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Jul 29, 2009

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Standard & Poor's downgraded Spain

Standard & Poor's downgraded Spain credit rating by two notches to BBB minus. Their decision may ultimately prove beneficial to the Euro if it provokes Spanish Prime Minister, Mariano Rajoy to request an international bailout package. If the credit rating downgrade sends Spanish bond yields higher, then the inevitable plea for assistance may be brought forwards; at the moment the general consensus is that Spain is not asking for a bailout because its debt yields are manageable. Opponents of the asset purchase programmes of quantitative easing, as enacted in Britain, America and Japan, claim they are of doubtful benefit and could in fact store up trouble for the future. This objection will probably not prevent the Bank of England (BoE) from announcing another round of asset purchases next month which could derail Sterling's progress somewhat. Sterling lost ground to the Canadian and New Zealand Dollars but moved higher against the Yen and the Aussie and held steady against the US dollar. There is nothing of note by way of economic data being released today and FX market participants will probably not be missing much if they linger a little longer than usual at lunch. It is after all, Friday and in the words of Arthur Smith "...I couldn't really see the point of having lunch unless it started at 1 o'clock and ended a week later in Monte Carlo..." Sat WorldWide http://www.satworl ss/  (Oct 12, 2012 | post #1)

UK and US GDP figures due today

The sweet smell of free and unlimited central bank money seems to be losing is odour as the markets are waking up to the noise in the streets from protesting Greeks and Spaniards. With the protests going on in Madrid, the Spanish bank stress testers are working out the final details of just how much money the institutions will need to restore their solvency and the results come out tomorrow. Some say it's €60 billion, some say €100billion. Three months ago EU leaders agreed a bank-specific bailout package that would cover either amount but this week the forces of darkness have stuck a bag of spanners in the works. The latest spanner comes from a move to prevent the European Stability Mechanism providing money directly to Spanish banks because their bad loans represent "legacy assets" from previous banking crises. In the opinion of Germany, Holland and Finland, ESM support can only go to offset new problems. If so, the money will have to pass via the Spanish government and even then only after Madrid has requested a bailout and submitted itself to the audits and austerity that come attached to a rescue. Reading this you could be forgiven for thinking it was a day of panic on the FX markets yesterday but it wasn't. The Euro lost just a quarter of a cent against the US Dollar and held steady against the Yen and Sterling. This morning the Eurozone reports it's latest indices for business and economic sentiment while from the US durable goods orders, pending home sales and weekly jobless claims come after lunch. Of greatest interest will be the revised figures for UK and US second quarter gross domestic product (GDP). America's economy is expected to have grown by an annualised 1.7% and Britain's to have shrunk by a quarterly -0.4%. The GDP numbers will probably not affect the value of either Sterling or the US Dollar unless they are well adrift from forecast. Sat WorldWide http://www.satworl ss/  (Sep 27, 2012 | post #1)

The Euro struggling to hold onto recent gains

The Euro spent most of Monday struggling to hold onto recent gains following a rise in Spain's borrowing costs reiterated the serious risks to Madrid and brought back into focus the Eurozone debt crisis that will resurface in the coming months. Spain's gloomy fiscal outlook could prove to be another pothole in the Euro's road to recovery and the prospect of a Spanish bailout seems to be increasing and tempering the markets appetite for risk. The effect on the currency markets saw Sterling rise further against the US Dollar to near 12-month high level's after the fallout from last week's Federal Reserve announcement also continues. It was a quiet start to the week in terms of data but this was punctuated by a dreadful Empire manufacturing survey from the US. The report revealed sharp declines across the board, particularly in orders, which added further weight to the US Federal Reserve's decision to pump more money into the economy. This data suggests that further disappointing data and surveys will follow week, suggesting that the slowing in global economic growth continues to effect activity in the US. If the downside risks to global growth continue, it is likely that GBP/USD will fall and risk appetite will wane affecting the Aussie and Kiwi Dollars, as the recent optimism fades regarding the recent central bank actions. Overnight the Australian and New Zealand Dollars did weaken after last night's dovish (a "dove" supports interest rate cuts) Reserve Bank of Australia meeting minutes. UK CPI figures for August kick things off today and the markets expect a fall in headline rate of inflation. The release of the German ZEW survey for September will also be closely watched. Trading in the Yen is also expected to remain uncertain today ahead of tomorrow's Bank of Japan policy decision. Sat WorldWide http://www.satworl  (Sep 18, 2012 | post #1)

