Tag Archives: US

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.

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

Tension in the Air

The atmosphere is tense in Europe this morning as European finance Ministers make final preparations before a key meeting tomorrow regarding the situation in Greece. To say that reaching an agreement tomorrow is crucial would be an understatement. Greece quite frankly is facing imminent collapse, if this were to materialise it would invariably cause severe problems for the rest of the already troubled Eurozone. The rhetoric coming out of Europe today and at the weekend seems to be one of unanimous determination to reach a final solution, Christine Lagarde commented:

“I am always trying to be constructive but I am driven by two objectives…to build and approve a program for Greece that is solid, that is convincing today, that will be sustainable tomorrow, that is rooted in reality and not in wishful thinking.”

One would like to think that all European finance ministers share such positive intentions, however if previous meetings in Europe are anything to go by, it is going to take a lot more than a simple desire to create a sustainable program for Greece, to fix the problem.

In the US concerns over the looming fiscal cliff have eased following a Speech by US President Barack Obama, in which the President expressed confidence in his governments’ ability to reach an agreement on how to deal with the cliff. This has led to the Dollar weakening against the majority of its counterparts this morning. Notably the Pound has risen for the third straight day against the Greenback following positive UK housing data that came out this morning.

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

19.11.12
00:01 UK Rightmove House Price Index
05:00 Japanese Leading Economic Index
15:00 US Existing Home Sales Change

20.11.12
Bank of Japan Interest Rate Decision
European Finance Ministers Meeting
00:30 Australian RBA Meeting’s Minutes
07:00 German Producer Index
13:30 US Housing Starts MoM
17:15 US Fed Governor Bernanke Speech

21.11.12
UK Bank of England Minutes
09:30 UK Public Sector Net Borrowing
13:30 US Initial Jobless Claims
13:58 US Markit Manufacturing PMI
14:55 US Reuters/Michigan Consumer Sentiment Index

22.11.12
08:28 German Markit Manufacturing PMI
08:28 German Markit Services PMI
08:58 European Markit Manufacturing PMI
08:58 European Markit Services PMI
08:58 European Markit PMI Composite
15:00 European Consumer Confidence

23.11.12
European Council Meeting
07:00 German GDP
09:00 German IFO Business Climate
09:00 German IFO Current Assessment
09:30 UK BBA Mortgage Approvals
13:30 Canadian Consumer Price Index

Mark Webster

One Step Closer

Greece is one step closer to securing additional, and much needed, financial assistance this morning following a key vote in Athens last night. As protests continued in the streets, the Greek government successfully passed, all be it marginally, the 2013 budget which will yet again subject the Greek people to further tax increases and public sector wage cuts.

The Greek government has now done all that they can to ensure they are given access to further funding and a two year extension for debt repayments. The ball is now well and truly in the court of European finance ministers who will meet this evening in Brussels. Ministers will debate whether the steps that Greece has taken so far are adequate enough to warrant additional aid, the answer to which will more than likely be in the affirmative as any other outcome would essentially guarantee the bankruptcy of Greece.

With very little economic data out today and a public holiday in the US, trading volumes are likely to be substantially lower. This will be more than made up for later this week however, with key economic data being released each day, although the markets focus will almost certainly remain on Greece for the time being, at least until the next bailout tranche is agreed.

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

12.11.12
Public Holiday USA and Canada
EU Finance ministers meeting
07:00 German Wholesale Price Index

13.11.12
00:01 UK RICS Housing Price Balance
09:00 Italian Consumer Price Index
09:30 UK Consumer Price Index
09:30 UK Producer Price Index
10:00 German ZEW Survey – Economic Sentiment
10:00 EU ZEW Survey – Economic Sentiment
10:00 UK BOE Inflation Letter

14.11.12
09:30 UK ILO Unemployment Rate
09:30 UK Average Earnings
09:30 UK Claimant Count
10:00 EU Industrial Production
10:30 UK BOE Governor King Speech
12:30 US Retail Sales
13:30 US Producer Price Index
19:00 US FOMC Minutes

15.11.12
06:30 French GDP
07:00 German GDP
09:00 Italian GDP
09:00 ECB Monthly Report
10:00 EU Consumer Price Index
10:00 EU GDP
13:30 US Consumer Price Index
13:30 US Initial Jobless Claims

16.11.12
14:00 US Net Long-Term TIC Flows
14:15 US Industrial Production

Mark Webster 12/11/12

From One Vote to Another

From one vote to another. Markets today will be bracing themselves once again for potential turmoil in the run up to another key vote, one that could cause much more movement than the US presidential election ever threatened.

We have become accustomed to leaders pleading and begging for votes over the last couple of weeks, however it is now a different leader in this position; Greek Prime Minister Antonis Samaras. As I have mentioned in previous blogs, Greece could face bankruptcy by the end of the month should they not secure further financial assistance. In order to obtain such funding the Greek government must vote to approve tough austerity measures that have been agreed with the Troika, with the first step of this process taking place today. Should this vote not be passed substantial uncertainty is likely to be seen within the markets with the Euro likely to suffer heavily as talks of a Greek exit will inevitably resurface.

The dollar is slightly down this morning against the Euro and Sterling following Barack Obamas re-election as US President. This may well be the result of market participants beginning to move away from the safety of the US dollar as uncertainty has now been reduced and risk appetite invariably increases. The Dollar has also potentially weakened based on the belief that President Obama’s win has paved the way for further monetary easing, that said however, round three of Quantitative Easing did not do much to weaken the Dollar as such policies have become to be expected and therefore are already priced in.

In comparison to the importance of the Greek austerity measures vote, there is little economic data out today of any real significance. However so far this morning EU retail sales figures have been released recording a drop of -0.8% which is slightly better than the market expectation of -1%. We will also see German Industrial Production figures released at 11:00 GMT which could move the markets slightly, however make no mistake, the key event today will be the outcome of the vote in Greece which has the potential to cause significant movement in the markets.

Mark Webster

Race to the Finish

There is only one thing that markets, and people alike, all over the world will be focusing on for the next 24 hours and that is the US Presidential election. With the race to the finish line said to be the closest in decades we are unlikely to have any indication of a favourite until the early hours of tomorrow morning. Whist, regardless of who wins, there is unlikely to be a substantial impact upon markets in the short term, trading is expected to be slightly subdued until post-election.

This side of the Atlantic we have seen a number of economic data releases this morning which under normal circumstances probably would have been subject to more extensive reporting. Markit Sevices PMI figures were consistently below expectations across Europe and the UK recorded poor results in both Industrial Production and Manufacturing Production, -2.6% and -1% respectively.

All of this has led to the markets trading pretty much flat so far today as everyone waits with bated breath until tomorrow morning when uncertainty will be reduced and we will have either another four years of Barack Obama or a new leader of the United States.

Risk Aversion

Markets have responded negatively following the Fed’s gloomy outlook for the US economy and announcement to launch limited measures designated to boost growth known as Operation Twist. Operation Twist does not inject any new money into the economy but the Fed will sell USD 400bn of short term bonds and buy USD 400bn longer term debt to lower the yield.

Risk aversion is a clear theme in today’s trading with sharp falls seen in global equities and oil trading back below $85 per barrel. Commodity currencies such as the Australian, Canadian and in particular the New Zealand dollar have weakened markedly on the negative global economic outlook. Whilst despite the negative outlook for the US economy, the US Dollar has appreciated on safe haven flows. Recent activity from the Swiss National Bank making the Swiss Franc less attractive for those seeking a safe haven.

The Pound has continued to slide against the US Dollar, trading at 1.54 on the interbank market.