Almost a cheery end to the week for sterling on Friday, as we ended up at 1.1420 against 1.1289 the week before. It wasn't all one way traffic though, and economic news during the week had a familiar ring to it.
Rangebound
Sterling/Euro seems to be stuck in 1.11 to 1.15 range, yet I get the feeling that it could strike out of that range in spectacular fashion, up or down, without much warning. And of course it's nothing to do with strength, and all to do with weakness.
There is a global growth problem at the moment. It's not just confined to Europe and the UK. That in itself makes it more difficult for either of those economic entities to improve. If the world isn't buying, what is the point in masking more of anything?
UK weakness
This week saw another stream of disappointing economic data which undermined sterling as worries over the UK recovery continue. House prices fell again, as did service sector and manufacturing activity. Growth in the UK construction sector showed a further slowdown last month according to the PMI construction survey released this week. The figure was the lowest so far this year. All this negativity supports the view that UK interest rates are expected to remain at a record low of 0.5% for some time yet, maybe into 2013.
Euro weakness
In the Eurozone, the Euro had a rocky week against the US dollar after the Federal Reserve indicated another possible round of quantitative easing on Friday. The Euro weakened against sterling after manufacturing activity in the Eurozone shrank more than expected. Germany had the strongest manufacturing figures with 50.9, whilst Greece had the weakest at 43.3. Germany also saw its new export orders decline which has increased concerns over the euro zone economy. (anything over 50 means growth, below 50 is projected shrinkage)
The manufacturing picture diverted attention from the debt crisis in Europe for a while, but it is never very far away. The Spanish government managed to sell €3.6bn of 5 year debt versus a target of €4bn or €6bn, whichever source you read, but either way, that isn't good news. The auction, when taken in addition to some horrible manufacturing PMI numbers from gave sterling the shot in the arm to finish the week strongly.
This week?
Guesswork, pure and simple, and my guess is that the Euro will stumble along in its own inimitable way without falling over, and the UK will trot out yet more dismal economic data and get trounced. back to 1.1250 for me by next week. I'd love to be proved wrong!
Saturday, September 3, 2011
Friday, August 26, 2011
F/X Weekly Comment
As last week's parting shot I highlighted the UK 2nd quarter GDP figures out this week, and how they might disappoint. Well, disappoint they did, and we didn't manage to hold on to the 1.1300 level, ending the week at 1.1289. Unrevised at just 0.2% just isn't good enough, and if UK figures continue to disappoint in this way, we're in trouble.
Complete and utter...
Tosh. I like to keep tabs on what commentators are saying about the markets during the week. It makes an interesting diversion from scouring local fields looking for my lost cat, who of course turns up just after I've set out in the rain... Anyway, sometimes I am reminded of why I'm so happy not to be involved in these markets directly anymore. Take this as an example:
'GBP looks to be playing `catch-up` to the downside this week, after a week of outperformance last week, that may have an underlying cause in corporate flow.'
Ahem, excuse me? What's wrong with 'Sterling's going down the pan, as it should have done last week, and one reason is that companies are dumping it.' That has a more direct ring to it for me. Not that I agree with it though. Sure, the UK is a basket case at present, but surely Europe is a bigger basket, and the bigger they come, the harder they fall? Apparently not the case these days.
Downgrade the ratings, not the country's
You may recall a week or two ago Standard and Poor's saying that the American government was no longer AAA rated. In theory that should make their borrowing more expensive, and boy have they got some debt to fund. And yet despite this, it is still cheaper for the USA to borrow in the international markets than it is for say the UK or France, who both remain AAA rated. What do we glean from this? How about the fact that S&P are themselves hugely overrated?
Southbound
No matter how much I protest, it looks as though we are about to hit another rocky patch against that king of bluff and bluster, the Euro. We probably have ourselves to blame in the sense that we are simply not doing enough to drag ourselves out of the economic mire. When I say 'we' I mean our economic political masters, who insist they are standing firm in the face of adversity whilst actually edging back towards the precipice. Yes, I still think sterling should be at 1.2500, but it could do with some help from those who are most directly involved in steering the economy.
Watch out for the 1.10 level soon if nothing explodes in the Eurozone.
Complete and utter...
Tosh. I like to keep tabs on what commentators are saying about the markets during the week. It makes an interesting diversion from scouring local fields looking for my lost cat, who of course turns up just after I've set out in the rain... Anyway, sometimes I am reminded of why I'm so happy not to be involved in these markets directly anymore. Take this as an example:
'GBP looks to be playing `catch-up` to the downside this week, after a week of outperformance last week, that may have an underlying cause in corporate flow.'