US Dollar weakened following FOMC plans last week

Last week was all about the US Federal Reserve meeting and the outcome was a programme of buying mortgage backed securities totalling $40 billion a month. It is a distinctly slower process of asset purchases than was imagined by the markets, and includes no Treasury purchases. It is difficult to see how the Federal Reserve intends to act again ahead of the US Presidential elections, so this could end up being the final attempt to reinvigorate economic activity this year, and it may prove fruitless in terms of turning around the jobs markets, which has seen a sharp slowing in job creation in recent months. So far the markets reaction has been risk positive, but why? Some action is better than none however, growth is unlikely to suddenly rebound in the US, or indeed in the Eurozone following this action. The main reaction to the news came late Thursday, namely a weakening US Dollar, a strengthening Euro and some gains for the "risk" currencies the Aussie and Kiwi Dollar. Sterling made ground on the US Dollar but lost out to the Euro. This week sees a plethora of data and surveys released. From the UK, we get Consumer Price Index from August, Bank of England minutes from September, August retail sales, the CBI industrial trends survey from September and and public finances from August. In the Eurozone, the German ZEW survey and flash purchasing managers indices for manufacturing and services from September are the focus. As for the US, the Empire manufacturing survey from September, housing starts and existing home sales from August are likely to hold the focus. Whilst it is a quiet start to the week, there is plenty of data and survey releases to keep markets busy. Moreover, unless there is a dramatic turnaround in these indicators, they are likely to point to further contraction in the Eurozone, a slowing in the pace of expansion in the US, and the UK flat lining on retail sales and struggling on the public finances. A risk positive environment? It doesn't look like it. Therefore watch out for re-tracements in Sterling and the Euro against the US Dollar and for Sterling to have to upper hand against the Aussie and Kiwi Dollars. Sat WorldWide http://www.satworl ss/  (Sep 17, 2012 | post #1)

Positive news from the UK

Yesterday saw some more positive news from the UK with the labour market showing employment rising sharply, unemployment falling slightly and average earnings growth. The labour market data continues to paint a far more optimistic picture of the UK economy than the GDP figures have done so it raises the question how the economy could be contracting at the same time as the labour force is expanding? Puzzling. Some suggest it is due to a lack of capital investment while some suggest it is because of a switch between part time and full time workers. Both seem to forget the temporary effect from the Olympics. Whatever the reasoning, it should help to support a recovery in retail demand as well as eventually lifting tax receipts. The data gave Sterling a quick boost but it was short lived with the Euro the big mover yesterday, adding to this weeks gains by the single currency. The current rally by the Euro has seen it appreciate by almost 6% against the US Dollar and by more than 3% against Sterling; it must now be vulnerable to some profit taking. It therefore looks like a good moment for buyers of US Dollars and sellers of Euro's do to so. The markets next hurdle comes at 5.30pm this evening when the Federal Open Market Committee (FOMC) makes its monthly statement. Speculation that the US will enter a third round of quantitative easing (QE) has been growing for the last fortnight and confirmation has been largely factored into the market. There is a very good chance that the market could be disappointed though given how close to a presidential election the US is and that the US vote is probably the most divisive in a generation. SatWorldWide http://www.satworl ss/  (Sep 14, 2012 | post #1)

US Dollar declines as Moody’s threatens to cut US credit ...

