For the second week in a row sterling has ended almost completely unchanged against the Euro at 1.1670. This could be the calm before the storm, and there certainly were some squalls during the week:
Sterling
Activity on the sterling front was dominated by what has been happening in the Eurozone again this week, but there were a couple of noteworthy events. The pound was hampered by the release of the minutes of the last BoE meeting which showed a 9-0 vote to leave interest rates on hold in the UK, and there is a feeling amongst commentators that a couple of committee members are looking for the possibility of more QE in the not too far distant future. This is generally seen as a negative on the country’s currency. There is large expectation across the board for economic conditions to worsen in the UK as consumers continue to be squeezed by rising prices and higher costs whilst trouble in the Euro zone is likely to weaken export demand next year.
Another of Merv's henchmen, MPC member Martin Weale warned in a speech this week that the UK’s economic recovery would take as long as 5 years, adding to the pressure on sterling. Investors were also completely confused by the UK government’s plans to ease youth unemployment, at the same time avoiding any explanation of where the funding will come from.
Fun and Games in Euroland
The dear old Euro had a torrid time during the week. An unexpected source of more pressure for single currency came in the form of a huge shock in the German Bond auction and weaker than expected Eurozone industrial orders. The German government was unable to sell about 35% of the €6bn 10 year bonds it offered to the market, managing to sell just €3.9bn of debt. It could of course have offered more return to in investors, but chose not to. This provided the clearest sign yet that even the strongest Eurozone country is at growing risk of crisis contagion. Italy didn't do any better at their bond auction, having no choice but to pay the 6.5% demanded by investors, and Portugal's rating was downgraded to 'junk'. These setbacks came as Fitch Ratings issued a warnings that France’s AAA credit rating would be at risk if things don't start to improve soon.
The Eurozone industrial production numbers came in much worse than expected, down a massive 6.4% against expectations of down 2.4%. The euro fell against the dollar, and also gave away earlier gains against the pound to end up in exactly the same position as last week.
What next?
Well next week we have the long awaited autumn statement from George Osborne. Anyone of sane mind will have very low expectations that this will provide any boost for sterling, but I'm willing to stand up and be that lunatic. I once worked for a tyrant of a manager in foreign exchange, who never tired of expounding his theory of contrarianism. 'You'll never make any money betting the same way as everybody else' he used to say. To be fair, he seemed to have the knack of knowing when to do nothing and when to back his own words with great success. I'm not sure I have the same knack, but let's go for it. I'm still bullish for sterling, and I think the market might just find that the message G.O. delivers next week is not quite as bad as expected.
We'll see.... I think we may dip below 1.1600 during the week, and then start to build from there.
Saturday, November 26, 2011
Saturday, November 19, 2011
F/X Weekly comment
Comparative boredom this week, but after all the fun and games recently the markets are probably due a rest. We end the week at 1.1680, a mere 10 points higher than last week's 1.1670. There was the promise of fireworks this week, but a series of damp squibs failed to ignite traders deal buttons.
Sterling
Merv was in his element this week with the QIR, the Quarterly Inflation Report, where he gets a chance to don his gloomy face and talk down sterling at every opportunity. In short, he described a deterioration in economic conditions since the last report and highlighted the Eurozone’s debt crisis as ‘the single biggest risk’ to the continuance of British economic expansion. Cheer up Merv, it can't be that bad, can it?
UK data this week indicated that the number of unemployed rose by 129,000 in the three months to the end of September, taking the UK jobless total to 2.62million. The figures also showed that over 1million 16 to 24 year olds are jobless; this is the first time since records began that youth unemployment in the UK has risen above the disturbing 1m level. Unemployed teenagers are a lot more of a problem than unemployed 50 year olds.
Oddly, UK retail sales in October rose by 0.6% instead of falling as expected with consumers facing cost pressures on all sides. It is possible that this is a result of pre Christmas price discounting in the shops, but that could make Januaries figures look sick if there is no money left in the purse for the sales.
Europe - Mario #1
Draghi, that is. He seems to be a decent 'no nonsense' type of character who gets stuck in when necessary. He made it quite plain this week that he is unhappy that the European leaders who agreed to boost the Euro bailout fund from €440bn to €1 trillion or so have so far failed to come up with any explanation of how they are going to achieve this juggling act. Probably not helped by an inscrutable Chinese gentleman telling them to sort their lives out before he puts his hand in his pocket.
Europe - Mario #2
Monti of course. The new Italian PM has now won confidence votes in both houses of parliament for his new government including bankers, CEOs and university professors. Good luck to him, I say. Perhaps he should hire Berlusconi as a distraction.