Ahem, excuse me? What's wrong with 'Sterling's going down the pan, as it should have done last week, and one reason is that companies are dumping it.' That has a more direct ring to it for me. Not that I agree with it though. Sure, the UK is a basket case at present, but surely Europe is a bigger basket, and the bigger they come, the harder they fall? Apparently not the case these days.
Downgrade the ratings, not the country's
You may recall a week or two ago Standard and Poor's saying that the American government was no longer AAA rated. In theory that should make their borrowing more expensive, and boy have they got some debt to fund. And yet despite this, it is still cheaper for the USA to borrow in the international markets than it is for say the UK or France, who both remain AAA rated. What do we glean from this? How about the fact that S&P are themselves hugely overrated?
Southbound
No matter how much I protest, it looks as though we are about to hit another rocky patch against that king of bluff and bluster, the Euro. We probably have ourselves to blame in the sense that we are simply not doing enough to drag ourselves out of the economic mire. When I say 'we' I mean our economic political masters, who insist they are standing firm in the face of adversity whilst actually edging back towards the precipice. Yes, I still think sterling should be at 1.2500, but it could do with some help from those who are most directly involved in steering the economy.
Watch out for the 1.10 level soon if nothing explodes in the Eurozone.
Saturday, August 20, 2011
F/X Weekly comment
Pretty much more of the same this week, with the markets trying to pick the best of a bad bunch. Sterling actually did quite well for a few days, moving into the mid 1.1500 as one point, but we end the week on a familiar note, and back down at the 1.1450 mark, not too bad in terms of this year, but woefully short of where we could and should be.
Euro's weak
EU and German GDP figures released this week were disappointing. The German economy only grew by 0.1%, France by 0.0%, and the EU as a whole only 0.2%. The slow growth figures hampered the Euro, allowing sterling to make gains during the week. Sarkozy and Merkel also had another little get-together this week, but were unable to come up with a unified agreement on debt this weakened the Euro further. Watch out for more developments on Eurozone debt next week.
Sterling's nearly as weak
All was going swimmingly for the first three or four days of this week. Sterling was perceived as the best of the bunch on the currency markets for a change. That might seem remarkable, but the choices were limited. The USD is going through its own crisis at the moment, and other potential safe havens such as the yen and the Swiss franc have become so strong that their governments have been taking drastic measures to weaken their currencies. For all its faults, sterling can be seen as a bastion of financial stability in relation to many other countries in some people's eyes.
Then Friday the UK Public Sector Net Borrowing figure showed that the UK generated £2bn of new debt in July alone. This cannot have come as a huge surprise to the market given what we know about the strength of the recovery, but it weighed down on sterling and we managed to give up most of the week's gains during the rest of the day.
What now?
Next week we have the UK GDP Growth figures for the second quarter, and they aren't likely to be up to much either, so stand by for a dodgy time next week. My forecast last week was 1.1350 and I talked about timing being of the essence. I think maybe 1.1350might be a good place to be this time next week.
Euro's weak
EU and German GDP figures released this week were disappointing. The German economy only grew by 0.1%, France by 0.0%, and the EU as a whole only 0.2%. The slow growth figures hampered the Euro, allowing sterling to make gains during the week. Sarkozy and Merkel also had another little get-together this week, but were unable to come up with a unified agreement on debt this weakened the Euro further. Watch out for more developments on Eurozone debt next week.
Sterling's nearly as weak
All was going swimmingly for the first three or four days of this week. Sterling was perceived as the best of the bunch on the currency markets for a change. That might seem remarkable, but the choices were limited. The USD is going through its own crisis at the moment, and other potential safe havens such as the yen and the Swiss franc have become so strong that their governments have been taking drastic measures to weaken their currencies. For all its faults, sterling can be seen as a bastion of financial stability in relation to many other countries in some people's eyes.
Then Friday the UK Public Sector Net Borrowing figure showed that the UK generated £2bn of new debt in July alone. This cannot have come as a huge surprise to the market given what we know about the strength of the recovery, but it weighed down on sterling and we managed to give up most of the week's gains during the rest of the day.
What now?
Next week we have the UK GDP Growth figures for the second quarter, and they aren't likely to be up to much either, so stand by for a dodgy time next week. My forecast last week was 1.1350 and I talked about timing being of the essence. I think maybe 1.1350might be a good place to be this time next week.
