David and Samantha Cameron did well; there I was being facetious about calling the baby Clovelly or Truro and they found St Endillion. Well played the Camerons; good name.
In thinly traded and tightly ranged August markets there is the danger that a daily report such as this will begin to sound like a stuck record. Trapped exchange rates and shallow fluctuations often mean we exit August at roughly the same level that we entered but the volatility in the intervening period can be very interesting even if the market themes remain frustratingly familiar from one day to the next.
Yesterday’s brief foray to higher levels by the Pound was exciting; I know many of you had orders triggered at the top of that movement and we felt that we may be finally witnessing the strength that the Pound has hinted at for a number of weeks but we closed the day at similar levels to the start; proof perhaps that traders are not yet ready to pile headlong into the Pound until they see solid proof that UK growth can be sustained through harsh spending cuts and tax hikes. The profit takers may well maintain the cap on the Pound for a while yet which makes the highs we saw yesterday fairly obvious targets for the months ahead. The fear is that, if Sterling can’t rally, traders will feel the urge to sell the Pound to see if it can decline and that could be a recipe for disaster for those who need to sell Sterling. There isn’t space to cover all the details of all the currency pairs here but your Halo Financial Consultant will be happy to discuss your specific requirements when you have a moment.
Sterling was flattered by weakness in other currencies. US New Home sales fell less sharply than existing home sales as shown in the previous day’s release. It is this kind of mixed data that has plagued the markets for months now and it sent the US Dollar backwards. Sterling and the Euro both gained against the US Dollar after the Euro hit a technical low around $1.26.
For its part, the Euro is still hampered by fear over the state of EU state’s economic prospects. The fact that Ireland had its sovereign debt credit rating downgraded yesterday didn’t help Europe’s common currency and neither did a rather poorly supported auction of Portuguese government bonds but German business expectations were rather better than expected; thanks partly to positive effect of a weaker Euro on export sales no doubt. The fear remains that even if the Euro makes German exports affordable overseas, the lack of demand from the US could well prove more of a problem that the affordability of the goods. The bottom line is that people in fear of losing their jobs don’t invest in a new Mercedes or BMW.
The inconclusive nature of US data has an effect on the Canadian Dollar as well; Canada’s reliance on US buyers for its export goods makes a US downturn almost more significant for the Canadian Dollar than for the US Dollar. Even a rise in oil prices failed to boost the Canadian Dollar which weakened across the board. However, as with most other currency pairs, that weakness was largely within recent ranges and profit taking corrected most of the gains the Pound made before the end of the day.
In amongst all this uncertainty, the obvious thing for many investors to do is put on their tin hats and hunker down somewhere safe until all the unpleasantness has passed. That safe place appears to be either Switzerland or Japan right now. The Swiss Franc continues to make fresh gains against most other currencies and that is a man sized thorn in the side of Swiss exporters. The Swiss national Bank though is hamstrung by a lack of available capital to use for CHF sales in order to weaken this currency. The Bank of Japan has no such constraints but has so far managed to at least slow the Yen’s advance through threats and intimation that it may throw money at the problem. It hasn’t yet resorted to doing so though.
And last but certainly not least, the Australasian currencies are also caught in the backwash from all this nervousness and safe haven buying. The Australian and New Zealand Dollars offer a fairly unique combination of relatively high interest rates, proximity to China (a great export market that most countries would give their right arms to break into) and comparatively buoyant economies. However, their currencies are historically very volatile and that volatility means investors tend to shirk the advantages of investment in the Australasian Dollars in favour of the dead set security of US Treasury bills or Swiss or Japanese Government bonds. Consequently, these currencies tend to weaken when times are tight. That is what we are seeing right now although against Sterling, the range of movement is akin to an arm in a cast; it can move so far and then it ....just....runs....out ....of .....movement...because...it...hurts..... and you have to stop.
As for today, well Eurozone money supply data and the Confederation of British Industry retail market report (the Distributive Trades Survey to give it is somewhat obscure title) are the two major releases. Neither is a biggie but either could move the market in an otherwise lacklustre data diary. This afternoon’s US weekly jobless claims report will also be significant. However, tomorrow’s US and UK economic growth data is more important and the looming long weekend in the UK is also likely to cause some reorganising of traders’ positions before the break. Monday is also likely to be very volatile in the EU and US markets without the bulk of the UK volume to smooth the flow. This is a prime opportunity to place market orders which are just outside the current ranges to take advantage of any unforeseen volatility.
And finally, it may sound more like a moral dilemma than a horse race but two horses called "Mywifenosevrything" (trained by a woman) and "Thewifedoesntknow" (trained by a man) met at Monmouth Park in Oceanport, New Jersey. Apart from giving the commentator jowl exhaustion as he tried to announce the two while they ran head to head throughout the race, we might read something into the fact that “Mywifenosevrything” won the race. The tongue twisting commentary has apparently become major hit on YouTube.