The US Dollar was yesterday's big mover, declining sharply after a warning from rating agency Moody's turned the heat up on the US currency heading into today's two-day Federal Reserve policy meeting. Moody's said that it expects to slash the US's credit score if the country does not make rapid progress on curbing it's government spending. The US Dollar started yesterday around £/$ 1.5990 against Sterling and €/$ 1.2790 against the Euro; at this morning's open, Sterling was at £/$ 1.6090 and the Euro was at €/$ 1.2870 which are both four-month highs. With expectations increasing that the US Federal Reserve will launch QE3 tomorrow further declines in the US Dollar may be likely. Elsewhere, Europe will today move a step closer to a "banking union" with plans for the European Central Bank (ECB) to oversee banks as part of their efforts to resolve the current financial and economic turmoil. For the plan to work, it will require countries to surrender a degree of sovereignty over supervising their banks. Although the UK will not join the scheme, many international banks in London have operations in the Eurozone which will be affected by the ECB's new supervisory reach. London is also worried that the ECB, emboldened by its new powers, will demand regulation that could undermine the city's position as the European financial capital. The markets are ever fearful of uncertainty and the outcome of today's announcement may well have ramifications for the Euro and Sterling. Data yesterday showed the UK's trade deficit narrowed more than expected in July. Meanwhile, new Bank of England policy maker Ian McCafferty reserved judgement on quantitative easing (QE) in testimony before members of parliament's Treasury Select Committee on Tuesday. He said any decision on further economic stimulus would hinge on more evidence about the health of the economy. Today sees the release of UK labour market figures, which are expected to report a further fall in unemployment rates, Eurozone industrial production and US import prices. Overnight the Reserve Bank of New Zealand are expected to leave interest rates on hold at 2.5%. Sat WorldWide http://www.satworl ss/  (Sep 12, 2012 | post #1)

All eyes are on the ECB meeting

Today the European Central Bank (ECB) announces their plans to save the world's economy however, with the ECB meeting starting yesterday, information was unexpectedly leaked at lunch time suggesting that the Bank was putting in place an unlimited bond buying programme aimed at lowering borrowings costs for Spain and Italy. A Bloomberg report said ECB President Mario Draghi's plan includes buying unlimited amounts of government bonds, but also that these purchases would be sterilised (this means that any money put into the system by the ECB to buy sovereign bonds would subsequently be taken back out again, removing the risk of inflation and stopping short of full blown quantitative easing). This level of detail gave the leak some authenticity and eased fears that today's announcement will be a lot of promises but no action. The result was a stronger Euro against Sterling and US Dollar, although Sterling did feel some benefit, touching a three and a half month high against the US Dollar. As well as the ECB, the Bank of England also meets today, but with interest rates likely to stay the same and no change to the quantitative easing programme expected, there is less attention on the BoE. US data later brings their equivalent of service sector PMI and overnight we get the Australian trade balance figures. However, should the ECB fail to generate any market movement, all eyes will turn to tomorrow's US non-farm payrolls. Sat WorldWide http://www.satworl ss/  (Sep 7, 2012 | post #1)

Germany with the business climate index

The main data release yesterday from the Eurozone was from Germany with the business climate index, the IFO. It reported another fall for August, from 103.2 to 102.3, the fourth consecutive monthly fall. The fall was slightly larger than expected by the markets, but was never likely to make a big impact on the markets. With the UK on holiday other events continue to dominate, with the Eurozone braced for more problems with Greece, and more of the Euro countries now suggesting that they would not support a further Greek bailout. With the black hole in the Greek government finances continually being revised up, there must be some serious doubts over their ability to finance themselves over the medium term. Whilst the Eurozone countries continue to espouse the medium term goal of further integration, they need to focus on short term measures to return economic confidence. Without this, many countries could face a prolonged recession, which would make meeting deficit reduction targets even harder. In short, they really do need to pull their fingers out of their proverbial. There is plenty of data this week for the foreign exchange markets to focus on; today features the US Conference Board consumer confidence for August which are expected to report very subdued growth. There is also the US consumer confidence out today. Later this week, attention will focus on US GDP the US Federal Reserve's Beige Book ahead of yet another crunch central bank meeting in a couple of weeks time, German unemployment figures for August, and the Chicago PMI for August. Sat WorldWide http://www.satworl ss/  (Aug 28, 2012 | post #1)

