Somehow it doesn't feel right not having to apologise for another wildly inaccurate forecast from the previous week. Maybe it's because I'm scared of missing the glory of (occasionally) getting it right. It might even have happened last week, as we have ended up virtually unchanged at just below the 1.1300 level. The equivalent of a 0-0 scoreline then, but there was plenty of action this week.
Greek Debt (again)
You might be forgiven for assuming that having in your midst a country where economic calamity has reduced its citizens to rioting in the streets against austerity measures might rock the boat somewhat in your desire for a stable joint currency. But no, the good ship Euro sails blithely on into the teeth of the approaching storm, and nothing is apparently happening to divert it. After a while, one begins to doubt whether the storm is actually there. What if all those dark clouds actually deliver is a few showers? I remain firmly in the tornado camp.
Pathetic Sterling
Harsh? No, I don't think so. The Euro really ought to be in deep trouble at the moment. If those Greek rioters get their way, it still might be, but what are Merv and his merry band of men doing? Sitting around discussing another dose of home grown inflation in the form of more QE, that's what. QE is a bit like giving a fat man the key to a chocolate factory and suggesting that it might make him a bit more likely to diet later.
More storms
The more of the current mess I see, the more I am becoming convinced that the Euro will not be around in its current form in 5 years time. Greece, Spain, Portugal and Ireland, maybe even Italy, are simply not in the same league as their more northern neighbours. I see a great need for a first and second division Euro, with the weaker members free to weaken their currencies and have some control over interest rates. If they the succeeded in pulling their economies round, they could be promoted back into the top tier.
Perhaps not the ideal subject for a weekly column, but I think I might revert back to the theme occasionally.
Where now?
This is where I see the sense in not making predictions, but here goes... I think Greece is still up there as a potential flashpoint for the next few weeks. They may have been voted a second bailout package, but the first have to accept the austerity measure, and somehow I don't think Stavros is all that keen. 1.14 and above for me by next week.
Friday, June 24, 2011
Friday, June 17, 2011
F/X Weekly Comment
Ah well, wrong again, but we're getting used to that, aren't we? Actually I wasn't too far away. As per Les Dawson, all the right notes were there, but not necessarily in the right order. Sterling pushed higher this week, nudging 1.1400, despite a rather nasty surprise earlier in the week. It then fell at the final fence and ended at 1.1300. Here's how it went.
UK Retail Sales
Down 1.6% in May. That's at least twice as bad as anyone expected. As a result, rather unsurprisingly, hopes of UK interest rate rises this year are disappearing down the tubes, whereas the Euro rate will apparently rise regardless of its other problems. Higher interest rates equals better return on deposits, so more people buy the currency. The more people buy something, the more expensive it gets, that's the law of supply and demand. If it's the Euro the currency markets are buying, not sterling, the Euro gets stronger and the pound weaker. You guessed it, the rate goes down. So why has it gone up?....
Greek Debt
To the rescue. Greece’s parliament must pass stringent spending cuts and undertake a widespread privatisation programme in order to receive its next tranche of bail-out funds from the IMF. and analysts feel that there is a higher chance of this happening if Greece has a clear leader in place. Rioters took to the streets in Athens on Thursday to protest against the proposed cuts and the yield on two year Greek bonds rose to an astronomical 28.6%. The Greek situation remains tense, to say the least. This is the king of the PIGS. Having been baled out once, they are still shipping water.
The Euro fell to its lowest since 2009 against a basket of currencies after support declined for the Greek Prime Minister. There were further divisions in the ECB and German official’s camps over the involvement of the private sector in resolving the crisis. The ECB and France want to avoid a declaration of default, while Germany wants private-sector involvement as the cost of continually asking their taxpayers to bail out Europe’s basket cases is causing political fallout.
The lack of a deal pushed bond yields of Greece to 17.9%, their highest level since the introduction of the euro in 1999, and Moody's placed France's top three banks on review for a possible downgrade, citing the banks' exposure to Greek debt.
Storm Clouds Gathering
It goes without saying that political developments from Greece will be the main driver of things this weekend. There are reports that the Finance Minister Papaconstantinou has been replaced but at present that is unconfirmed. There are also meetings between Angela Merkel and Nicolas Sarkozy in Berlin and of EU finance ministers on Sunday and Monday; there is a lot of risk out there and I don't think speculators will want to be holding euros at the moment.
Short term respite for sterling is possible then, but in the medium term I see more problems for sterling. These economic data indicators are not getting any better, and if the euro does shrug off Greece and start to raise rates aggressively, we could be in trouble.
I'm going to start keeping clear of weekly forecasts. I've said many times that it's a mugs game, and if you play that game for too long you start to look like one!