Saturday, August 13, 2011
F/X Weekly Comment
A very familiar theme emerged this week. More of the 'After you Mervyn. No no, after you Claude.' Sterling once again managed to regress when faced with the likelihood of progression against the Euro, and instead of pressing on towards the 1.1600 level as I had hoped, it bounced around all over the place and we finished up at 1.1420.
Euro woes
Let's not think for a minute that the Euro is off the hook here. When European Commission President Jose Barroso warns that financial markets are not convinced that Eurozone governments are prepared to take necessary action to defend the stability of the Eurozone, you should know wthat you have a problem on your hands. Barroso went on to say that the Eurozone crisis is no longer confined to the peripheral states. Too right it's not. Italy's Berlusconi was forced to announce another austerity package yesterday amounting to €62 bn, and even our own M. Sarkozy called back all his ministers from holifay this week and gave them ten days to come up with more cost saving measures. That should be fun. At one stage France looked set to lose its AAA rated status, and may well yet do so. Germany is now the only European country that has truly sovereign debt, that is IOUs that are worth the paper they're printed on. Do we really believe that France can afford to make additional contributions to the potential bailout packages for Spain and Italy?
Yet still the Euro juggernaut rumbles on, although the wheels are looking a little loose.
Sterling woes
OK, so where shall I start? How about a bit of civil unrest? We smirked at the (mini) riots in Greece when the austerity packages were announced. 'There you are you see. Unruly lot. Can't take the heat'. Well there was a lot of heat kicking around our major city centres this week, and the currency markets took note. Mindless moronic thugs out to loot whatever they could get their hand son, or a cry for social justice from an underprivileged underclass? I know what version I believe, but whichever side you take, it doesn't look good to the outside world.
While all this was going on night after night, Mervyn stuck the boot in with the latest Bank of England Quarterly Inflation report, which saw a downward revision of growth for 2012 to 2.% (from 2.5%) and for 2011 to 1.5% (from 1.8%). These downgrades keep on coming, so how low will they get? He also added that the 'headwinds are getting stronger' and 'the mood in markets has taken a sharp turn for the worse'.
Cheer up though, we are doing rather well at the cricket...
What now?
What a good question. I sometimes ask myself why I keep on asking it. In truth I suspect that the answer lies in the timing. Which currency will weaken soonest? A couple of high powered forecasters are suggesting that sterling will be down at 1.0500 well before Christmas. Personally, I don't see it. It might have merit on Sterling's performance alone, but I can't see that it takes into account the fragility of the Euro. Don't hold off from dealing just because of my view though (in fact NEVER do that). The near term outlook is getting very confused. Longer term I'm still very bullish for Sterling, but we have to start seeing some decent signs of economic recovery, and they're not there yet.
Pushed for a price next week, I'd say 1.1350.
Euro woes
Let's not think for a minute that the Euro is off the hook here. When European Commission President Jose Barroso warns that financial markets are not convinced that Eurozone governments are prepared to take necessary action to defend the stability of the Eurozone, you should know wthat you have a problem on your hands. Barroso went on to say that the Eurozone crisis is no longer confined to the peripheral states. Too right it's not. Italy's Berlusconi was forced to announce another austerity package yesterday amounting to €62 bn, and even our own M. Sarkozy called back all his ministers from holifay this week and gave them ten days to come up with more cost saving measures. That should be fun. At one stage France looked set to lose its AAA rated status, and may well yet do so. Germany is now the only European country that has truly sovereign debt, that is IOUs that are worth the paper they're printed on. Do we really believe that France can afford to make additional contributions to the potential bailout packages for Spain and Italy?
Yet still the Euro juggernaut rumbles on, although the wheels are looking a little loose.
Sterling woes
OK, so where shall I start? How about a bit of civil unrest? We smirked at the (mini) riots in Greece when the austerity packages were announced. 'There you are you see. Unruly lot. Can't take the heat'. Well there was a lot of heat kicking around our major city centres this week, and the currency markets took note. Mindless moronic thugs out to loot whatever they could get their hand son, or a cry for social justice from an underprivileged underclass? I know what version I believe, but whichever side you take, it doesn't look good to the outside world.
While all this was going on night after night, Mervyn stuck the boot in with the latest Bank of England Quarterly Inflation report, which saw a downward revision of growth for 2012 to 2.% (from 2.5%) and for 2011 to 1.5% (from 1.8%). These downgrades keep on coming, so how low will they get? He also added that the 'headwinds are getting stronger' and 'the mood in markets has taken a sharp turn for the worse'.