Greek seeks another improvement in bailout

Greek politicians are yet again approaching other Eurozone leaders asking for an improvement in their bailout terms however, he has seemingly given no assurances that Greece will be able to meet even more favourable changes to their deficit reduction plans. Meanwhile, the Greek PM Antonis Samaras is demanding an end to talk about Greece leaving the single currency despite repeated breaches of the terms of the bailouts already received. Were Greece any other country outside of the Euro, it seems almost certain that the bailout monies would have already stopped. Now the EU and Euro are facing a problem of credibility if Greek spending is not checked. The situation in Greece means German Chancellor Angela Merkel is now having to quell rising discontent about the Euro from the general public so the Greek prime minister can expect an uncomfortable meeting with her today. If the Eurozone is to restore confidence in it's currency and it's economy they have to get tough with their most disruptive child. Any further loosening of bailout terms would set a dangerous precedent for other economies approaching the precipice and prove to be overall negative for the Euro as well. There has been more comment following the Federal Reserve minutes over the past 24 hours; the President of the St. Louis Fed said that the minutes were "stale" and that the data had improved since then. He also said that a "gigantic " policy response was not needed and expectations may have got ahead of themselves through the summer. However, Chicago Fed Chair Chuck Evans took the other side of the argument in a media interview this morning, arguing that "there's a lot of reasons to do more" to help the US economy. The main news overnight is once again from the Reserve Bank of Australia. The Australian Dollar has become stronger in recent weeks following the grind higher in risk assets post-Draghi. Yesterday we heard from an Australian government official that there were concerns over the strength of the country's mining sector which saw the Australian Dollar slip back. Today's key data is from the UK with Q2 GDP figures released. Expectations are for a slight improvement in the figure from the initial forecast of -0.7%. Irrespective of any improvement, the prospects of any interest rate hikes over the next 2 years are growing slimmer, and the Bank of England will hope for an ongoing competitive exchange rates to continue to boost export growth Sat WorldWide http://www.satworl ss/  (Aug 28, 2012 | post #1)

Sterling shrugs off disappointing borrowing data

Yesterday's UK public finances data for July were really disappointing, revealing a further increase in borrowing when a net repayment had been expected. The position the UK finds itself in is difficult to say the least. Global and domestic economic conditions are weak which in turn is dragging down tax revenues increasing cyclical spending. Is now the time then that the UK should spend even more? Investment on big infrastructure projects will support growth and employment; tax cuts would support increased spending and a reduction in red tape would encourage investment. So why not? Well, by spending more and taxing less sounds like the situation will get worse. Yes, reducing red tape and taxation would likely produce a long term rebound in economic activity, but would almost certainly lead to a sharp increase in borrowing in the next couple of years. There would also be a sharp increased risk of ratings downgrades. For the foreseeable future, further monetary loosening seems the only realistic prospect for stimulating faster growth in the UK. Despite this, Sterling's day went better than might have been expected as Sterling hardly flinched. On the day Sterling is lower by half a cent against the resurgent Euro but elsewhere it is unaccountably firmer; half a cent up against the US Dollar and a cent or two against the commodity dollars. The Euro's good performance was entirely founded on sentiment. There was no data to justify the Euro's rise other than Spain's auction of 12- and 18-month treasury bills. The Spanish treasury raised a total of €4.5bn at sharply lower rates of interest than it managed at the previous auction two months ago. There isn't much on the data calender today so attention will be on the US Federal Open Market's Committee meeting minutes. The question remains what the Federal Reserve intends to do about the looming fiscal cliff, since it is unlikely the US's recovery is as yet self-sustaining. The Fed have shown reluctance for further quantitative easing, but any substantive cuts in government spending would likely undermine the recovery that is underway and we can expect tax hikes to play their part. With so little released today, recent improvements in risk appetite are likely to continue. Sat Worldwide http://www.satworl ss/  (Aug 22, 2012 | post #1)

Sterling had a solid day yesterday despite growth forecas...