Europe - Spain
What they need is a Mario. Mario Draghi did get involved this week, with intervention by the ECB to buy Italian and Spanish government bonds on Friday helped keep bond yields from rising too far. By early afternoon Spanish 10-year bonds were yielding 6.35% while Italian 10-year bond yields were at 6.67%. On Thursday, Spain's borrowing cost at an auction of 10-year bonds was almost 7%, which is a level seen as unsustainable.
Spain is currently preparing for a general election on Sunday. Any prices on the ruling Socialist party still being in office next week?
What next?
I'm still bullish for sterling. I think that the Euro has more pain to endure yet, even if it doesn't prove fatal. I'll leave the next bit in from last week:
I certainly don't think it will be all one way traffic, but the milestone of 1.20 isn't all that far away, and my holy grail of 1.25 doesn't seem all that far behind it. Not next week though. I think we have to accept quite a few reversals along the way. I think we may dip below 1.1600 during the week, and then start to build from there.
Sterling
Merv was in his element this week with the QIR, the Quarterly Inflation Report, where he gets a chance to don his gloomy face and talk down sterling at every opportunity. In short, he described a deterioration in economic conditions since the last report and highlighted the Eurozone’s debt crisis as ‘the single biggest risk’ to the continuance of British economic expansion. Cheer up Merv, it can't be that bad, can it?
UK data this week indicated that the number of unemployed rose by 129,000 in the three months to the end of September, taking the UK jobless total to 2.62million. The figures also showed that over 1million 16 to 24 year olds are jobless; this is the first time since records began that youth unemployment in the UK has risen above the disturbing 1m level. Unemployed teenagers are a lot more of a problem than unemployed 50 year olds.
Oddly, UK retail sales in October rose by 0.6% instead of falling as expected with consumers facing cost pressures on all sides. It is possible that this is a result of pre Christmas price discounting in the shops, but that could make Januaries figures look sick if there is no money left in the purse for the sales.
Europe - Mario #1
Draghi, that is. He seems to be a decent 'no nonsense' type of character who gets stuck in when necessary. He made it quite plain this week that he is unhappy that the European leaders who agreed to boost the Euro bailout fund from €440bn to €1 trillion or so have so far failed to come up with any explanation of how they are going to achieve this juggling act. Probably not helped by an inscrutable Chinese gentleman telling them to sort their lives out before he puts his hand in his pocket.
Europe - Mario #2
Monti of course. The new Italian PM has now won confidence votes in both houses of parliament for his new government including bankers, CEOs and university professors. Good luck to him, I say. Perhaps he should hire Berlusconi as a distraction.
Europe - Spain
What they need is a Mario. Mario Draghi did get involved this week, with intervention by the ECB to buy Italian and Spanish government bonds on Friday helped keep bond yields from rising too far. By early afternoon Spanish 10-year bonds were yielding 6.35% while Italian 10-year bond yields were at 6.67%. On Thursday, Spain's borrowing cost at an auction of 10-year bonds was almost 7%, which is a level seen as unsustainable.
Spain is currently preparing for a general election on Sunday. Any prices on the ruling Socialist party still being in office next week?
What next?
I'm still bullish for sterling. I think that the Euro has more pain to endure yet, even if it doesn't prove fatal. I'll leave the next bit in from last week:
I certainly don't think it will be all one way traffic, but the milestone of 1.20 isn't all that far away, and my holy grail of 1.25 doesn't seem all that far behind it. Not next week though. I think we have to accept quite a few reversals along the way. I think we may dip below 1.1600 during the week, and then start to build from there.
Friday, November 11, 2011
F/X weekly comment
So, we did see 1.17 after all this week. We didn't quite manage to hang on to it, but it was good to see while it was there. The quiet holiday markets finally closed at 1.1670. It's been another fun week at the office, with plenty to look back on. Before I do, I was distracted earlier by some proof of an old adage that I trot out occasionally. That is that if you owe your bank a relatively large sum of money, you have a problem. If however you owe your bank a stonkingly large sum of money, your bank has a problem.
Sean Quinn, a 64-year-old Irish ex property magnate, was declared bankrupt this week in Belfast over an alleged €2.8 billion debt owed to Anglo Irish Bank. It is believed to be one of the biggest bankruptcy orders of its kind ever made in either Ireland or Britain. It seems he has decided that Belfast is a better place to go bust than Dublin, as he can start up again in 12 months time, as opposed to 12 years in the republic...
Sterling
Does actually get a mention this week. As had been expected, the Bank of England voted to keep interest rates on hold and keep the QE/asset purchase programme/money printing on hold for now. Markets will now focus on next week's inflation report which could reveal the extent of weak economic fundamentals in the UK, and this could mean more QE in December. We had another set of mediocre economic data with a 2% monthly increase in manufacturing production offset by zero growth for the broader industrial production. HBOS reported higher house prices in October while the RICS said they were falling. NIESR’s (The National Institute of Economic and Social Research) estimated the growth of gross domestic product in the year to October at 0.5%.
