Sep
3
Currencies have traded in tight ranges over the past 24 hours or so as market participants take to the sidelines ahead of this afternoon’s release of the key US non-farm payrolls report for August (so much so that only half of the opening rates on the right have changed from yesterday). Indeed, this month’s release is certainly one of the more highly anticipated of the year, global data this month providing a mixed message at best. With risk appetite supported by some encouraging data over recent days, particularly the US weekly jobless claims figures which may have cooled any nervousness ahead of today, riskier currencies have been able to hold onto their gains against the Dollar and Yen earlier in the week. Though sentiment remains fragile. Consensus forecasts are showing a drop of 100,000 in the payroll, as the layoff of temporary census workers continues.
At its policy meeting yesterday, the European Central Bank again left its refi rate unchanged at 1%, where it has been pitched since May 2009. President Trichet noted that economic data for Q2 and Q3 have been stronger than anticipated, though the ECB still expects that economic growth will be moderate, with uncertainty prevailing in the period ahead. The entirely expected conclusion is that that interest rates will remain low, and that the ECB are in no rush to start tightening monetary policy.
This morning’s trading will be dominated by the UK PMI Services survey. The stunning rise in March this year to within a couple of points of its all-time high (which itself is a bit of an exaggeration as the numbers only go back to the beginning of 2006) set the tone for a more general increase in business and investor confidence through the Spring and early Summer but we’ve already seen more than 5 points drop from this measure to its lowest level since June of last year. All this has taken place with little comment or concern as market sentiment has been dominated by the stunning Q2 GDP figures. As the days get shorter, the light fades and the morning dew on the grass lays just that little bit more heavily, though, so we might reasonably expect a little more apprehension and nervousness from the business community. Of course it’s possible that a meaningful attempt to lower the unsustainable public borrowing requirement and the subsequent sharp decline in market interest rates will lead spontaneously to an increase in private sector confidence. More likely, however, is that the more immediate concern of where the next contract or order is coming from – especially amongst those service sector firms which until now have relied on Government munificence – will lead to the delay or cancellation of investment and hiring plans, the inevitable result of putting the fiscal house in order over the coming months and years. The big and immediate unknown, however, is the extent to which those Survey respondents left behind as their colleagues went on holiday in August will have decided that the economic glass is half-empty rather than half full…….
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Sep
2
The first trading day of September has started off with a bang and we can only hope that the performance in the financial markets for the rest of the year will be as strong as what we have seen yesterday. With risky assets and high yielders already trading higher following the sharp rise in Australian GDP, sentiment was further boosted by yesterday afternoon’s news that the US manufacturing sector expanded at a faster than anticipated pace in August. The ISM index rose to 56.3 from 55.5 in July, compared to expectations that it would fall back a couple of points. Of particular note was the rise in the employment sub index, which markets will take note of in anticipation of tomorrow’s non-Farm payrolls. If these also surprise on the upside then it would suggest that there may not be as large of a divergence between the recovery in the US and abroad as previously thought, and the rally in risk would be sustained. A further deterioration, however, would verify the Fed’s concern for sluggish growth over the next few months which could lead to further dollar weakness.
The Euro has extended its gains against the Dollar despite some weaker than expected German retail sales figures. The slightly stronger Eurozone PMI report and the overall improvement in risk appetite contributed to the rise along with a strong vote of confidence from the Chinese government on the importance of their links with Western Europe, and the importance of the Euro.
Today, the ECB is widely expected to keep rates on hold this month, whilst announcing that
it will extend its liquidity operations to banks beyond the September deadline. Bundesbank
President Weber earlier gave the game away by suggesting that any exit strategy would be
a matter for the first quarter of next year, rather than anytime in this. Of perhaps more
interest will be the ECB Projections for growth, which will be published during Trichet’s
press conference this afternoon. Eurozone growth forecasts could be revised considerably
higher than the current consensus of 1.2% for 2010, which could give markets some pause
to examine whether the ECB will be the first major central bank to start tightening policy
somewhere in 2011.
Sep
1
After a summer that has seen large swings in sentiment for the economic outlook, depending on which side of the pond, or indeed which end of the Eurozone you reside in, Australia has stormed into the autumnal months with a stellar set of Q2 GDP figures, providing the catalyst for a positive Asian trading session. The Australian economy grew 1.2% QonQ, and 3.3% YonY, which was right at the very top of market forecasts and above the fan charts produced by the RBA. The Sydney stock exchange bounced 2% on the day, and the Aussie Dollar jumped by a cent against Sterling on the back of the news. A delve into the growth figures also reveals very encouraging components, with domestic spending on the increase and solid export growth.