Unlike Team GB, which (depending on who you listen too) has an unfair advantage in hosting the games; the French believe our cyclists have magic (round) wheels apparently. As for Sterling, it is not an accusation that it has to contend with. The best it can usually achieve these days is to look less horrible than the opposition and, by managing expectations downwards, to avoid disappointing investors. It managed to do both of those yesterday with the assistance of the Bank of England. In its quarterly inflation report the Bank of England revised its forecast for UK economic growth to zero for the current year and said it would be two years before the situation began to normalise with 2% growth. Had they come out of the blue, numbers like that would have put Sterling to the sword. However, the downgrade had been so well flagged that it caused hardly a ripple. What did help Sterling was Governor King's comment that an interest rate cut would in all probability be "counter productive". It was not exactly a promise that the Bank Rate would not cut interest rates but it was good enough to change the minds of investors who were expecting a cut in the next month or two. The removal of the rate cut threat alleviated some of the pressure that Sterling had felt since the European Central Bank unveiled its grand plan to save the Euro. Sterling is up the best part of a US cent, at least half a Euro cent and three quarters of a Yen. It was better against the commodity dollars, just. The antipodean dollars were both affected overnight by jobs figures. There was a -0.1% fall in NZ employment and an increase in the rate of unemployment to 6.8% which cost the New Zealand Dollar a quick cent against Sterling. This preceded an increase of 14,000 new jobs in Australia that left unemployment at 5.2%; the Aussie Dollar responded by strengthening by a little over half a cent against Sterling. There is no top-tier data on today's timetable with the UK balance of trade this morning is the only serious European statistic. The Canadian and US trade figures follow after lunch, together with Canada's new housing price index and American weekly jobless claims. Sat WorldWide http://www.satworl ss/  (Aug 10, 2012 | post #1)

The Euro hit a 5-week high against Sterling yesterday

The Euro had a reasonable day on Monday, holding steady against the US Dollar and the Japanese Yen and taking another quarter-cent out of Sterling. In fact, the Euro is trading at a 5-week high against Sterling at the moment. The sole Eurozone statistic, Sentix's index of investor confidence, deteriorated from -29.6 to -30.3 which was the lowest reading for three years but better than the forecast -31.0. Other than the Halifax house price index's -0.6% monthly fall, announced just as London was opening, there were no useful data from Europe or the States. That left the markets to increase their focus on the fallout from the ECB meeting last Thursday. The master plan revealed last Thursday by the European Central Bank was to relax the terms on countries that applied for a bailout however, it may not last if the infighting spreads. And there are concerns that Spain's Prime Minister could hold back from requesting a bailout, a necessary condition of ECB President Draghi's strategy, now that its borrowing costs have fallen. Even so, a handful of days after they signed up for the Draghi Plan investors are loath to walk away from what they knew from the outset would be a weeks-long, if not months-long, project. Overnight, New Zealand labour costs were said to have risen by 0.5% in the second quarter. Australia's construction sector purchasing managers' index scored a miserable 32.6, not as bad as last October's 30.0 but symptomatic of an ongoing slowdown. The Reserve Bank of Australia kept its Cash Rate steady at 3.5%, as expected. There is no pan-Eurozone data today but national figures cover Italian industrial production and second quarter GDP and German factory orders. After lunch Canada releases the Ivey PMI and building permits for June. There is no data of any consequence from the States, but the Federal Reserve chairman will make a speech this evening. As for the UK, figures this morning for June's manufacturing and industrial output are not expected to be very good. Some or all of the decline will be attributable to the Jubilee long weekend and the holidays built around it, but that knowledge won't make the numbers look any more appealing. Sterling could therefore feel the pressure if investors decide to get involved. Sat WorldWide http://www.satworl ss/  (Aug 8, 2012 | post #1)

US FOMC leaves monetary policy on hold ahead of BoE and ...

Yesterday's Federal Open Market Committee (FOMC) meeting saw monetary policy left on hold, but substantial discussions were held regarding loosening monetary policy further in the future. Much like the UK and Eurozone authorities, the US Federal Reserve are not yet convinced of the need for further monetary loosening, although they have noted a deceleration in economic activity. The Federal Reserve have stated that they will monitor the situation closely and provide additional assistance as required, which may mean an interest rate cut at the September FOMC meeting. On the central bank theme, the argument for coordinated action from central banks continues to grow, with more QE and rate cuts now expected not only from the West, but from the likes of Brazil, Russia and India and China. The negative sentiments from central banks makes it unlikely that risk appetite will improve so further purchasing of US Dollar assets (US Treasury, US Government Bonds, Gold etc) so we expect further strengthening of the US Dollar with equity markets, the Euro and Sterling the likely fall guys. The data released yesterday from the US reported a slowdown in manufacturing activity and weak pricing for goods as well. The employment survey from ADP recorded a larger increase in employment that expected, but still a slowing from last month. It doesn't bode well for the all important non-farm payrolls released tomorrow. Today's focus is on the Bank of England monetary policy committee and European Central Bank governing council meetings today at 12.00pm and 12.45pm (BST) respectively. Neither central bank is expected to adjust interest rates or pump more money into the system because they acted in both cases loosening monetary policy last month). However, the case for lower interest rates is already building, particularly in the Eurozone, where the periphery economies' woes are now having a significant negative impact on the 'core' countries as well. As for the UK, the markets are already pricing in a rate cut and more QE, which may increase the downward pressure on Sterling against the major currencies. Sat WorldWide http://www.satworl ss/  (Aug 2, 2012 | post #1)

