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.
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.
Sterling has strengthened this Morning against the Euro despite positive economic data coming out of Europe and the general concerns over the UK’s long term position within Europe following Prime Minister David Cameron’s defeat in the House of Commons earlier this week in a vote over EU budget contributions. German, French, and EU Markit Manufacturing PMI figures released this morning all came out above market expectations yet the Euro has still weakened against the Pound following the UK PMI Construction figure of 50.9 that well and truly surpassed market expectations of 49.1.
The Dollar has risen against both Sterling and the Euro this morning as markets price in expectations that US economic data being released this afternoon will be positive. US Nonfarm Payrolls, Average Hourly Earnings, and the Unemployment rate are all due to be released at 12:30 GMT and are expected to show that employers increased hiring last month, continuing the recent trend of positive US data. Markets and politicians will be taking this as confirmation that the recovery of the US economy is underway, convenient timing for President Obama who will be hoping that these positive figures, and an accomplished handling of the aftermath from Tropical Storm Sandy, translate into actual votes.
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Last week we saw very little economic data being released, however the few figures that did come out provided more than enough impetus to move the markets quite substantially. As the week progressed the Pound strengthened against the Euro on the back of the better than expected UK GDP figure of 1% and the consistently negative data that came out of the Eurozone.
Contrastingly, each day this week we will see some major data releases as well as a number of high level meetings. In Europe this week there is a number of data releases from Germany, including the Consumer Price Index and Unemployment Change, as well as European Consumer Confidence and Business Climate indicators. European leaders will be hoping that these figures, as well as European Central Bank President Mr Draghi’s speech, will help the Euro recover some of the losses it suffered last week. There is also the potential for big movements following the release of PMI figures in the UK and US on Thursday, and the Nonfarm Payrolls released in the US on Friday.
09:30 UK Mortgage Approvals
09:30 UK Consumer Credit
12:30 US Core Personal Consumption Expenditure
12:30 US Personal Income
12:30 US Personal Spending
13:00 German Consumer Price Index
13:00 German Harmonised Index of Consumer Prices
BoJ Interest Rate Decision
00:00 Australian HIA New Home Sales
06:00 German Retail Sales
08:00 ECB President Draghi’s Speech
08:55 German Unemployment Change
10:00 European Consumer Confidence
10:00 European Business Climate
14:00 US Consumer Confidence
The Economic and Financial Affairs Council Meeting
00:01 UK Gfk Consumer Confidence
10:00 European Consumer Price Index
12:15 US ADP Employment Change
12:30 Canadian Gross Domestic Product
01:00 Chinese NBS Manufacturing PMI
07:00 UK Nationwide Housing Prices
09:28 UK Markit Manufacturing PM
12:58 US Markit Manufacturing PMI
15:00 US Construction Spending
15:00 US ISM Manufacturing PMI
07:53 German Markit Manufacturing PMI
08:58 European Markit Manufacturing PMI
09:30 UK PMI Construction
12:30 Canadian Unemployment Rate
12:30 US Nonfarm Payrolls
12:30 US Unemployment Rate
14:00 US Factory Orders
Buoyed would be an understatement. Positive sentiment in the UK economy reached its highest level in over a year yesterday following the release of UK GDP figures. Whilst politicians argued whether or not the statistics were a true reflection of the current state of the economy or merely a momentary positive blip caused by the Olympics, with even some believing the results were simply a total fabrication, the markets had no such reservations. The Pound has now gained 0.7 percent this week and is on target for a weekly advance against the dollar, its first in five weeks. Gains today however may be limited as the market waits for the release of the official US GDP figures due out at 13:30. If recent results are anything to go by it is more than likely that President Obama could be in for further welcomed news with GDP potentially hitting 2.0%, surpassing expectations of 1.9%. This would give the president a welcomed and much needed boost as he and presidential competitor Mitt Romney draw ever closer in the polls.
The Euro declined yesterday against both Sterling and the Dollar and the situation does not look any rosier this morning. Spain’s staggeringly high unemployment levels continue as one in four people of working age are now unemployed in Spain. Official Spanish unemployment figures were released this morning at 25%, levels that haven’t been seen since the Country was under dictatorship four decades ago. What will be even more depressing for Spanish Prime Minister Mariano Rajoy, whilst he continues to delay his countries request for an inevitable bailout, is that the situation is only likely to get worse. As the country embarks upon the deepest cuts in its history, belt tightening and the predicted continuing contraction of the Spanish market, is only going to exacerbate the problem.