Cheer up though, we are doing rather well at the cricket...
What now?
What a good question. I sometimes ask myself why I keep on asking it. In truth I suspect that the answer lies in the timing. Which currency will weaken soonest? A couple of high powered forecasters are suggesting that sterling will be down at 1.0500 well before Christmas. Personally, I don't see it. It might have merit on Sterling's performance alone, but I can't see that it takes into account the fragility of the Euro. Don't hold off from dealing just because of my view though (in fact NEVER do that). The near term outlook is getting very confused. Longer term I'm still very bullish for Sterling, but we have to start seeing some decent signs of economic recovery, and they're not there yet.
Pushed for a price next week, I'd say 1.1350.
Friday, August 5, 2011
F/X Weekly comment
Well, 1.1500 or higher I called for last week, and as I write this late on Friday afternoon here we are at 1.1540. And what a week it's been. Worries about Eurozone debt were boosted by worries about the US debt mountain that I spoke of last week. Together they make a formidable problem, and the world's stock markets have taken this all to heart and gone on a slide.
PIIGS
It's looking more and more likely that there may be two 'I's in PIGS, with Italy coming under the spotlight this week. So much so that Mr Berlusconi had to stand up in parliament and make strong noises in its defence. That ,as we know, is enough to spook any market, and sure enough the Euro suffered as a result. Then European Commission President Jose Manuel Barroso joined in the fun by warning that the Eurozone's sovereign debt crisis was spreading, reinforcing fears that Italy and Spain might become embroiled in the problems. His comments spooked the markets even more, and both the stock markets and the Euro finished lower.
So far Ireland, Greece and Portugal have been bailed out, Greece twice. The European Commission is quite rightly worried that it will not be able to afford to do the same for Spain and Italy, the zone's third and fourth largest economies. The ECB has announced that it will offer a fresh tranche of loans to banks to counter continuing fears about the eurozone debt crisis. Jean-Claude Trichet stated that economic uncertainty was 'particularly high'. Quite an understatement really!
UK
Unusually, sterling declined the opportunity to shoot itself in the foot and help the Euro out of its problems. In fact we actually came out with some better than expected Services PMI data.
IS
Which of course stands for Italy and Spain, a subset of PIIGS. For a flavour of what might be to come, today's economic data from both counties is interesting. Italian GDP rose 0.3% between April and June, up on 0.1% growth in the first quarter, according to data supplied by the Italian National Statistics Institute. The Spanish central bank predicted GDP growth of 0.2% during the same period, after growth of 0.3% last quarter. The bank called for decisive action by Eurozone leaders, and also for domestic action to introduce structural reforms aimed at reducing the country's deficit. Weak economic growth lowers tax revenues and makes it harder for both countries to tackle their deficits. Neither country is looking as if it has the underlying strength to drag itself out of the debt mess, and if the ECB can't afford it....
What now?
At the risk of ruining a good run (OK, a one-week run), I can still see trouble for the Euro, and a move into the 1.1600's looks possible to me.
PIIGS
It's looking more and more likely that there may be two 'I's in PIGS, with Italy coming under the spotlight this week. So much so that Mr Berlusconi had to stand up in parliament and make strong noises in its defence. That ,as we know, is enough to spook any market, and sure enough the Euro suffered as a result. Then European Commission President Jose Manuel Barroso joined in the fun by warning that the Eurozone's sovereign debt crisis was spreading, reinforcing fears that Italy and Spain might become embroiled in the problems. His comments spooked the markets even more, and both the stock markets and the Euro finished lower.
So far Ireland, Greece and Portugal have been bailed out, Greece twice. The European Commission is quite rightly worried that it will not be able to afford to do the same for Spain and Italy, the zone's third and fourth largest economies. The ECB has announced that it will offer a fresh tranche of loans to banks to counter continuing fears about the eurozone debt crisis. Jean-Claude Trichet stated that economic uncertainty was 'particularly high'. Quite an understatement really!
UK
Unusually, sterling declined the opportunity to shoot itself in the foot and help the Euro out of its problems. In fact we actually came out with some better than expected Services PMI data.
IS
Which of course stands for Italy and Spain, a subset of PIIGS. For a flavour of what might be to come, today's economic data from both counties is interesting. Italian GDP rose 0.3% between April and June, up on 0.1% growth in the first quarter, according to data supplied by the Italian National Statistics Institute. The Spanish central bank predicted GDP growth of 0.2% during the same period, after growth of 0.3% last quarter. The bank called for decisive action by Eurozone leaders, and also for domestic action to introduce structural reforms aimed at reducing the country's deficit. Weak economic growth lowers tax revenues and makes it harder for both countries to tackle their deficits. Neither country is looking as if it has the underlying strength to drag itself out of the debt mess, and if the ECB can't afford it....