A rebound in the Chinese manufacturing PMI index also served to fuel to optimism. The resultant optimism did see the safe haven Yen dip, though the market is more concerned with the non-Farm Payrolls data due out of America on Friday to let itself get carried away.
This has interesting knock on effects for the Eurozone however. With China being Australia’s biggest export recipient, and export growth up 5%, it is a safe bet that Chinese growth is back on the right track. With Germany being the world’s main producer of sort of the capital goods, plant and machinery that China will be devouring during it’s phenomenal expansion (when a country can spend $65bn on a water diversion system, relocating 440,000 residents in the process, you get the impression there may be a lot to go at) , and a weaker Euro to boost the export coffers, all of this bodes well for the Single European Currency because continued support to the peripheral countries depends crucially on a strong German economy to finance the transfer payments.
This morning, PMI data for the UK has come in significantly weaker than expected, the same data has come in a touch better than expected for the Eurozone, and Sterling has weakened nearly a cent against the Euro and half a cent against the dollar in reaction. The US will release this data later in the afternoon. Also due for release is the US ADP employment report, which should provide some advance indication ahead of Friday’s official payrolls report.
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Aug
31
After the final bank holiday weekend of the year, UK markets are playing catch up with their overseas counterparts. It was a whip-saw session for markets on Friday night in reaction to the much anticipated speech from Fed Chairman Bernanke at the annual Kansas City Fed conference in Jackson Hole, Wyoming. Ultimately the speech gave no real direction to the FX markets, Bernanke reaffirming the Fed’s commitment to do ‘whatever it takes’ to support an economic recovery, but stopping short of committing the US central bank to another round of quantitative easing. The news sent the Dollar higher against the Euro and Sterling, although the greenback weakened somewhat against the Yen as equities took the news badly, turning negative in the aftermath of these remarks. Overall, Bernanke provided get a long overview of why we should be confident that the US will grow in 2011, and a list of excuses as to why growth has been so bad thus far this year. Though he didn’t signal any change in policy, with his remarks viewed as hawkish by the market, the speech clearly set the foundation for additional easing should conditions deteriorate. Clearly the US economic recovery remains on shaky ground, and Friday’s non-Farm Payrolls release could be pivotal in the direction that the Fed takes.
Yesterday saw a significant reversal of Friday night’s move in currencies, with some disappointment in Japan after the BoJ increased its bank-loan programme by ¥10 trillion to ¥30 trillion yesterday. Markets were hoping that the BoJ would be more aggressive, and that disappointment was expressed by a 3.6% fall in the Nikkei. The FTSE is playing catch-up after yesterday’s Bank Holiday so it looks especially vulnerable this morning. With the BoJ announcement unable to prevent dollar-yen from falling back to ¥84, the foreign exchange market is now preparing for currency intervention to weaken the yen.
For the UK, A relatively quiet week for UK data sees the MPC meeting pushed into next week. With revised Q2 GDP having been released last week, the only significant release is the final estimate of July M4 money growth and related lending data. Credit growth is expected to remain muted as households continue to prefer to pay down debts rather than borrow more. Survey data include both the Hometrack and Nationwide August house price surveys, which should confirm the new trend in falling house prices as well as August consumer confidence and manufacturing and service sector PMIs. Consumer confidence should have rallied, though there could be some further easing in the rate of PMI expansion.
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Aug
27
Good economic news for the UK but little improvement in GBP
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Today saw the first revision of the Q2 GDP figures for both the UK and the US with the UK up first this morning and managing to beat expectations with a revision upwards of 0.1% to 1.2% the strongest quarter on quarter growth since Q1 of 2001. The market was expectation no change to the existing estimate of 1.1% and takes the year on year growth up to 1.7%. Construction was a key growth sector that had its strongest quarter since 1982 but these are recovering from exceptionally low levels.
The UK received some more positive data yesterday from the CBI retail sales volumes which showed a year-on-year increase for a consecutive month. Over half of the retailers surveyed (53%) had seen a rise in sales volumes over the first two weeks of August and only 18% said sales had dropped. Clothing, grocers, durable household goods and hardware were the key sectors and where most likely boosted by the untypical British summer that we are having, actually being sunny in summer seems to be good for the economy.
