Tag Archives: fiscal cliff

Bungee Jumping Cable

Bungee Jumping Cable

Cable dropped off a cliff last week. Whilst it had climbed
in the week leading up to the New Year as the US edged ever closer to the fiscal cliff, it was actually the FOMC
minutes, released last week that hinted of a potential reduction in monetary
easing and interest rate rise, which pushed the pair over the edge. As the
bungee cord held late last week, today we will see whether the Pound can
actually catapult itself back up towards the 16 month highs that the pair had
experienced ‘pre-jump’.

With the Christmas period now over and the fiscal cliff
disaster averted, or at least slightly postponed, economic data releases should
now begin to take on more of a key role in influencing market movements this
week. With little data due out of the US, key figures from Europe and notably
China could add to market volatility this week. The Bank of England will make
an interest rate decision on Thursday and whilst rates are expected to remain
at their current levels, any increase would substantially strengthen the Pound
and could help Cable rebound after paring its gains last week following the
FOMC minutes. Furthermore Chinas dominance in the global economy means that any
positive data released from the country this week would also help strengthen
Cable as confidence around the world would be increased, stocks would
inevitably be buoyed and demand for safe havens such as the Greenback and Yen
would fall.

Please find
a summary of this week’s economic calendar below:

 

07.01.13

08:00 UK
Halifax House Prices

09:30 EU
Sentix Investor Confidence

10:00 EU
Producer Price Index

 

08.01.13

07:00 German
Trade Balance

10:00 EU
Consumer Confidence

10:00 EU
Retail Sales

10:00 EU
Unemployment Rate

11:00 German
Factory Orders

20:00 US
Consumer Credit Change

 

09.01.13

Chinese
Industrial Production

Chinese
Retail Sales

09:30 UK
Goods Trade Balance

10:00 EU GDP
Q4

11:00 German
Industrial Production

 

10.01.13

Chinese
Trade Balance

12:00 UK BoE
Interest Rate Decision

12:00 UK BoE
Asset Purchase Facility

13:30 ECB
Monetary Policy Statement

 

11.01.13

01:30
Chinese Consumer Price Index

09:30 UK
Manufacturing Production

09:30 UK
Industrial Production

13:30 US
Trade Balance

13:30 US
Import Price

15:00 UK
NIESR GDP Estimate

19:00 US
Monthly Budget Statement

 

Mark Webster

The Clock is Ticking

After recovering some of its losses from the previous week yesterday, Cable (GBPUSD) has dropped off once again after hitting its 16 month high last week as an agreement regarding the fiscal cliff remains nowhere in sight.

After returning early from his Christmas holiday in Hawaii, President Obama has summoned Congressional leaders to a meeting at the White House in a last ditch attempt to salvage negotiations regarding the necessary tax hikes and spending cuts if the fiscal cliff is to be avoided. With the January 1st deadline literally now just days away, it would appear inevitable that the compulsory tax hikes and spending cuts enacted under George Bush, due to take effect in 2013, will now come into force early next year. These measures are expected to lead to increases in US household taxes by an average of $3,446, substantially cut defence spending, and according to the Congressional Budget Office, send the US economy back into recession in early 2013.

It is precisely these fears, that the fragile US recovery at present is nowhere near strong enough to cope with these shocks without avoiding falling back into recession, that are causing concern in the markets. Inevitably, such a scenario would negatively impact the world economy, especially Europe which had seemed to be very slowly pulling itself away from the abyss recently – all of these factors are helping create a rather toxic outlook for the global economy. This has therefore led to a substantial decrease in risk appetite and an increase in safe-haven demand over the last few days.

Today the Dollar has strengthened against the majority of its counterparts and GBPUSD is currently trading at 1.6078. Having fallen close to a key level of support at 1.6067 this morning, this could create a safety net for the pair, preventing further losses.

Smoothing Over the Cracks

The cracks remain. Albeit cracks of ever decreasing size. President Obama and US House Speaker John Boehner are yet to come to an official agreement over necessary tax hikes and spending cuts, required if the US economy is to avoid falling off the fiscal cliff, however both sides are now beginning to make concessions.

Yesterday saw the most progress made regarding the fiscal cliff since talks began. Much of the discussion has centred around tax rate increases on high income earners. President Obama had initially favoured higher tax rates taking effect on incomes starting at $250,000, whilst Mr Boehner was closer to the $1,000,000 mark. Both parties are now moving closer to the middle of these two figures, however no firm agreement has been reached just yet.

Markets are again relatively flat this morning with only GBP/USD slightly changed, having increased to 1.6220, continuing its advance from late last week where it broke through a key level of resistance at 1.6124. UK inflation data has been released this morning, with the UK Consumer Price Index (YoY) figure hitting 2.7%, marginally surpassing market expectations of 2.6%. This could spark some movement in Sterling, however markets are again expected to be most responsive to any news concerning talks in the US. After the progress made yesterday regarding the fiscal cliff, and a deal being reached before the January 1st deadline looking more likely than at any other time previously, we could well see the Greenback weaken across the board today.

