FX Market Overview

Do you want to hear about how Greece is nearly there in its negotiations again? I thought not but it is the main news story, even though we have been reading the same story every day for all eternity....or so it seems. The drug company, GlaxoSmithKline, is clearly not convinced by the Greek assurances; they are clearing all their income out of Europe and into the UK on a daily basis in order to manage the risk of a Eurozone meltdown. That might appear overly dramatic but they would be heavily criticised if they had to report a hole in their accounts due to a bank collapse somewhere in Europe.
The rhetoric is that Greece is not going to default (in full at least), that Greece will stay within the Eurozone and that Europe supports Greece to the hilt. Then we get comments from central bankers and politicians telling us that the Euro would survive a Greek exit and that it wouldn’t matter to the rest of Europe is Greece were to default. Nellie Kroes, the Vice-President of the European Commission is quoted as saying, "It’s not the end of the world if someone leaves the Eurozone". That’s a very different tack to the recent assertion that no one would leave. It also kills Greece’s bluff; ‘Bail us out of the whole pack of cards will fall’ (OK I paraphrased a little). I wonder if there are any bets on this being a fabulous ploy by Greek officials to gain every cent they can from Germany in lieu of the post WWII reparations that were never paid and then to default; retaining those funds. Beware of Greeks bearing bonds as they say in some book somewhere.
Back to the present and yesterday’s news - aside from the Euro debt crisis - included reports of a very sharp fall in German industrial production. A 2.9% month on month drop is far worse than the 0.2% growth that analysts had forecast and serves to highlight the precarious state of the EU economy.
We heard overnight that Japan posted its first annual trade deficit since 1963 last year. A ridiculously strong Yen is a very large part of the problem; especially with the Chinese Yuan being maintained at unashamedly weak levels to assist Chinese exporters. But shrinking markets around the world will not have helped matters.
And an overvalued Australian Dollar is also damaging the Aussie economy, according to the newest member of the Reserve Bank of Australia’s interest rate setting panel, Heather Ridout. She thinks the AUD should command around 95 US cents rather that the current $1.08. At the current GBPUSD exchange rate, that would get the Sterling - Aussie Dollar exchange rate up to roughly A$1.67. I can hear the cries of ‘YES PLEASE’ from here. Her views may well be right but when investors can get a return based on Australia’s 4.25% base rate while the US base rate is virtually zero, it is hard to see this turning around in a hurry.
Today’s data diary is as near to a blank sheet of paper as you can get without actually having a blank sheet of paper. We had the British Retail Consortium’s shop price index overnight and that reflected a fall in shop price inflation in January and we had the German trade balance data early this morning which showed an expected fall in Germany’s trade surplus. After that, nothing, nada, zippo, zilch. So traders will be busy watching the UK health bill fall out at Prime Minister’s Questions and girding their loins ahead of tomorrow’s twin interest rate decisions from the Bank of England and the European Central Bank. I will cover that in more detail tomorrow.
In the meantime, I cannot get over how ridiculous it is that 2012 Olympics being held in London and supposed to be the greenest games ever, is getting its tickets flown in from America. I cannot be convinced that a UK printer could not have done that job and I am appalled at the apparent absence of concern for UK employment and commerce being shown by the organising committee; let alone their poor PR judgement. You really naffed that one up Lord Coe.