UK Retail Sales
Down 1.6% in May. That's at least twice as bad as anyone expected. As a result, rather unsurprisingly, hopes of UK interest rate rises this year are disappearing down the tubes, whereas the Euro rate will apparently rise regardless of its other problems. Higher interest rates equals better return on deposits, so more people buy the currency. The more people buy something, the more expensive it gets, that's the law of supply and demand. If it's the Euro the currency markets are buying, not sterling, the Euro gets stronger and the pound weaker. You guessed it, the rate goes down. So why has it gone up?....
Greek Debt
To the rescue. Greece’s parliament must pass stringent spending cuts and undertake a widespread privatisation programme in order to receive its next tranche of bail-out funds from the IMF. and analysts feel that there is a higher chance of this happening if Greece has a clear leader in place. Rioters took to the streets in Athens on Thursday to protest against the proposed cuts and the yield on two year Greek bonds rose to an astronomical 28.6%. The Greek situation remains tense, to say the least. This is the king of the PIGS. Having been baled out once, they are still shipping water.
The Euro fell to its lowest since 2009 against a basket of currencies after support declined for the Greek Prime Minister. There were further divisions in the ECB and German official’s camps over the involvement of the private sector in resolving the crisis. The ECB and France want to avoid a declaration of default, while Germany wants private-sector involvement as the cost of continually asking their taxpayers to bail out Europe’s basket cases is causing political fallout.
The lack of a deal pushed bond yields of Greece to 17.9%, their highest level since the introduction of the euro in 1999, and Moody's placed France's top three banks on review for a possible downgrade, citing the banks' exposure to Greek debt.
Storm Clouds Gathering
It goes without saying that political developments from Greece will be the main driver of things this weekend. There are reports that the Finance Minister Papaconstantinou has been replaced but at present that is unconfirmed. There are also meetings between Angela Merkel and Nicolas Sarkozy in Berlin and of EU finance ministers on Sunday and Monday; there is a lot of risk out there and I don't think speculators will want to be holding euros at the moment.
Short term respite for sterling is possible then, but in the medium term I see more problems for sterling. These economic data indicators are not getting any better, and if the euro does shrug off Greece and start to raise rates aggressively, we could be in trouble.
I'm going to start keeping clear of weekly forecasts. I've said many times that it's a mugs game, and if you play that game for too long you start to look like one!
Friday, June 10, 2011
F/X weekly comment
I've just noticed that I managed to get through all of my article last week without once mentioning the £/€ rate. This is obviously the way forward, for me anyway! I did in fact get the direction right this week, stabbing a guess at a rise from last week's levels, which were in fact in the low 1.12s. This afternoon (Friday the 10th) we have actually crept over 1.1300. Not a huge improvement, but every bit helps. How did we make this welcome step?
PPI
Last week we talked about PMI, this week we have PPI, which is the Producer Price Index, which measures inflation of input and output pricing. Following yesterday's rate decision (no change, in case you hadn't heard) , the UK released new inflation data which showed a decline to ease inflationary pressure concerns, yet inflation rates are expected to remain high for a while.
Today's data showed that UK annual PPI output for May reached 5.3%, the fastest since 2008, from the revised 5.5% and PPI input for the year ending May retreated to 15.7% from the revised 17.9%. Merv in his last open letter to George Osborne revealed that inflation will probably move between 4% and 5% over the coming few months to remain above target in 2011 before it comes back in 2012, clarifying that the rise in energy prices and the VAT along with the sterling's previous depreciation were the main reasons behind the rapid price acceleration.
Whilst none of this is particularly good, it wasn't as bad as many onlookers had feared, and we had a case of bad news bringing respite for the pound.
Interest Rates
Euro this time. As with sterling, the ECB kept euro rates on hold, but did indicate that they will probably rise in July. This was also expected, and as investors booked profits on the Euro (by selling their positions) it caused the £/€ rate to rise slightly.
Claude Trichet also signalled that further rate rises would come in the EU, but perhaps not as fast as some analysts were expecting. This reduction in future rate hike expectations also helped slightly to push the pound higher.
Where now?
Without something big to push the markets either way, sterling will continue to bounce around at these levels. There does seem to be something brewing about a second Greek bailout, but I don't expect anything for a few weeks yet. 1.1250 for me next week.
PPI
Last week we talked about PMI, this week we have PPI, which is the Producer Price Index, which measures inflation of input and output pricing. Following yesterday's rate decision (no change, in case you hadn't heard) , the UK released new inflation data which showed a decline to ease inflationary pressure concerns, yet inflation rates are expected to remain high for a while.