Mark Webster

The Fiscal Cliff-Hanger

The fiscal cliff remains the main focus for traders today. Market participants are watching tentatively for any development as the January 1st deadline looms ever closer. Sentiment had been relatively positive over the last week or so, as reaching an agreement before the deadline looked more than plausible. However a Citigroup survey has found that investors are now evenly split on whether an agreement on tax rises and spending cuts will actually be reached by congress. This increasing level of doubt was conveyed through the US stock markets yesterday as indexes closed down for the day.

It would appear that President Obama and House Speaker John Boehner are not at loggerheads just yet, but it is becoming increasingly apparent they are reaching an impasse. Mr Boehner has accused the President of not being serious about cutting spending, however the President has compromised on tax revenues, now demanding $1.4 trillion, down from $1.6 trillion. With just over two weeks until the deadline is reached, it is not yet apparent whether both sides are simply setting out their positions to see exactly how far they can press the other side or whether their truly is a legitimate stalemate.

Markets are relatively flat this morning, though we may well see movement in the Euro on the back of PMI figures that have just been released. Markit Manufacturing PMI is down across Europe with the EU and Germany both recording a figure of 46.3. However, Germany and the EU both reported positive Markit Services PMI figures of 52.1 and 47.8 respectively.

US Consumer Price Index and US PMI figures are due out this afternoon at 13:30 and 13:58 GMT. These results are expected to be slightly down on last month’s, any improvement on these expectations could bring about some movement in the Dollar, however any significant move is going to be dependent on the fiscal cliff progress.

Mark Webster

Agree to Disagree

Offers and counter offers were exchanged yesterday as President Barack Obama and House Speaker John Boehner spoke at length regarding how to deal with the fiscal cliff. Accounts differ on exactly what was achieved/agreed during this discussion, but it would appear that markets are optimistic that a deal on the fiscal cliff will be reached on time, before the January 1st deadline.

The Dollar has weakened this morning against Sterling and the Euro, suggesting the talks regarding the fiscal cliff are progressing well, or at the very least they are being perceived to do so. GBP/USD has breached a key level of resistance this morning, breaking through 1.6124, and the next key area to be tested is likely to be 1.6182. A break above this level could see a rise back to the twelve month high of 1.63+ and given the fact the pair are currently trading in an upward trend, this is a distinct possibility. However, failure to continue this advance could see a reversal back to 1.60.

Similarly the Euro has broken out of a key downward trend this week, for the second time in a month, and this is a clear indication that the Euro could strengthen further. However, any movement in the Euro is heavily dependent on how the Eurozone situation progresses and how well European finance leaders are able to deal with the ever continuing debt problems facing Greece.

Attention this afternoon will turn to the US as the Fed is due to make a decision on whether or not to keep interest rates at 0.25%. The Fed is expected to maintain its current rate and any variation would be a major surprise to the markets, which could potentially destabilise the economy and damage the already fragile recovery. However, the main focus will be on the Feds decision regarding its monthly asset purchase program. Operation Twist as it is currently known is due to come to an end this month and markets are waiting to see whether this will be continued through the medium of another QE program.
Please find a summary of key economic events this week:

12.12.12
07:00 German Consumer Price Index
07:00 German Harmonised Index of Consumer Prices
09:30 UK ILO Unemployment Rate
09:30 UK Claimant Count Change
10:00 EU Industrial Production
17:30 US Fed Interest Rate Decision
19:00 US FOMC Economic Projections
19:00 US Monthly Budget Statement
19:15 US Fed’s Monetary Policy Statement

13.12.12
09:00 ECB Monthly Report
13:30 US Initial Jobless Claims
13:30 US Producer Price Index
13:30 US Retail Sales
13:30 US Business Inventories

14.12.12
European Council Meeting
08:28 German Markit Manufacturing PMI
08:28 German Markit Services PMI
08:58 EU Markit Manufacturing PMI
08:58 EU Markit Services PMI
10:00 EU Consumer Price Index
10:00 EU Employment Change
13:30 US Consumer Price Index
14:00 US Markit Manufacturing PMI
14:15 US Industrial Production

Go Euro, Go

Today we will see European Finance ministers meet once again to further sure up the current deal regarding Greece. Discussion is likely to focus on the proposed supervisory role for the European Central Bank. Whilst in theory the majority of European finance ministers would be in favour of such a position, it is when it comes to the ironing out of the fine details that there is the potential for disagreement. Notably, leaders of countries outside of the Eurozone have expressed concern that they could be treated as second tier members of the new supervisor, a situation that would clearly be untenable.