The US has seen some quite positive results from many of the large companies recently with profits up and costs down but on closer inspection much of the money has been saved by cost cutting rather than increase in volumes and the cost cutting has come from reducing staff. Obviously this in not a sustainable way to grow and the massive number of unemployed in the US is going to be one of the main stalling points in a recovery. In slightly more positive news yesterday with the Mortgage Bankers Association saying that the mortgage delinquency rate dropped from 10.06% to 9.85% in Q2. This was coupled with yesterdays Initial Jobless Claims for the US showing a drop of 31,000 to 473k. Economists say that the jobless claims need to get down to around 400k before the US economy can sustainably create jobs but with the figures coming in below the 500k mark it is definitely going in the right direction albeit very slowly.
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Aug
26
GBP looks strong
Filed Under Daily FX market news | Leave a Comment
Following the alarming drop in existing homes sales figures for the US, as released on Tuesday, yesterday saw more dismal US economic data with both durable goods orders and new home sales disappointing markets. Overall new orders for durable goods rose by a modest 0.3% in July. Drilling further into the figures reveals more however – within this was a 76% increase in orders for commercial aircraft. The market’s disappointment was in the implication being that, excluding orders for such volatile, illiquid machinery, order’s fell by 3.8% in July, the largest monthly decline since January 2009 when global confidence really was at its lowest ebb. With durable goods orders a good lead indicator of manufacturing output, it looks as if the recovery in the manufacturing sector, which had been one of the main factors driving the economy forward, is running out of steam.
This news accompanied more bad news on the housing front. New home sales fell by 12.4% in July, with June’s figures also revised downwards. This leaves July’s sales at their slowest pace since the data series was first published in 1963. Oddly, this resulted in some erosion off the Yen’s safe haven status as stocks traded higher – a reversal on Wall St as bargain hunters saw the data as an opportunity to buy. The Dollar is also on the back foot. With the list of disappointing data growing longer and longer over the last month, the prospect of further QE from the Fed looms ever larger.
Improved risk sentiment has helped pull Sterling higher against both the Euro and Dollar. With little new on the domestic front, Sterling is prey to swings in risk sentiment further afield, though today will see the CBI’s distributive trades survey and markets will be hoping for a continuation of the recent firm trend in retail sales. US markets will be looking to a speech from Ben Bernanke, the Fed chairman, as well as today’s initial jobless claims data. Bernanke is expected to provide further details on how the Fed would react to any continued slowdown in the US economy, and what shape any QE would take. The greenback could therefore struggle to maintain any gains seen this morning. Meanwhile, the FTSE remains close to its pivotal 5,000 level and could easily trade either side of that line given that ‘super Thursday’ today sees results from around 70 companies.
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Aug
24
After recent weakness against many of the majors, the Dollar is finally back in vogue it seems, at least looking at its performance over last week and into this week. New and fresh synonyms for ‘risk aversion’ and ‘risk appetite’ are becoming increasingly difficult to fabricate when discussing the Dollar over recent weeks, and yesterday’s movements provided little in new material to write about. Global growth concerns have returned to the foray and such a drop in risk appetite was responsible for the broad buying of Dollars across the market, the Yen also benefitting from this.
A broad spate of warnings contributed to this. Yesterday, the normally hawkish Fed Governor, Hoenig said that the US recovery was abnormally slow. Then, overnight the EU’s Rehn said that the Asian and US slowdown would have a serious negative impact on the Eurozone economy. Meanwhile, Moody’s have warned that slow economic growth and austerity measures may have negative implications for some sovereign ratings.
Furthermore, the fears of a growth slowdown has seen rate hike expectations for commodity currencies being wound back, reducing support for the AUD, NZD and CAD, though the AUD has recovered slightly from its lows yesterday morning that followed the announcement of an Australian hung parliament.
Sterling has slipped back this morning following an interview with new MPC member Martin Weale in which he referred to the Bank of England’s August Inflation Report as ‘putting a significant chance on the economy contracting over a four-quarter period’. As a point of fact, the Bank’s forecasts put an 11% probability on the year-on-year rate of growth being negative in 2011 Q2. But equally they put a 13% on growth being above 4% over the same period – emphasising perhaps the uncertainty on the economic outlook rather than just directional risk.
It’s a fairly quiet day on the data calendar today. The superb German GDP figures from 2 weeks have remained unchanged after a revision, Eurozone industrial new orders have recorded strongly, whilst existing home sales figures for the US is the only remaining data release of note. Markets may watch this keenly as the strength of the US property market is again in focus.
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Aug
23
The AUD has weakened sharply over the weekend in response to the political uncertainty following the Federal election this weekend. The result is the first hung parliament in 70 years and the lack of clarity over who will take charge of the finances may not be solved for at least a few days. This has left the markets very jittery with regards to the AUD and has heightened risk aversion giving a boost to the USD and helping it keep hold of the gains it made last week.