.
The Italian Stallion - Silvio, Silvio, wherefore art thou?
I'm not saying you heard it here first, but you did hear it here last week. The knives did indeed come out, and Bunga Bunga looks set to head off into the sunset, leaving centre stage to the :
Super Mario Brothers
Yes, we now have two Marios from whom to extract the Michael. Former European Union Competition Commissioner Mario Monti is ready to take power, assuming that Berlusconi plays ball on Monday. Monti will join Draghi in trying to work out a solution to this mess.
Greece also resolved its leadership issues and former European Central Bank Vice President Lucas Papademos is ready to take office as prime minister.
Anyone else think that drafting in two ex Europe bigwigs smacks a little of desperation?
What next?
What next indeed. I was discussing this with a client this afternoon. I feel the need to confess my sins as an ex international banker to new clients, as they'll probably find out eventually anyway.
I'm actually feeling some glimmer of optimism for sterling at present. I certainly don't think it will be all one way traffic, but the milestone of 1.20 isn't all that far away, and my holy grail of 1.25 doesn't seem all that far behind it. Not next week though. I think we have to accept quite a few reversals along the way. I think we may dip below 1.1600 during the week, and then start to build from there.
Sean Quinn, a 64-year-old Irish ex property magnate, was declared bankrupt this week in Belfast over an alleged €2.8 billion debt owed to Anglo Irish Bank. It is believed to be one of the biggest bankruptcy orders of its kind ever made in either Ireland or Britain. It seems he has decided that Belfast is a better place to go bust than Dublin, as he can start up again in 12 months time, as opposed to 12 years in the republic...
Sterling
Does actually get a mention this week. As had been expected, the Bank of England voted to keep interest rates on hold and keep the QE/asset purchase programme/money printing on hold for now. Markets will now focus on next week's inflation report which could reveal the extent of weak economic fundamentals in the UK, and this could mean more QE in December. We had another set of mediocre economic data with a 2% monthly increase in manufacturing production offset by zero growth for the broader industrial production. HBOS reported higher house prices in October while the RICS said they were falling. NIESR’s (The National Institute of Economic and Social Research) estimated the growth of gross domestic product in the year to October at 0.5%.
.
The Italian Stallion - Silvio, Silvio, wherefore art thou?
I'm not saying you heard it here first, but you did hear it here last week. The knives did indeed come out, and Bunga Bunga looks set to head off into the sunset, leaving centre stage to the :
Super Mario Brothers
Yes, we now have two Marios from whom to extract the Michael. Former European Union Competition Commissioner Mario Monti is ready to take power, assuming that Berlusconi plays ball on Monday. Monti will join Draghi in trying to work out a solution to this mess.
Greece also resolved its leadership issues and former European Central Bank Vice President Lucas Papademos is ready to take office as prime minister.
Anyone else think that drafting in two ex Europe bigwigs smacks a little of desperation?
What next?
What next indeed. I was discussing this with a client this afternoon. I feel the need to confess my sins as an ex international banker to new clients, as they'll probably find out eventually anyway.
I'm actually feeling some glimmer of optimism for sterling at present. I certainly don't think it will be all one way traffic, but the milestone of 1.20 isn't all that far away, and my holy grail of 1.25 doesn't seem all that far behind it. Not next week though. I think we have to accept quite a few reversals along the way. I think we may dip below 1.1600 during the week, and then start to build from there.
Saturday, November 5, 2011
F/X weekly comment
Some weekends I sit down to write this article and think 'what on earth am I going to write about?'. And then there are weekends like this one where I wonder where to start...
Sterling
Just like last week, forget about sterling. It wasn't in the game this week. It was an innocent bystander.
Greek Farce? Or Greek Tragedy?
Strong elements of both actually. If I were a scriptwriter and came up with this as a plot, I would be worried about being taken seriously. Let's keep to Greece to start with. I'll assume you all know the events that took place over the past 8 days, so I won't bore you with repetition, but I think the events of the week leave us with a clear picture of how Europe works at the moment. The Merkozy partnership sits at the top of the pile, and the only other people who matter are the ones who cause most trouble at any one time. The clear winner this week has been George Papandreou.
Having been summoned to the headmasters study last week to hear his fate (being let off with €150bn of debt), he then had the nerve to announce that he would ask his countrymen if they thought that was good enough, sending Merkozy into an apoplectic rage. I thought they handled it very well though. You couldn't see the bruises when he appeared on telly the next day to announce that he'd changed his mind. His own ministers then felt so sorry for him (or themselves) that he survived the vote of no confidence on Friday night. Maybe it's just that no-one fancies the job. I don't think he'll be around for long though.