A very quiet day yesterday with the same expected today

Yesterday's currency movements were stimulated by US Treasury Secretary Tim Geithner, who paid a flying visit to German Finance Minister Wolfgang Schäuble at his holiday home. After the meeting they issued a statement similar in tone to those of the ECB president and the French and German leaders, citing "the need for ongoing international cooperation and coordination to achieve sustainable public finances, reduce global macroeconomic imbalances, and restore growth". Now investors will focus on what all that means. There has even been a suggestion that there could be a contribution from the US Federal Reserve bank after tomorrow's policy meeting, unlikely as that might sound. In reality though, nothing is likely to happen until Thursday's ECB. And even there, investors are moderating their expectations. In the meantime, Italy borrowed €5.5 billion through the sale of ten-year government bonds at an interest rate of "only" 5.96%. EU confidence measures surprised nobody when they all deteriorated in July (EU consumer confidence at -21.5 was the lowest reading in almost three years). The UK measure was no better, unchanged at -29 which is in the middle of a range that has been negative for five years. Overnight the New Zealand business confidence improved by two and a half points to 15.1%, and a net 24% of firms said they expected activity to increase in the coming year (at last, some positive data!). This morning there is Eurozone inflation and unemployment figures, projected to be 2.4% and 11.2%, and Greek and Spanish retail sales numbers which will probably be pretty ugly. American reports on personal income and spending, consumer confidence, house prices and the Chicago purchasing managers' index are all out after lunch. Currencies were quiet on Monday, with net moves of no more than a dozen ticks or so between the pound, the yen, the euro, the franc and the US dollar. The commodity-related currencies put in the best performances but even there the gains were of well under a cent. Expect more of the same today. Sat WorldWide http://www.satworl ss/  (Aug 1, 2012 | post #1)

Sterling starts this week at a 44-month high against the ...

Friday turned out to be an interesting day on the currency markets. After hitting a one-year high against the Euro, the US Dollar turned tail, falling by nearly a cent in less than an hour. The US Dollar had already been on the retreat against Sterling, which starts today a cent and a quarter higher than its position on Friday morning. There was no data or news to trigger the sell-off; it looked like a spontaneous stampede of investors scurrying to cover long-dollar positions in a thin end-of-week market. If the surprise move was good for the Euro it was even better for Sterling. On the day Sterling picked up one and a quarter US cents, three quarters of a Euro cent as well as moving higher against the commodity currencies (Aussie, Kiwi and Canadian Dollars). Sterling opens this morning at its highest level against the Euro since October 2008. Today's only UK statistic, Rightmove's index of asking prices for UK residential property, has had no detrimental effect on Sterling despite falling by -1.7%, its first July decline in four years. Figures due out from the Eurozone include the Eurozone balance of trade and Eurozone inflation, forecast to be steady at 2.4%. After lunch Canada reports on international investment flows, the New York Federal Reserve announces its manufacturing index for July and the US reveals retail sales for June, which are expected to have reversed the previous month's -0.2% decline. Sterling begins the week with a spring in its step, at least as far as Sterling/Euro is concerned (it is now less than three cents off its October 2008 peak). The last time it was at this level it failed to break back above £/€1.30 before slumping to near-parity against the Euro just two months later. Whilst there is minimal chance of Sterling revisiting that record low, there is every likelihood that technical resistance in the vicinity of £/€1.30 will make upward progress difficult, at least for a while. A five- or six-cent setback from that level would not be out of the question so Euro buyers should fill their boots to avoid missing a trick if £/€ does turn south. Sat WorldWide http://www.satworl ss/  (Jul 17, 2012 | post #1)

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