore for years, those embarrassing Eurosceptics. And worse still, his new best mate Nick disappears off in a sulk, only to reappear later in the week, all guns blazing, letting anyone who cares to listen (including Sarko) what he thinks about this new wave of scepticism and xenophobia.
Fact and Fiction
Fact: The Euro is still in trouble. The currency has accurately reflected this over the past week. The achievements of last weekend’s summit fell way short of solving any of the problems. Indeed it probably created more to worry about. The markets like to see action, not words, and they haven’t seen any yet. The new treaty being entered into by the group of 26 is already starting to show some cracks, with Hungary and the Czech Republic wavering yet again (they already changed their minds once). Nothing is to be announced on this new treaty before March, but the ECB is making it quite clear that they do not want to be promoted to the position of lender of last resort to the European basket cases. On top of this, Angela Merkel is facing growing pressures on the home front. She too is in a coalition, and that may have been the reason behind a conciliatory phone call to DC this week.
Fiction: Sterling is ideally placed to take advantage of this and surge back up towards the levels we used to enjoy up to 2007. Far from it. We have a lot of problems to deal with in the UK economy. I’m writing this during a Christmas visit back to the UK, and can see at first hand what is happening to UK high streets. I’m in a smallish town in Lincolnshire, and at least half of the stores are either boarded up or let on short term contracts to ‘pile it high and sell it cheap’ outlets. UK unemployment is at its highest level for 17 years, and the public deficit is proving to be much more stubborn than George Osborne must have hoped for.
Don’t be greedy
That 1.20 level could easily be a step too far for now. The big boys, international speculators and multinational corporations, are in front of the queue for the best deals in the market. For the likes of you or I to get to buy Euros at 1.20 the rate will probably reed to get to at least 1.21, possibly higher. If the market professionals decide that 1.20 is where they all want to but Euros, or more accurately sell sterling, it will all be done when the rate is at 1.2005, and if there is enough selling of sterling at that level the next stage will see us back at 1.16 or even lower. The best advice I can offer you if you need to convert sterling to Euro is do it early, and be happy with say 1.1850 or 1.19. If you are what I call ‘mini speculators’, and have money in the UK that you will eventually need to convert, you can take a longer term view, but be prepared to be disappointed.
Hols
Any F/X trader worth his salt will have started his holiday break by now, and the markets traditionally stagnate over this period. With this in mind I’m going to take a break this week, and will return to action to launch the New Year. Between now and then please have a great time, and try to forget about politics and economics, as I certainly will!
The Hangover
David Cameron’s, that is. It must have been hugely dispiriting to arrive back home to a hero’s welcome on his trusty steed to find that all his new lackeys are the same bunch that he’s been trying to ignore for years, those embarrassing Eurosceptics. And worse still, his new best mate Nick disappears off in a sulk, only to reappear later in the week, all guns blazing, letting anyone who cares to listen (including Sarko) what he thinks about this new wave of scepticism and xenophobia.
Fact and Fiction
Fact: The Euro is still in trouble. The currency has accurately reflected this over the past week. The achievements of last weekend’s summit fell way short of solving any of the problems. Indeed it probably created more to worry about. The markets like to see action, not words, and they haven’t seen any yet. The new treaty being entered into by the group of 26 is already starting to show some cracks, with Hungary and the Czech Republic wavering yet again (they already changed their minds once). Nothing is to be announced on this new treaty before March, but the ECB is making it quite clear that they do not want to be promoted to the position of lender of last resort to the European basket cases. On top of this, Angela Merkel is facing growing pressures on the home front. She too is in a coalition, and that may have been the reason behind a conciliatory phone call to DC this week.
Fiction: Sterling is ideally placed to take advantage of this and surge back up towards the levels we used to enjoy up to 2007. Far from it. We have a lot of problems to deal with in the UK economy. I’m writing this during a Christmas visit back to the UK, and can see at first hand what is happening to UK high streets. I’m in a smallish town in Lincolnshire, and at least half of the stores are either boarded up or let on short term contracts to ‘pile it high and sell it cheap’ outlets. UK unemployment is at its highest level for 17 years, and the public deficit is proving to be much more stubborn than George Osborne must have hoped for.
Don’t be greedy
That 1.20 level could easily be a step too far for now. The big boys, international speculators and multinational corporations, are in front of the queue for the best deals in the market. For the likes of you or I to get to buy Euros at 1.20 the rate will probably reed to get to at least 1.21, possibly higher. If the market professionals decide that 1.20 is where they all want to but Euros, or more accurately sell sterling, it will all be done when the rate is at 1.2005, and if there is enough selling of sterling at that level the next stage will see us back at 1.16 or even lower. The best advice I can offer you if you need to convert sterling to Euro is do it early, and be happy with say 1.1850 or 1.19. If you are what I call ‘mini speculators’, and have money in the UK that you will eventually need to convert, you can take a longer term view, but be prepared to be disappointed.
Hols
Any F/X trader worth his salt will have started his holiday break by now, and the markets traditionally stagnate over this period. With this in mind I’m going to take a break this week, and will return to action to launch the New Year. Between now and then please have a great time, and try to forget about politics and economics, as I certainly will!
Saturday, December 10, 2011
F/X weekly comment
Unless you've had your heads completely buried in the sand this week you'll probably have noticed that there has been a bit of a dust-up on the UK/Euro front over the last few days. If not, you'd hardly be likely to be reading this anyway, so I will assume that you have at least heard David Cameron's name mentioned a few times...