Furthermore, as has now become the norm since the Eurozone crisis began – Greece’s problems continue. An IMF report showed yesterday that Greece will miss target debt levels in 2020, at which point the country’s debt is now expected to reach 136% of GDP, missing the target of 120%. However this is unlikely to be of immediate concern to Greek Prime Minister Antoine Samaras whose main concern is keeping his country afloat in the short term. In order to ensure this, he is reliant on the Troika granting Greece a two year extension on its primary surplus target. However disagreement within the Greek coalition with regards to particular labour market reforms, which the Troika will likely make compulsory upon granting any such extension, is unsettling the markets.
As a result of this we could see the Euro fall today against Sterling, which is still high off the expectation beating GDP figures released yesterday, and lose ground against the Dollar as the potential 2% US GDP figure expected this afternoon is likely to give the Dollar a boost.
Christmas came early this morning for the UK as GDP figures confirmed, somewhat emphatically, that the UK has officially come out of recession. David Cameron declared yesterday during a lively Prime Minister Questions, at the end of a passionate statement regarding the strengthening UK economy to opposition leader Ed Milliband, that ‘the good news will keep coming’. Despite this statement, even the Prime Minister himself must have been pleasantly surprised this morning when the data was officially released, confirming a UK GDP Q3 increase of 1%, beating market expectations of 0.6%. This positive sentiment was conveyed in the markets as GBP/EUR jumped 35 pips in the ten minutes following the release. A large part of this increase is likely to be due to the effect the Olympics had on the economy as Olympic Games ticket sales helped revive growth. These results, whilst positive, should be considered with cautious optimism. Bank of England Governor Mervyn King commented yesterday that whilst the UK economy continues to recover, it is proceeding to do so at a ‘slow and uncertain’ pace. All of this means that the Bank of England’s Monetary Policy Committee will have a lot to think about when they meet on the 8th November to decide the UK’s monetary policy.
The economic data this morning from the UK contrasts drastically to the consistently negative information that was released yesterday morning in Europe. Between eight and nine AM yesterday nearly ten pieces of individual European economic data was released with each one being negative and failing to meet market expectations. This quite clearly hit the Euro as we saw nearly one cent fall off both EUR/GBP and EUR/USD following the data release. European leaders offered little help for the Euro either, as has come to be expected, following European Central Bank President Mario Draghi’s meeting with German lawmakers. Truth be told little was expected to come from this meeting which was more of a wooing campaign for Mr Draghi who is keen to gain the support of the German public to ensure the countries commitment to the ECB’s bond buying program which is hoped will help sure up the Eurozone.
Spanish Prime Minister Mariano Rajoy was breathing a sigh of relief yesterday after his People’s Party claimed victory in regional elections. Carlos Floriano, the party campaign chief, took this as confirmation of public approval for the government’s commitment to budget cuts and tough austerity targets. This was a much needed vote of confidence for the Spanish Prime minister who really now does have the green light to officially seek financial assistance from Europe. However, any formal request is likely to be delayed by a couple of weeks to prevent any assumption that they were simply waiting for the elections.
We see very little economic data being released early this week, however as the week progresses substantial movement could be seen in the markets as the UK and US both release Q3 GDP figures. The US will also be making an interest rate decision on Wednesday, although the general consensus is that the rate will remain unchanged. In Europe the release of PMI figures, consumer confidence data, and a meeting between ECM President Mario Draghi and German Chancellor Angela Merkel, all have the potential to impact upon the Euro.