Despite the meetings taking place in Europe today and across the pond regarding the fiscal cliff, the Euro has continued to strengthen against Sterling and the Dollar on the back of the Greek debt agreement reached last week. The Euro has risen against both the Pound and Dollar today, with EUR/GBP hitting 0.8128 (GBP/EUR 1.23) and EUR/USD rising to 1.3107. Sterling has also risen against the Dollar today, hitting the key level of resistance at 1.6124 that was mentioned in yesterday’s blog. Cable is continuing to test this level and should it breakthrough, we could well see 1.63 targeted next, however substantial movement will be dependent on the progress of talks regarding the fiscal cliff.

Elsewhere the Reserve Bank of Australia has cut interest rates for the second time in three months. Interest rates have been cut to 3%, equal to the half century low set in 2009, as the Australian economy continues to battle with falling commodity prices and a strong currency. Despite the interest rate drop early this morning, the Aussie Dollar has fared well, buoyed by the positive Chinese data released yesterday and also potentially because of the fact that some market participants felt the rate could have been cut even further. GBP/AUD is currently trading at a daily low of 1.5373.

Mark Webster

Increased Optimism

The Dollar has weakened against the majority of its counterparts this morning following increased optimism regarding the Eurozone after a debt agreement concerning Greece was reached in Europe last week. Whilst some market analysts argue that the current deal is insufficient, this agreement has at the very least sent a message to global markets that Europe will not let Greece fail, and it will remain in the Eurozone. This has led to rising indices across Europe, most notably the Athens Composite, which is up 9% over the last two months. Additionally, this morning Angela Merkel has, for the first time ever, indicated that Germany may accept a write off of Greek debt. This could be a very significant step in creating the first truly viable path for Greece to escape the black hole that it is currently in, however the key word here is; ‘may’.

Furthermore, China has posted positive manufacturing figures this morning. The Chinese HSBC Manufacturing PMI hit 50.5 this month, increasing ever so slightly from 50.4 last month. This has consequently, along with the European factors above, increased risk appetite among investors and has resulted in market participants selling off their ‘safe haven’ Dollar holdings in search of riskier assets.

This afternoon we have manufacturing data and PMI figures coming out of the US, should they be positive we could see the Dollar strengthen slightly, however the main focus for Dollar movement this month will be the ever approaching the fiscal cliff. Should little progress be made on this issue and the January 1st deadline look increasingly doubtful, we could see the Dollar strengthen substantially.

Sterling is up today against both the Euro and the Dollar following positive UK manufacturing data. The UK Markit Manufacturing PMI hit 49.1 this morning, not only increasing from last month but also beating market expectations of 48.0. Following the release of the figures at 09:28 this morning, Sterling has risen to a daily high of 1.2325 against the Euro and GBP/USD has broken through a downward trend hitting an interbank high of 1.6086 before falling back a little. The current rate is hovering around 1.6067, should the rate push above this we could see 1.6124 targeted. Should the dollar not break through this level, the rate may well fall back towards 1.60.

Please find a summary of this week’s economic calendar below:

03.12.12
Eurogroup Meeting
01:45 Chinese HSBC Manufacturing PMI
08:53 German Markit Manufacturing PMI
09:28 UK Markit Manufacturing PMI
13:58 US Markit Manufacturing PMI
15:00 US Construction Spending
15:00 US ISM Manufacturing PMI

04.12.12
European Finance Ministers Meeting
03:30 Australian RBA Interest Rate Decision
09:30 UK PMI Construction
10:00 EU Producer Price Index
14:00 Bank of Canada Interest Rate Dec ision

05.12.12
08:53 German Markit Services PMI
08:58 EU Markit Services PMI
09:28UK Markit Services PMI
10:00 EU Retail Sales
13:15 US ADP Employment Change
15:00 US Factory Orders
15:00 US ISM Non-Manufacturing PMI

06.11.12
09:30 UK Total Trade Balance
10:00 EU GDP
11:00 German Factory Orders
12:00 UK BOE Interest Rate Decision
12:45 EU ECB Interest Rate Decision

07.12.12
00:01 RICS Housing Price Balance
09:30 UK Industrial Production
09:30 UK Manufacturing Production
11:00 German Industrial Production
13:30 US Average Hourly Earnings
13:30 US Nonfarm Payrolls
13:30 US Unemployment Rate

Mark Webster

Obama Claus is Coming…

All President Obama wants for Christmas is a deal to be agreed on how to deal with the looming fiscal cliff, something that would be a welcomed present for many market participants also. The deadline is January 1st 2013. However, in a speech last night, President Obamas strong rhetoric suggested that if Republicans, and Democrats alike, behave for the next couple of weeks, a deal could be reached a week early.

