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“Cyber Monday” inspires the markets and strengths the USD

“Cyber Monday” inspires the markets and strengths the USD

After Black Friday we have Cyber Monday which is supposedly the busiest day for on-line retailers as packages are bought ahead of Christmas. Equity markets rallied overnight rising by around 2% during Asian trading on reports that the IMF would provide a 600 billion € bailout for Italy. Although the report is hardly credible in that the IMF does not have such resources. The rally has fed through to Europe this morning, although it is difficult at the moment to see this as anything more than short-covering. There is a general dearth of high quality data releases this morning, with the key OECD Economic Outlook, likely to show a marked downward revision to eurozone growth forecasts, confidence seems set to remain fragile.

The German government repeated this morning that it had no plans to issue joint bonds amongst AAA-rated eurozone countries. This is hardly new as AAA-rate countries are unlikely to gain much by pooling their finances, it is the reduction in interest rates costs for lower rated sovereigns that explains much of their attractiveness to Italy, Spain, Portugal and Greece.

The euro traded fitfully overnight, with euro-dollar trading in a tight range around 1.33. The single currency found support at 1.17 against sterling before regaining 1.163 in early trading. Cable is back above 1.55, but sterling remains vulnerable to sentiment. The market is looking for the November CBI reported sales survey to show a sharp dip in retail spending and both the Rightmove house price survey and the Lloyds business barometer survey for November proved disappointing.

Ahead of tomorrow’s Autumn Statement, the Treasury are providing more detail on some of the policy measures to be announced. The government is hoping to attract £20 billion of infrastructure spending from the private sector by providing £10 billion of seed capital. With government finances stretched HMT expects to find that £10 billion from £5 billion in existing underspend and £5 billion in net cuts. These will either come from cuts to the welfare budget by increasing benefits by much less than the 5.2% year-on-year increase in September CPI would require or increases the Bank levy. £40 billion of credit could be made available under a National Loan Guarantee scheme, but only the first £20 billion is expected to be announced tomorrow. Although the government remains on track to meet this year’s borrowing target of £122.5 billion the anticipated downward revision to 2012 growth forecasts (and beyond) by the Office for Budget Responsibility mean that the government are unlikely to see the structural deficit closed by 2015.

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