SuperCam - Hero or Villain?
I think you might have guessed which side of the argument I'm on. I am quite genuinely astonished at the crass hypocrisy of opposition (and some coalition) politicians complaining that David Cameron has marginalised the UK and despatched us to the outer wildernesses of Europe where no-one will listen to us and our views on the Euro will not be taken into account.
What on earth was the alternative? Can you imagine the furore if he had signed up with the rest of the lemmings at the cliff top? I doubt very much if he would have been let back into the country, let alone the houses of parliament. Sovereignty surrendered, budgets to be submitted to Brussels? Good grief, we might even have to convert to the Euro. Get real you lot, he had no choice whatsoever.
Nobby no-mates.
Let's not pretend otherwise, we are not popular in Europe now, although I suspect a few million European citizens might secretly be on our side. The sight of Sarkozy blanking Cameron in Brussels on Friday evening was a scene of pure childish petulance. I for one prefer my political leaders to have maturity and stature. Sarkozy lacks all three (stature twice).
For a while on Friday we were not alone. A few other EU but non Euro members' initial reaction was 'Your having a Turkish'*, but they soon succumbed to the herd mentality and toed the line. Countries like Ireland, Greece and Portugal had no choice of course. Firstly they are already in the Euro, and secondly they desperately need the continuing support of the Eurozone. But alone in Europe we now definitely are. There are 27 members of the EU, and 26 of them have signed up for the new financial treaty.
Should we care?
Unfortunately yes. There was no way we could actually gain from this mess that the Euro has got itself into. There is no way we can agree to be a part of this group, but being isolated will very probably harm us. We will not be able to influence any course of action that they decide to take regarding the financial stability of the Euro, but the UK is an absolutely vital part of Europe, and as full members of the European Union we maintain a very large say in what goes on. So large in fact that nothing can be done to force us into any measures we don't want to take, even by the 26 Eurozone (and wannabees) countries. Having said that though, the lemmings will have the power to act in ways contrary to our best interests.
What now?
They will continue to muddle through, at best. Precious little came out of last week in terms of saving the Euro. Germany and France may look like willing bedmates, but there is a lot of bickering going on under the sheets. The much vaunted new treaty doesn't actually introduce any new rules or constraints, it just repeats existing rules that everyone, including France, has been breaking consistently over the last ten years. Do we really expect anything to change? One commentator got it right when comparing it to having a speed limit on a motorway that no-one ever enforces. Now apparently there will be traffic police. We'll see. Maybe the Greeks will start paying their motorway toll fees. And maybe not.
1.1800 for me next week.
* Turkish bath (= laugh)
SuperCam - Hero or Villain?
I think you might have guessed which side of the argument I'm on. I am quite genuinely astonished at the crass hypocrisy of opposition (and some coalition) politicians complaining that David Cameron has marginalised the UK and despatched us to the outer wildernesses of Europe where no-one will listen to us and our views on the Euro will not be taken into account.
What on earth was the alternative? Can you imagine the furore if he had signed up with the rest of the lemmings at the cliff top? I doubt very much if he would have been let back into the country, let alone the houses of parliament. Sovereignty surrendered, budgets to be submitted to Brussels? Good grief, we might even have to convert to the Euro. Get real you lot, he had no choice whatsoever.
Nobby no-mates.
Let's not pretend otherwise, we are not popular in Europe now, although I suspect a few million European citizens might secretly be on our side. The sight of Sarkozy blanking Cameron in Brussels on Friday evening was a scene of pure childish petulance. I for one prefer my political leaders to have maturity and stature. Sarkozy lacks all three (stature twice).
For a while on Friday we were not alone. A few other EU but non Euro members' initial reaction was 'Your having a Turkish'*, but they soon succumbed to the herd mentality and toed the line. Countries like Ireland, Greece and Portugal had no choice of course. Firstly they are already in the Euro, and secondly they desperately need the continuing support of the Eurozone. But alone in Europe we now definitely are. There are 27 members of the EU, and 26 of them have signed up for the new financial treaty.
Should we care?
Unfortunately yes. There was no way we could actually gain from this mess that the Euro has got itself into. There is no way we can agree to be a part of this group, but being isolated will very probably harm us. We will not be able to influence any course of action that they decide to take regarding the financial stability of the Euro, but the UK is an absolutely vital part of Europe, and as full members of the European Union we maintain a very large say in what goes on. So large in fact that nothing can be done to force us into any measures we don't want to take, even by the 26 Eurozone (and wannabees) countries. Having said that though, the lemmings will have the power to act in ways contrary to our best interests.
What now?
They will continue to muddle through, at best. Precious little came out of last week in terms of saving the Euro. Germany and France may look like willing bedmates, but there is a lot of bickering going on under the sheets. The much vaunted new treaty doesn't actually introduce any new rules or constraints, it just repeats existing rules that everyone, including France, has been breaking consistently over the last ten years. Do we really expect anything to change? One commentator got it right when comparing it to having a speed limit on a motorway that no-one ever enforces. Now apparently there will be traffic police. We'll see. Maybe the Greeks will start paying their motorway toll fees. And maybe not.
1.1800 for me next week.
* Turkish bath (= laugh)
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