What now?
At the risk of ruining a good run (OK, a one-week run), I can still see trouble for the Euro, and a move into the 1.1600's looks possible to me.
Saturday, July 30, 2011
F/X Weekly comment
Interesting times indeed in all financial markets, including foreign exchange. It's not very often that I mention the USA in my weekly ramble around the pound/Euro rate, but I think they're worth a mention this week.
USA - showtime
Debt ceiling. To you and me, the amount of debt you have when you finally turn round and say 'No more'. In the case of the US it has a slightly different meaning, more like 'OK, how much more do we need?' That is until now, when a few quarrelsome senators have decided that a few thousand trillion dollars might just about be enough, much to the dismay of President Obama and everyone else who keeps the States running. If the debt ceiling isn't raised by Tuesday, The USA will start to default on its debts, as it won't be able to borrow any more money to pay creditors.
Should this worry us? YES! The USA is the largest economy in the world. They owe everybody money, including you, me Europe in general and the UK in particular. So now we have not only the Eurozone up rue Merde sans pagaie, we have the Septics in the same boat. We now have the possibility of not just European contagion, but also Global debt contagion. What fun!
One outcome of this is that market F/X speculators are looking round for a currency where there is some semblance if financial stability, and believe it or not, relatively speaking we fit the bill.
UK - same old story
The Pound hasn't had the best of weeks, and yet it has benefited from events abroad, both in Europe and the US. Both this week's CBI report and consumer confidence data were poor. The outlook for the UK economy is still uncertain as we struggle to overcome the drag of the austerity package during a weak recovery phase.
Eurozone - guilty as charged?
The Euro has suffered this week for various reasons. Worse than expected German unemployment, a drop in economic sentiment and weak appetite at an Italian government bond auction all contributed to the Euro's woes. Fear of contagion in the Eurozone has not gone away and uncertainty is likely to slow any major Euro advance against the pound over the next few weeks. The European Sovereign Debt crisis continues to hit the heasdlines. In the short term the ECB has enough reserves to maintain stability, but with combined soveriegn funding requirements of over €80Bn during the next three months, the feeling is that they might be running out of breathing space. I can only see the debt problem getting worse over the rest of the year. The jury is still out over Greece and the second bailout, and it could get interesting.
What now?
Call me an optimist if you lie, but I think that the Euro is in trouble, and this could be the start of something good for sterling. I, for one, hope so! 1,1500 or higher would be a good signal by next week.
USA - showtime
Debt ceiling. To you and me, the amount of debt you have when you finally turn round and say 'No more'. In the case of the US it has a slightly different meaning, more like 'OK, how much more do we need?' That is until now, when a few quarrelsome senators have decided that a few thousand trillion dollars might just about be enough, much to the dismay of President Obama and everyone else who keeps the States running. If the debt ceiling isn't raised by Tuesday, The USA will start to default on its debts, as it won't be able to borrow any more money to pay creditors.
Should this worry us? YES! The USA is the largest economy in the world. They owe everybody money, including you, me Europe in general and the UK in particular. So now we have not only the Eurozone up rue Merde sans pagaie, we have the Septics in the same boat. We now have the possibility of not just European contagion, but also Global debt contagion. What fun!
One outcome of this is that market F/X speculators are looking round for a currency where there is some semblance if financial stability, and believe it or not, relatively speaking we fit the bill.
UK - same old story
The Pound hasn't had the best of weeks, and yet it has benefited from events abroad, both in Europe and the US. Both this week's CBI report and consumer confidence data were poor. The outlook for the UK economy is still uncertain as we struggle to overcome the drag of the austerity package during a weak recovery phase.
Eurozone - guilty as charged?
The Euro has suffered this week for various reasons. Worse than expected German unemployment, a drop in economic sentiment and weak appetite at an Italian government bond auction all contributed to the Euro's woes. Fear of contagion in the Eurozone has not gone away and uncertainty is likely to slow any major Euro advance against the pound over the next few weeks. The European Sovereign Debt crisis continues to hit the heasdlines. In the short term the ECB has enough reserves to maintain stability, but with combined soveriegn funding requirements of over €80Bn during the next three months, the feeling is that they might be running out of breathing space. I can only see the debt problem getting worse over the rest of the year. The jury is still out over Greece and the second bailout, and it could get interesting.
