ECB’s reduced bond purchases weaken Euro UK public debt expands faster than forecast US regional debt worries the markets
Wednesday, 22 December 2010
Today's Highlights
ECB’s reduced bond purchases weaken Euro UK public debt expands faster than forecast US regional debt worries the markets
FX Market Overview
The long knives were out for former darling of the Liberal Democrat party, Vince Cable after his egotistical claims that he would wage war on Rupert Murdoch and could bring down the government were made public. As it turned out, the newspapers waged war on Mr Cable and the government has effectively brought him down...a peg or two at least. It’s a shame when politicians believe their own hype but it has happened before and it will happen again.
Aside from that, the markets were more concerned with UK public sector debt which expanded sharply in November. Net borrowing was £22.8 billion; well above the market forecasts of £17 billion ish and whilst some of that increase was due to interest payments on loans, the largest gain was in departmental spending within government. That worried traders, caused concern over how quickly the government could get on top of the budget deficit and Sterling slid during morning trade. It did recover a little later in the day as the Euro and US Dollar weakened slightly. Whether that recovery will stay on course after the minutes are published from the last Bank of England Monetary Policy Committee meeting is open to debate but we don’t envisage and great surprises in these. We will also get the final calculations of the quarter three economic growth for the UK and that has the potential to surprise so be on your toes at 09:30 UK time.
The Euro is still under siege from credit problems and those were compounded yesterday when Fitch; one of the credit ratings agencies, threatened to reduce Greek sovereign debt to ‘Junk’ status. That would effectively rule out Greece raising funds directly from the markets and adds weight to the vaunted Eurozone bond plan which Germany is sensibly resisting. One of the other credit ratings agencies, Moody’s has already cut Greece rating to ‘non investment’ level so Fitch’s threat is not ground breaking news but it doesn’t take a lot to get traders selling the Euro these days and that is what happened.
As for the US Dollar, well there was a distinct lack of data from the US yesterday although that will be rectified today. America also publishes its Q3 economic growth data today along with personal income and expenditure numbers and some housing market data. Of late, the data has been less influential on the US Dollar than external effects like Chinese growth and EU debt concern but the data is still worth a watch just in case the numbers are wildly different from the market forecasts.
Canada had big data to mull over yesterday; weaker than forecast inflation was offset slightly against stronger retail sales activity in October. Overall the market view was that this was negative for the Canadian Dollar which weakened a tad in later trade as traders downgraded their expectations of higher Canadian interest rates.
The Australasian Dollars were range bound for most of the day but tonight’s New Zealand economic growth data could well cause some Kiwi Dollar weakness ahead of the data and perhaps after it as well. A drought affecting milk production, china slowing imports and various other factors might have had a more marked effect than previously forecast so be ready for a spike in the Sterling - NZ Dollar exchange rate with a suitable automated order if you want to take advantage of this potential.
And finally, Wooooahahooooaow this bus is on fire. Kings of Leon had to cancel their show at the O2 arena last night after two of their tour busses burst into flames within the loading bay and the delay meant they were unable to rig the arena in time for the show. I know this not because I am a big KOL fan but because my lovely niece Maddie (there’s a hint in the 1st three letters of her name) drove up from Cornwall for 6 hours to get to the show only to find when she got to London that they had postponed it. Ah well; it meant her uncle got a hug so that’s OK isn’t it.
Aside from that, the markets were more concerned with UK public sector debt which expanded sharply in November. Net borrowing was £22.8 billion; well above the market forecasts of £17 billion ish and whilst some of that increase was due to interest payments on loans, the largest gain was in departmental spending within government. That worried traders, caused concern over how quickly the government could get on top of the budget deficit and Sterling slid during morning trade. It did recover a little later in the day as the Euro and US Dollar weakened slightly. Whether that recovery will stay on course after the minutes are published from the last Bank of England Monetary Policy Committee meeting is open to debate but we don’t envisage and great surprises in these. We will also get the final calculations of the quarter three economic growth for the UK and that has the potential to surprise so be on your toes at 09:30 UK time.
The Euro is still under siege from credit problems and those were compounded yesterday when Fitch; one of the credit ratings agencies, threatened to reduce Greek sovereign debt to ‘Junk’ status. That would effectively rule out Greece raising funds directly from the markets and adds weight to the vaunted Eurozone bond plan which Germany is sensibly resisting. One of the other credit ratings agencies, Moody’s has already cut Greece rating to ‘non investment’ level so Fitch’s threat is not ground breaking news but it doesn’t take a lot to get traders selling the Euro these days and that is what happened.
As for the US Dollar, well there was a distinct lack of data from the US yesterday although that will be rectified today. America also publishes its Q3 economic growth data today along with personal income and expenditure numbers and some housing market data. Of late, the data has been less influential on the US Dollar than external effects like Chinese growth and EU debt concern but the data is still worth a watch just in case the numbers are wildly different from the market forecasts.
Canada had big data to mull over yesterday; weaker than forecast inflation was offset slightly against stronger retail sales activity in October. Overall the market view was that this was negative for the Canadian Dollar which weakened a tad in later trade as traders downgraded their expectations of higher Canadian interest rates.
The Australasian Dollars were range bound for most of the day but tonight’s New Zealand economic growth data could well cause some Kiwi Dollar weakness ahead of the data and perhaps after it as well. A drought affecting milk production, china slowing imports and various other factors might have had a more marked effect than previously forecast so be ready for a spike in the Sterling - NZ Dollar exchange rate with a suitable automated order if you want to take advantage of this potential.
And finally, Wooooahahooooaow this bus is on fire. Kings of Leon had to cancel their show at the O2 arena last night after two of their tour busses burst into flames within the loading bay and the delay meant they were unable to rig the arena in time for the show. I know this not because I am a big KOL fan but because my lovely niece Maddie (there’s a hint in the 1st three letters of her name) drove up from Cornwall for 6 hours to get to the show only to find when she got to London that they had postponed it. Ah well; it meant her uncle got a hug so that’s OK isn’t it.
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