Please find a summary of this week’s economic calendar below:
08:00 Swiss Monthly Statistical Bulletin
07:00 UK Nationwide Housing Prices
14:00 Bank of Canada Interest Rate Decision
15:00 EU Consumer Confidence
18:00 BoE Governor King Speech
ECB President Mario Draghi visits Germany
01:30 Australian Consumer Price Index
08:58 EU Markit Manufacturing PMI
08:58 EU Markit PMI Composite
08:58 EU Markit Services PMI
13:58 US Manufacturing PMI
19:15 US Fed Interest Rate Decision
21:00 Reserve Bank of New Zealand Interest Rate Decision
07:00 German Retail Sales
09:30 UK GDP Q3
13:30 US Durable Goods Orders
22:45 New Zealand Trade Balance
07:00 German Consumer Confidence Survey
08:00 Swiss Leading Indicator
13:30 US GDP Price Index Q3
14:55 Reuters/Michigan Consumer Sentiment Index
EU leaders will meet today for a two-day summit over plans for a single supervision mechanism and banking union and the wider issues surrounding the Eurozone crisis. In the days leading up to the summit the Euro has appreciated in a climate of calmer European stock markets and lower borrowing costs for Greece and Spain. There has also been a significant effort from Germany to argue for greater European economic and fiscal integration. EURUSD currently trades at 1.31 and EURGBP is currently trading above 0.81p (1.23). GBPUSD has also tracked EURUSD higher and trades above 1.61 on the interbank market.
Despite the relative increase in positive sentiment surrounding the Euro, it must be remembered that the summit is being held against a very dark backdrop. Greece today is braced for its twentieth general strike in two years and Spanish premier Rajoy continues to drag his feet on Spain’s bailout request. Any bailout request is now anticipated in November after the Galician and Basque parliamentary elections held on October 21st. Whilst it should be noted Catalonian parliamentary elections are due to be held on November 25th. Full Catalonian independence is unlikely to happen soon, if at all, but any Catalan struggle for greater autonomy would damage confidence, at a time when Spain needs to reassure the bond markets and fellow EU members , that the central Spanish government has its problems in hand.
No formal announcements are expected on Greece or Spain but any leaked comments could cause volatility in the Euro.
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Uncertainty remains within the Euro zone this week as Spain prolongs the inevitable; having failed to formally request financial assistance thus far. After a week of positive sentiment for the Euro following the release of Spain’s 2013 budget and encouraging bank stress test results, optimism towards Spain could now begin to wane and make the likelihood of terms being attached to a bailout far less favourable for the debt ridden country.
Elsewhere in the Eurozone this week, German Chancellor Angela Merkel will meet Greece Prime Minister Antonis Samaras in Athens. Likely to be top of the agenda will be the next tranche of bailout loans Greece is hoping to secure amid concerns the country could be bankrupt as early as November.
North America starts this week with a public holiday meaning we are likely to see little movement in the Dollar until later in the week, giving markets more time to digest the surprising improvement in employment figures that came out of the US late last week.
Please find a summary of this week’s economic calendar below:
Public Holiday USA and Canada
EU Finance ministers meeting
03:30 HSBC China Services PMI
07:00 German Trade Balance
09:30 EU Sentix Investor Confidence
11:00 German Industrial Production
German Chancellor Angela Merkel will meet European Greece Prime Minister Antonis Samaras
01:30 National Australia Bank’s Business Confidence
08:30 ECB President Draghi Speech
09:30 UK Industrial Production
09:30 UK Manufacturing Production
09:30 UK Total Trade Balance
15:00 UK NIESR GDP Estimate (3M)
19:00 US Fed’s Beige Book
23:30 Business NZ PMI
Chinese New Loans
02:30 Australian Unemployment Rate
07:00 German Consumer Price Index
07:00 German Harmonised Index of Consumer Prices
09:00 ECB Monthly Report
13:30 US Initial Jobless Claims
13:30 US Trade Balance
19:00 US Monthly Budget Statement
IMF meeting in Tokyo
10:00 EU Industrial Production
13:30 US Producer Price Index
13:30 US Producer Price Index ex Food & Energy
14:55 US Reuters Consumer Sentiment Index
The Euro has appreciated today following the European Central Bank’s decision to hold rates at 0.75%, pushing the Euro through the psychological level of 1.30 against the US Dollar and consolidating above 0.80p, currently at 0.8045, against the Pound.
Elsewhere, as expected the Bank of England voted to keep interest rates on hold at 0.50% and to continue with its programme of asset purchases known as Quantitative Easing (QE) at current levels totalling £375bn. Following the move in EUR/USD the Pound has ended the day up against the US Dollar at 1.6170 but down against the Euro at 1.2428.
Regarding the future direction of Bank of England rates and QE, and therefore the Pound’s value, focus will now turn to UK inflation data due to be released on 16th October and the minutes of today’s Bank of England meeting due to be published at 09:30 on Wednesday 17th October.