What now?
Call me an optimist if you lie, but I think that the Euro is in trouble, and this could be the start of something good for sterling. I, for one, hope so! 1,1500 or higher would be a good signal by next week.
Saturday, July 23, 2011
F/X Weekly Comment
A pretty quiet week in the currency markets really, with little to get excited about. That is if you are deaf, blind, and can't smell rotten fish at ten paces. In fact it was pure theatre, a hairsbreadth away from being totally momentous. Sarkozy and Merkel walked to the edge of the abyss, looked down, and nearly wet themselves (OK, I apologise in advance for the poor taste there). Then they reached for the cheque book and hoped for salvation ( I nearly put 'prayed' there, but I'm probably in enough trouble already).
Greece
Greece is up to its keftedes in 'merde'. It has been for a long time. It should never have been allowed to join the Euro in the first place; indeed it never passed the tests for entry. It is no surprise that it is one of the first countries to go bust. It is totally unsuited to the handcuffs that a single currency brings to its economy. That is actually an economy that runs on 'brown envelopes'. Fakelaki is the Greek word for it, and it equates to corruption.
So, having gone bust, it receives a €79bn bailout, and with it comes stringent doses of financial medicine. Too much for the Greeks to stomach, they threaten to default on their debt, but their debt is Euro debt, and that doesn't go down well in Brussels. Cue bailout number 2, this time for another €109bn, giving them longer to repay, and at lower interest rates. Oh, by the way, we'll let Ireland and Portugal have these lower rates too, just to keep them quiet.
Greece
Greece has absolutely no chance of repaying this debt, yet the powers that be insist on continually papering over the cracks. And this week, yet again, the market bought it, and the Euro rallied at the sight of firm and concisive action from European leaders. Now I very rarely get particularly het up over financial matters, but I cannot grasp this logic, unless of course it is based entirely in self-preservation on the part of market participants (surely not?). If I were a modern George Soros, with a few billion to use speculating in the currency markets, I'd be after the Euro. I'd be so short of the Euro that you'd have to spell it with fewer letters. 'Going short' by the way refers to selling something you haven't actually got, in the anticipation that you will be able to buy it at a later date to fulfil your debt at much lower cost.
And more Greece
This second bailout, to my mind, constitutes default, and it will be interesting to see if the rating agencies agree with me next week. If they do, justice could yet be done, and sterling may even get to 1.20 plus, where it should in my view be today. More likely though, the agencies will follow the herd, and we'll soon be struggling to hold on to the 1.12 level. If they have the nerve to call it as it is, and the market realises that it could have a lame duck in its sights (like sterling in the ERM in 1992) we could really have some fun...
Greece
Greece is up to its keftedes in 'merde'. It has been for a long time. It should never have been allowed to join the Euro in the first place; indeed it never passed the tests for entry. It is no surprise that it is one of the first countries to go bust. It is totally unsuited to the handcuffs that a single currency brings to its economy. That is actually an economy that runs on 'brown envelopes'. Fakelaki is the Greek word for it, and it equates to corruption.
So, having gone bust, it receives a €79bn bailout, and with it comes stringent doses of financial medicine. Too much for the Greeks to stomach, they threaten to default on their debt, but their debt is Euro debt, and that doesn't go down well in Brussels. Cue bailout number 2, this time for another €109bn, giving them longer to repay, and at lower interest rates. Oh, by the way, we'll let Ireland and Portugal have these lower rates too, just to keep them quiet.
Greece
Greece has absolutely no chance of repaying this debt, yet the powers that be insist on continually papering over the cracks. And this week, yet again, the market bought it, and the Euro rallied at the sight of firm and concisive action from European leaders. Now I very rarely get particularly het up over financial matters, but I cannot grasp this logic, unless of course it is based entirely in self-preservation on the part of market participants (surely not?). If I were a modern George Soros, with a few billion to use speculating in the currency markets, I'd be after the Euro. I'd be so short of the Euro that you'd have to spell it with fewer letters. 'Going short' by the way refers to selling something you haven't actually got, in the anticipation that you will be able to buy it at a later date to fulfil your debt at much lower cost.
And more Greece
This second bailout, to my mind, constitutes default, and it will be interesting to see if the rating agencies agree with me next week. If they do, justice could yet be done, and sterling may even get to 1.20 plus, where it should in my view be today. More likely though, the agencies will follow the herd, and we'll soon be struggling to hold on to the 1.12 level. If they have the nerve to call it as it is, and the market realises that it could have a lame duck in its sights (like sterling in the ERM in 1992) we could really have some fun...
