Latest market news
Equity markets remain nervous and we are now seeing liquidity start to drain away as we run into the Christmas break. Eurozone finance ministers agreed to contribute a further €150 billion to the IMF to boost its resources but the UK confirmed its position that any payments would have to be part of a G20 agreement. With the US expected to avoid contributing due to Congressional opposition events in Europe are still unclear.
The euro managed to hold its value, trading sideways most of yesterday and overnight. It still centres around $1.30 against the US dollar and has slipped to £0.8360 against sterling, taking it down to lows last seen in January. Sterling is also bid against the US dollar, with cable back at $1.5560.
The Swedish Riksbank is expected to cut rates by 25bps today, echoing the ECB’s December rate cut. The Riksbank has left rates unchanged since July, but starts to signal in October that it was not looking for an aggressive series of rate increases next year. With eurozone growth being revised lower, we believe that the central bank will be able to lower its inflation forecasts enough to justify a 25bps rate cut. If the Riksbank really wants to get ahead of the curve then it should opt for a 50bps rate cut in order to help shore-up financial sector confidence.
There are few releases in the eurozone this week, with the German Ifo survey probably the most important. The ZEW was unexpectedly stronger than expected in December with the expectations component rising even as the current assessment component was revised lower. A similar result would see the current assessment fall back to lows last seen in October 2010, while the headline business climate indicator is largely unchanged.
Press reports point to a very disappointing Christmas for UK retailers, just how bad it is will be shown by the CBI Reported Sales survey. Back in November, retailers thought that the balance would improve from November’s -19 to -6, which given that the series is not seasonally adjusted would mark the weakest December since the collapse of Lehman Brothers in 2008, when the series slumped to a low of -40. Our call for a rally to -8 suggests that retailers will be disappointed, but we remain a little above the consensus for a -12 reading. The seasonally-adjusted series is likely to be negative, which would point to a fall in December retail sales as UK consumers tighten their belts.
The previous rise in building permits should allow November US housing starts to rise. There looks to be some upside risk to the consensus for a 1.1% increase and we could see starts rise as high as 660,000 from 628,000 in October. However, permits should fall back, although we see this as a seasonal decrease. The US housing market is slowly consolidating and the underlying trend looks to be positive, albeit barely.
What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.