The Euro is having a bit of a harder time and was hurt on Friday after ECB council member Axel Weber was quoted saying it would be wise to keep monetary conditions loose for some time. The Euro has had a hard time of the recent spate of risk aversion and has been close to an eight week low against the pound and month low against the USD and was not helped by the poor data out from the US towards the end of last week.
This morning’s August Purchasing Manager Index for the Eurozone has come in slightly worse than expected although it does still point to some growth in both the services and manufacturing sectors just not quite as high as expected or as high as we saw last month. We have a fair amount of data out this week but the highlight will be the review of Q2 GDP figures for Germany tomorrow and both the UK and the US on Friday following the surprise jump to 1.1% growth when expectations were for around 0.6% growth. Investors will be looking for clarity about where this growth came from and how sustainable it is.
With very little data out for the rest of the day it looks as though risk aversion will be the order of the day with quite a bit of volatility around the AUD. The Euro, already on the back foot a little, could see further falls against both the GBP and the USD although sterling is not without problems and the USD could again prove to the best performing currency at least until some data gives us cause to believe otherwise.
Aug
20
The yen remains a major beneficiary of any risk aversion moves, with the dollar briefly dipping below the Y85 level in the immediate aftermath of some poor US economic data. An unexpected rise in the number of new weekly claimants for US unemployment benefit was followed by news of a sharp fall in the Philadelphia Fed business survey, when a small increase had been forecast.
The dollar, though, is back slightly from its lows with fears of Japanese intervention and possible further stimulus measures acting as a break on the yen’s rise.
The strength of the yen has been one of the hottest topics in a sweltering Tokyo summer, with the authorities last week stepping up verbal intervention after the currency hit a 15-year high against the dollar, though on a price-adjusted basis, effective exchange rates are slightly below the average of the past 30 years, suggesting there is still room for the currency to rise further without direct government intervention. The export-driven Japanese economy is vulnerable to a sudden surge in the value of the Yen, therefore it is in the authority’s interests to monitor the situation closely. Further strengthening the Yen is it’s increased popularity as a safe haven alternative to the Dollar in light of recent doubts over the US recovery.
Yesterday, Sterling recovered its earlier Asian session losses against the Dollar after UK Retail sales printed much stronger than expected, boosted by the remnants of World Cup related spending. Sales jumped 1.1% versus 1.4% forecast – their best gain in five months – after recording a strong increase in ‘other’ areas, such as world cup paraphernalia and jewelry, though arguably it was Jessica Ennis and not the England football team that showed the way in picking up gold.
Overall it is difficult to draw any meaningful conclusions about July’s data given the one-off impact of World Cup activity. It does suggest, however, that UK consumer demand at the very least appears to have stabilised as the economy slowly expands. As time goes on however, the true effect of the government austerity measures on this growth will become apparent.
With no data from the major economies scheduled, today’s direction will likely depend on the extent of follow through from yesterday’s trend and any position squaring as markets go into the weekend
Aug
19
The release of the Monetary Policy Committee minutes yesterday morning initially gave sterling a good boost taking it up to 1.5688 against the USD but the gains were short lived with the pound closing back below the 1.56 level. The minutes were not as dovish as the market had expected and nobody voted to extend the Quantitative Easing measures already in place. Whether this would be a good thing for the British economy is not as clear as originally thought with some economists seeing further QE measures as actually harming the economy rather than boosting it. The minutes made clear that they had not closed the door on further QE measures along with the usual vote from Andrew Sentence to raise rates by 0.25% as he had done for the previous 2 meetings.
This morning has seen a slew of data for the UK including the Retail Sales Figures coming in much better than expected for July increasing by 1.1% month on month instead of the 0.4% that was expected and taking the increase to 1.3% year on year. We have also had some data out for the UK finances showing Public Sector Net Borrowing figures which showed the borrowing decrease to £3.173bn in July along with the money supply increasing by 0.4% in July taking the year on year increase to 2.3%.
The Aussie Dollar has been having some problems recently, Wednesdays economic reports lowered expectations for the RBA to raise rates over the next year and with the Federal election coming up and no clear winner in view the possibility of a hung parliament is also weighing on the currency. Australian finances are in a much better state than the UK’s in our run up to the election so the possibility of a hung parliament is not going to hurt the AUD as much as it did in the UK.
With the decent news out for the UK this morning we should see a bit of a rally in the pound and hopefully reverse the losses from earlier in the week. With only the US jobless claims this afternoon it could prove to be a bit more of a positive day for the proud pound.