Friday, July 15, 2011
F/X Weekly comment
I'm uneasy. The reason I'm uneasy is that I'm not used to getting things as right as I did last week. The pound finished the week at 1.1400, even higher than my anticipated rate of 1.1350, but who's going to worry about and extra 50 basis points? But will it last?
Stress tests
The results of those stress tests on 90 European banks were announced a few minutes ago, and the results seem to be quite interesting. The Euro has been under pressure all week in anticipation of these results, and the announcement came after close of business on Friday, presumably to avoid any great sell off. In the event it seems that only 8 banks have failed. So far they haven't been named, other than one minor regional German bank, Helaba, who fell out with the examiners. The act that only seven others failed could well be supportive for the Euro on Monday, assuming there are no big names on the list. There is however a school of thought that the tests were not hard enough (think GCSE V A-Level), and didn't for example take into account the possibility of a Greek default, which looks to be almost a certainty. This could lead to further trouble for the Euro in the coming weeks.
UK data
Sterling's bounce has not had much do with any improvement in the UK economic data. Most market forecasters had been calling for sterling to move lower as a result of all the poor data we have seen of late, but the Euro's debt issues have outweighed this for a change. Unemployment data during the week showed a sharp rise, adding to concerns that poor growth prospects may prompt more QE from the Bank of England. More concerns about high debt levels, the effect of harsh austerity measures and poor UK exports could keep sterling weak, particularly against currencies other than Euro. The risk then is that despite recent gains, many analysts are still saying sterling may struggle due to all the negative economic data we are seeing.
Which wins?
That, of course, is the crunch question, but I'm on a roll here. I got last week right by calling for a weak Euro, so I'm going to keep my chips on red and go for gold (such Ill-literacy). I think sterling will have done a great job if we manage to consolidate in the 1,14s, so fingers crossed!
Saturday, July 9, 2011
F/X Weekly comment
Don't you just love it when a plan comes together? All I apparently have to do is make a pessimistic forecast for sterling, and sure enough the green shoots of recovery might just have started to peep up through the dead grass. We finished the week at 1.1256, a whole lot higher than I expected, but welcome all the same. Apologies to anyone out there who profits from a weak pound (shame on you). It was a very interesting week in the F/X markets:
Interest rates
No prizes for correctly forecasting that UK rates would stay on hold and that the ECB would raise Euro rates by 0.25% to 1.5%, but the really important thing is what M. Trichet says afterwards. Unfortunately Merv doesn't say anything after his meeting, we have to wait 2 weeks for the minutes to be released. Very boring, very British.
Tricky Trichet though alluded to the fact that economic activity in the Eurozone seems to be slowing down. His words were backed-up by disappointing Italian Industrial Production numbers on Friday morning, along with German trade figures which showed that the Europe’s largest economy is becoming increasingly dependent on imports.
Although Merv doesn't comment on his meeting, he did announce that there would be no more money-printing (QE) at present. This also gave support to sterling. All 'fish to the grill' as I once heard a conference speaker say. To be fair, he was Italian, and I don't think he knew what grist was. .
Pigs
Portugal got the capital punishment this week, being downgraded a huge four notches by Moody's. The ECB promptly reacted by saying that they will continue to accept Portugal's bonds as collateral for loans, but then they don't have much choice, do they?
Stress
No, not the stress of having to write this stuff every weekend. Stress tests for banks. A bit like the end of term tests you used to have when education worked. There are results of stress tests for a large number of Eurozone banks due out next week, and they could make interesting reading. There is a rumour that the main five Italian banks have passed, but I think the National bank of Greece is looking a bit glum, and Irish eyes don't seem to be smiling.
UK economy
Not normally worth a mention, I know, but watch out. Last month's PPI input and output prices came in rather better than expected on Friday. Now you don't hear that very often, do you?
Where now?
It really pains me to say that I think we might have the start of something good for sterling here, because we all know that that would be the kiss of death to the pound. Actually though I am sensible enough to realise that nothing I either think, say or write will make the slightest bit of difference. 1.1350 next week please.
Interest rates
No prizes for correctly forecasting that UK rates would stay on hold and that the ECB would raise Euro rates by 0.25% to 1.5%, but the really important thing is what M. Trichet says afterwards. Unfortunately Merv doesn't say anything after his meeting, we have to wait 2 weeks for the minutes to be released. Very boring, very British.