The Italian Stallion
Looking increasingly like a knackered old nag, Silvio Berlusconi looks set to take the baton from Papandreou this week. The eternal survivor may just have passed his sell-by date, and he can't buy his way out of this one. Italy has queue jumped Spain to the top of the crisis leader board. Far from benefitting from calmer conditions after the rescued Greek bailout Italian government debt is now trading at 6.4%, well above what is now regarded as a sustainable level. The IMF are going in to take a look at the books (which version I'm not sure). His approval level at home is now down to 22%, which is poor when you think that he owns half of Italy. The sight of Merkozy smirking publicly when asked about Berlusconi has hurt Italian pride. The knives are out.
Super Mario
New ECB supremo Mario Draghi made a dramatic entrance this week, cutting the Euro base rate at his first ever conference. That never happens. The ECB likes to signal well in advance its intentions regarding interest rates. It doesn't like surprises. The problem though is that his predecessor had set the bank on a course to raise rates in line with the impending economic recovery. He was of course 'a bit previous'. The recovery hasn't arrived. Back to square one, and maybe beyond.
What next?
What this is all about of course is what will happen to the £/€ exchange rate? Maybe my experience this week will give you a clue. Following my own advice last week, and assuming that we would be in for more of the same old rubbish from sterling whenever it is given a chance to shine, I bought some Euros online on Tuesday at a rate of 1.1370. Congratulating myself on my decisiveness, I then watched the Euro dive (rate go up), and on Thursday bought some more at 1.1550. So mixed feelings overall. I did at least prove half of my theorem on exchange rate dealing. That is, deal and the rate will go up; don't deal and the rate will go down.
The week ended at 1.1620, so with the size deal I was doing (rather small I'm afraid), the rate I would get now would probably be about 1.1510. Unfortunately I don't have unlimited resources, so I won't be able to continue the experiment. That might mean that we see 1.1700 this week, but don't bet on it.
Sterling
Just like last week, forget about sterling. It wasn't in the game this week. It was an innocent bystander.
Greek Farce? Or Greek Tragedy?
Strong elements of both actually. If I were a scriptwriter and came up with this as a plot, I would be worried about being taken seriously. Let's keep to Greece to start with. I'll assume you all know the events that took place over the past 8 days, so I won't bore you with repetition, but I think the events of the week leave us with a clear picture of how Europe works at the moment. The Merkozy partnership sits at the top of the pile, and the only other people who matter are the ones who cause most trouble at any one time. The clear winner this week has been George Papandreou.
Having been summoned to the headmasters study last week to hear his fate (being let off with €150bn of debt), he then had the nerve to announce that he would ask his countrymen if they thought that was good enough, sending Merkozy into an apoplectic rage. I thought they handled it very well though. You couldn't see the bruises when he appeared on telly the next day to announce that he'd changed his mind. His own ministers then felt so sorry for him (or themselves) that he survived the vote of no confidence on Friday night. Maybe it's just that no-one fancies the job. I don't think he'll be around for long though.
The Italian Stallion
Looking increasingly like a knackered old nag, Silvio Berlusconi looks set to take the baton from Papandreou this week. The eternal survivor may just have passed his sell-by date, and he can't buy his way out of this one. Italy has queue jumped Spain to the top of the crisis leader board. Far from benefitting from calmer conditions after the rescued Greek bailout Italian government debt is now trading at 6.4%, well above what is now regarded as a sustainable level. The IMF are going in to take a look at the books (which version I'm not sure). His approval level at home is now down to 22%, which is poor when you think that he owns half of Italy. The sight of Merkozy smirking publicly when asked about Berlusconi has hurt Italian pride. The knives are out.
Super Mario
New ECB supremo Mario Draghi made a dramatic entrance this week, cutting the Euro base rate at his first ever conference. That never happens. The ECB likes to signal well in advance its intentions regarding interest rates. It doesn't like surprises. The problem though is that his predecessor had set the bank on a course to raise rates in line with the impending economic recovery. He was of course 'a bit previous'. The recovery hasn't arrived. Back to square one, and maybe beyond.
What next?
What this is all about of course is what will happen to the £/€ exchange rate? Maybe my experience this week will give you a clue. Following my own advice last week, and assuming that we would be in for more of the same old rubbish from sterling whenever it is given a chance to shine, I bought some Euros online on Tuesday at a rate of 1.1370. Congratulating myself on my decisiveness, I then watched the Euro dive (rate go up), and on Thursday bought some more at 1.1550. So mixed feelings overall. I did at least prove half of my theorem on exchange rate dealing. That is, deal and the rate will go up; don't deal and the rate will go down.
The week ended at 1.1620, so with the size deal I was doing (rather small I'm afraid), the rate I would get now would probably be about 1.1510. Unfortunately I don't have unlimited resources, so I won't be able to continue the experiment. That might mean that we see 1.1700 this week, but don't bet on it.
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