Lloyd Blankfein, CEO of Goldman Sachs, stated that he believes the Presidents current plan regarding the fiscal cliff is ‘very credible’. It would appear that US governors are beginning to appreciate the importance of reaching an agreement sooner rather than later, and it would also seem that markets are beginning to believe in their elected officials. According to a Bloomberg Poll only 6% of investors now believe that US politicians will not reach some sort of agreement. As investors decisions become more and more headline driven it is more than likely we will a reasonable amount of movement in the Greenback in the run up to the New Year, with bias expected to be positive should a fiscal cliff agreement become anticipated.

The Dollar is trading relatively flat against Sterling this morning, however it has weakened against the Euro, as the Euro reached 1.2990, as investors become nervous in the run up to some key meetings today between Timothy Geithner, the US Treasury Secretary, and the four top leaders in Congress.

Mark Webster

Once, Twice, Three times… an Agreement

It is no surprise what the focus of the markets will be today. With little economic data due out and nothing of any importance in comparison, attention will remain concentrated on the European finance ministers meeting. Greece is going to go bankrupt. Greece is going to go bankrupt. There are only so many times that you can say this before it actually happens and we are getting ever closer to the point when it will be said for the last time, and Greece actually does run out of money. With this in mind, it is almost certain that some sort of an agreement will be reached today and the next tranche of financial aid released to Greece. Following this, we could actually see a marked improvement in European stocks and a strengthening of the Euro, as such an agreement would remove a substantial amount of uncertainty from the markets, at least for the time being.

Should the current Eurozone crisis be averted today, attention is likely to shift to the next global financial obstacle causing discomfort for the markets – the US fiscal cliff. The problem facing President Obama is a ticking time bomb in the form of $607 billion worth of tax increases and spending cuts due to come into effect in January. Unless some sort of an agreement can be reached in Congress, the recession inducing cliff will be hit imminently and the ability of government officials in Washington to compromise will be key to reducing the uncertainty within the markets.

Please find a summary of this week’s economic calendar below:

26.11.12
08:15 CHF Employment Level
11:30 EU Finance Ministers Meeting
12:00 German Consumer Confidence Survey

27.11.12
07:00 UK Nationwide Housing Prices
09:30 UK GDP
09:30 UK Total Business Investment
13:30 US Durable Goods Orders
13:30 US Fed’s Bernanke Speech
15:00 US Consumer Confidence
15:00 US Housing Price Index

28.11.12
13:00 German Consumer Price Index
13:00 German Harmonised Index of Consumer Prices
15:00 US New Home Sales

29.11.12
06:45 CHF GDP
08:55 German Unemployment Change
10:00 EU Business Climate
10:30 BoE’s Governor King Speech
13:30 US GDP
13:30 US Personal Consumption Expenditures Prices
15:00 US Pending Home Sales

30.11.12
UK Inflation Report Hearings
German Bundestag Vote on Greek Aid
07:00 German Retail Sales
10:00 EU Consumer Price Index
10:00 EU Unemployment Rate
13:30 US Core Personal Consumption Expenditure
13:30 US Personal Income

Mark Webster

Is That a Fat Lady Singing?

Christine Lagarde, the Managing Director of the International Monetary Fund confirmed last night that European Finance Ministers remain committed to ensuring Greece gets ‘back on its feet’. Lagarde remarked that the fight to save Greece was ‘not over until the fat lady sings’. If such strong rhetoric actually translated into affirmative action then possibly, just possibly, Greece would now be in some sort of situation comparable to that of a recovery. However this has not been the case, as we have become accustomed to over the last four years, and as I mentioned in my blog earlier this week, European leaders, Commissions, and Central Banks are all guilty of persistently dodging and delaying key decisions that could have proved incisive in providing Greece, and in turn the Eurozone, some sort of path to recovery. Crunch time must surely come next week as European finance ministers will meet once again to discuss the situation in Greece, and as the debt ridden country nears the brink of collapse as bankruptcy looms and public protest intensifies, the time for action has never been more pressing.

From one debt problem to another. On the other side of the Atlantic today, talks regarding another monumental debt problem will begin as congressional leaders meet at the White House with President Obama for the first time since the election. How well both sides can negotiate the US away from its current collision course with the infamous fiscal cliff will be vital. Markets are currently on tenterhooks as the ever approaching $600 billion cliff looms ever closer, threatening the current Wall Street bull.

Other than the meeting at the White House today there is very little economic data due for release. Therefore markets are likely to be somewhat subdued today, especially as they wait to see how the talks in the US today, and Europe next week, progress. That said, the Pound is up against the Euro this morning after recovering some of the losses it suffered yesterday, hitting 1.2465 at 09:45. The Euro also lost some of the gains that it had recouped against the Dollar earlier this week as it fell to 1.2722 this morning after finding strong resistance around 1.28 yesterday afternoon.

Mark Webster