Tricky Trichet though alluded to the fact that economic activity in the Eurozone seems to be slowing down. His words were backed-up by disappointing Italian Industrial Production numbers on Friday morning, along with German trade figures which showed that the Europe’s largest economy is becoming increasingly dependent on imports.
Although Merv doesn't comment on his meeting, he did announce that there would be no more money-printing (QE) at present. This also gave support to sterling. All 'fish to the grill' as I once heard a conference speaker say. To be fair, he was Italian, and I don't think he knew what grist was. .
Pigs
Portugal got the capital punishment this week, being downgraded a huge four notches by Moody's. The ECB promptly reacted by saying that they will continue to accept Portugal's bonds as collateral for loans, but then they don't have much choice, do they?
Stress
No, not the stress of having to write this stuff every weekend. Stress tests for banks. A bit like the end of term tests you used to have when education worked. There are results of stress tests for a large number of Eurozone banks due out next week, and they could make interesting reading. There is a rumour that the main five Italian banks have passed, but I think the National bank of Greece is looking a bit glum, and Irish eyes don't seem to be smiling.
UK economy
Not normally worth a mention, I know, but watch out. Last month's PPI input and output prices came in rather better than expected on Friday. Now you don't hear that very often, do you?
Where now?
It really pains me to say that I think we might have the start of something good for sterling here, because we all know that that would be the kiss of death to the pound. Actually though I am sensible enough to realise that nothing I either think, say or write will make the slightest bit of difference. 1.1350 next week please.
Friday, July 1, 2011
F/X Weekly Comment
Ah good, all is well with the world again, and normal service has been renewed. My forecast last week has proved to be just about as accurate as George Osborne's growth predictions. I think I can leave the headers in place from last week, but I'll have another go at the content:
Greek Debt (again)
The pound lurched lower against the Euro this week as the Greek austerity vote passed predictably through parliament. In the short term, at least, a Greece default is unlikely, and this is deemed to be positive for the Euro. Within a couple of weeks a second bailout package will be agreed, so there is scope for a further boost to the single currency. The plain fact is though that the Eurozone debt problems have in no way been resolved, only deferred, but any loss in Euro sentiment is being countered by the abject surrender of sterling and the bleak outlook of the U.K economy.
Pathetic Sterling
Harsh? Definitely not. Friday's PMI data showing that expansion in the UK’s manufacturing sector dropped to its lowest rate in 21 months in June brought the pound under further selling pressure on the day. Even the saving grace that Asian and Eurozone data releases were equally weak didn't manage to get sterling up above 1.1100. The pound has fallen 9.1 percent in the past 12 months, making it the second-worst performer among 10 developed-market currencies after the dollar. Worsening economic growth has prompted traders to reduce bets on higher rates, and investors are betting that 3M (Merv and his Merry Men) will start to raise borrowing costs next May. As recently as February, data was pointing to a rate increase in May of this year.
Where now?
I think for all our sakes that I need to drastically reduce any sense of optimism for sterling at present. We tested the 1.10 level this week, and unless something spectacular happens, we could see the pound break down through that level next week.
A bientot, Rob
Greek Debt (again)
The pound lurched lower against the Euro this week as the Greek austerity vote passed predictably through parliament. In the short term, at least, a Greece default is unlikely, and this is deemed to be positive for the Euro. Within a couple of weeks a second bailout package will be agreed, so there is scope for a further boost to the single currency. The plain fact is though that the Eurozone debt problems have in no way been resolved, only deferred, but any loss in Euro sentiment is being countered by the abject surrender of sterling and the bleak outlook of the U.K economy.
Pathetic Sterling
Harsh? Definitely not. Friday's PMI data showing that expansion in the UK’s manufacturing sector dropped to its lowest rate in 21 months in June brought the pound under further selling pressure on the day. Even the saving grace that Asian and Eurozone data releases were equally weak didn't manage to get sterling up above 1.1100. The pound has fallen 9.1 percent in the past 12 months, making it the second-worst performer among 10 developed-market currencies after the dollar. Worsening economic growth has prompted traders to reduce bets on higher rates, and investors are betting that 3M (Merv and his Merry Men) will start to raise borrowing costs next May. As recently as February, data was pointing to a rate increase in May of this year.
Where now?
I think for all our sakes that I need to drastically reduce any sense of optimism for sterling at present. We tested the 1.10 level this week, and unless something spectacular happens, we could see the pound break down through that level next week.
A bientot, Rob
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