Today's data showed that UK annual PPI output for May reached 5.3%, the fastest since 2008, from the revised 5.5% and PPI input for the year ending May retreated to 15.7% from the revised 17.9%. Merv in his last open letter to George Osborne revealed that inflation will probably move between 4% and 5% over the coming few months to remain above target in 2011 before it comes back in 2012, clarifying that the rise in energy prices and the VAT along with the sterling's previous depreciation were the main reasons behind the rapid price acceleration.
Whilst none of this is particularly good, it wasn't as bad as many onlookers had feared, and we had a case of bad news bringing respite for the pound.
Interest Rates
Euro this time. As with sterling, the ECB kept euro rates on hold, but did indicate that they will probably rise in July. This was also expected, and as investors booked profits on the Euro (by selling their positions) it caused the £/€ rate to rise slightly.
Claude Trichet also signalled that further rate rises would come in the EU, but perhaps not as fast as some analysts were expecting. This reduction in future rate hike expectations also helped slightly to push the pound higher.
Where now?
Without something big to push the markets either way, sterling will continue to bounce around at these levels. There does seem to be something brewing about a second Greek bailout, but I don't expect anything for a few weeks yet. 1.1250 for me next week.
Friday, June 3, 2011
F/X weekly comment
As predicted last week, sterling went down. Yes, I know I said I thought sterling should go up, but I definitely said this means it will probably go down, and down it went. Not down the plughole yet, but definitely swirling in that direction. 400 points in a single week is a very poor performance indeed. So how did it happen?
UK PMI
2 doses of very nasty medicine. PMI stands for Purchasing Managers Index, and we have them for different sectors of the economy. This week we had figures for manufacturing and for services sectors. Purchasing managers are tasked with gauging future demand, and adjusting orders for materials accordingly. The PMI summarizes the opinions of these executives to give a picture of the future of the sector. A higher PMI indicates that materials purchases are increasing and that the economic outlook is positive. Alternately, a lower PMI means orders for materials are down and the future outlook is less favourable. By nature, the figure is very sensitive to the business cycle and tends to match growth or decline in the economy as a whole.
The services sector PMI fell to 53.8 in May, down from 54.3 in April. The service sector is by far the biggest economic sector in the UK and the fall was blamed partly on the overlap of bank holidays and partly because of subdued consumer demand.
Earlier in the week the PMI index for the manufacturing sector fell to its lowest level for 20 months. Separate data released by the Office for National Statistics (ONS) showed that construction orders fell by 23 per cent from the previous quarter and down by 18 per cent compared with the same period the previous year.
Euro
Despite all the factors listed in last week's article, and especially as eurozone debt concerns continue, the ECB’s willingness to raise interest rates is seen as positive for further increases, with the region’s largest economy Germany backing the resolution of the debt crisis and many investors taking that as a cue to support the single currency further. Eurozone inflation continues to rise, an indication to many that the Euro may benefit from further rate increases as opposed to the flat sentiment over rates coming from the Merv and his merry men.
So where from here? I have no shame at all in suggesting that you may as well toss a coin this week. I for one do not have a clue where it's going to end up this time next week. If I had to make a guess, it would be slightly higher than here, just on the yoyo effect of the markets.
UK PMI
2 doses of very nasty medicine. PMI stands for Purchasing Managers Index, and we have them for different sectors of the economy. This week we had figures for manufacturing and for services sectors. Purchasing managers are tasked with gauging future demand, and adjusting orders for materials accordingly. The PMI summarizes the opinions of these executives to give a picture of the future of the sector. A higher PMI indicates that materials purchases are increasing and that the economic outlook is positive. Alternately, a lower PMI means orders for materials are down and the future outlook is less favourable. By nature, the figure is very sensitive to the business cycle and tends to match growth or decline in the economy as a whole.
The services sector PMI fell to 53.8 in May, down from 54.3 in April. The service sector is by far the biggest economic sector in the UK and the fall was blamed partly on the overlap of bank holidays and partly because of subdued consumer demand.
Earlier in the week the PMI index for the manufacturing sector fell to its lowest level for 20 months. Separate data released by the Office for National Statistics (ONS) showed that construction orders fell by 23 per cent from the previous quarter and down by 18 per cent compared with the same period the previous year.
Euro
Despite all the factors listed in last week's article, and especially as eurozone debt concerns continue, the ECB’s willingness to raise interest rates is seen as positive for further increases, with the region’s largest economy Germany backing the resolution of the debt crisis and many investors taking that as a cue to support the single currency further. Eurozone inflation continues to rise, an indication to many that the Euro may benefit from further rate increases as opposed to the flat sentiment over rates coming from the Merv and his merry men.
So where from here? I have no shame at all in suggesting that you may as well toss a coin this week. I for one do not have a clue where it's going to end up this time next week. If I had to make a guess, it would be slightly higher than here, just on the yoyo effect of the markets.
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