UK Bank Holiday – 27 May 2013
Please note that Monday the 27th is a UK bank holiday and our offices will be closed. We return to work as normal on Tuesday the 28th.
The FX Firm Team.
Record highs for equities – 20 May 2013
Markets showed signs of life on Friday as equities staged a late-week rally to put fresh record highs in the US. The weekly gain of 2% in New York was impressive but still overshadowed by Tokyo’s 3.6% rally, leaving Japanese stocks at their highest level since December 2007. Despite the exuberant mood in the stock markets, the news on the global economy is losing its shine. The US remains the bright hope but even on the other side of the pond, data is now mixed. Whilst in Europe the data is gathering speed in its decline with unemployment numbers rising and growth slowing. The economic effects from European austerity were thrown into contrast from the Japanese route of inflation when Japan reported a 0.9% GDP growth, the highest in the G7.
The big theme last week was whether the Federal Reserve was going to end its money-printing sooner rather than later. This had led the US Dollar to a week of strong gains and a continued sell off in Gold (the potential end of money printing and the debasement of FIAT currency led to less demand for the shiny stuff which is a traditional save haven). The mixed economic signals lead us to believe that we are unlikely to see the Fed curtail its printing anytime soon and wouldn’t be surprised for a sharp reversal in the US Dollar soon. However, back to last week, the Dollar continued its gains on Friday to hit its highest level since July 2010.
The Euro continued to struggle as markets digested the data that shows the Eurozone struggling to return to growth and traded at its weakest level in 6 weeks. The Pound also struggled on Friday against the US Dollar, despite upgraded growth forecasts from the Bank of England. The Aussie and Kiwi Dollars had a torrid week, with the Aussie trading at its lowest level in nearly year. The Kiwi also traded near a 6 month low as both currencies were hit by recent intervention from their Central Banks and lower expectations of Chinese growth, the voracious consumer of Australian commodities which has kept the Aussie Dollar in such demand.
The week ahead sees data which measures confidence in Europe. These will be monitored closely as an early indicator of whether the situation in the Eurozone is getting better. Tomorrow sees inflation data from the UK which could move the Pound but we do not expect fireworks. Wednesday could see choppy trading with the Federal Reserve Chairman speaks, which should shed light on whether they plan to withdraw stimulus any time soon. The Pound is having a good start to the week with good moves against the CZK, INR, TRY and USD.
Aussie and Kiwi continue to tumble – The FX Firm Daily Comments – 17 May 2013
Markets took a breather yesterday from the impressive string of daily gains. Poor data from the US gave reason for traders to take profits as slight concerns surfaced about the robustness of the US recovery. A closely watched manufacturing survey showed an unexpected contraction and initial jobless claims came in far worse than anticipated. Hopes for the US economy have been a key driver of markets recently and equity markets reacted poorly. New York declined 0.5% and Tokyo fell 0.39% despite releasing data showing a 0.9% GDP growth last quarter. London ended slightly down, bringing to an end a 10 day run of gains. Gold also continued its slide to close below $1400 an ounce.
The weak US data hurt the dollar and brought to an end its recent rally. The weak data lessens the chance of the Federal Reserve ending its money printing, which will help keep the Dollar strength in check. The Pound held relatively firm as it continued to bask in the glow of Mervyn King’s upbeat assessment of the UK economy. The Aussie and Kiwi Dollars both continue to fall as markets remain wary in the wake of their central banks intervening in markets to weaken their currencies. The Aussie in particular has had an impressive move down over the last week or so and we expect some consolidation soon.
Overnight, New Zealand released data showing the fastest rate of inflation in 2 years to highlight the conundrum that faces their central bank. Raising rates to control inflation would normally strengthen a currency, leaving officials in an awkward place. Otherwise not much else happened, currencies traded in a tight range and there is little data today to excite markets. A nice little wind-down for the weekend perhaps?
So far this morning the big currency moves have been largely related to the Aussie and Kiwi news above and sterling is currently up nicely against both. GBPNZD is sitting in the NZ $1.88’s and GBPAUD in the AU $1.56’s. It has been a rare role reversal for these pairs and they look attractive from a sterling perspective. GBP ZAR is another big mover as the pair are marching North.
Enjoy the weekend.
Mervyn King bows out – Daily Comments 16 May 2013
The current governor of the Bank of England gave his last quarterly inflation report before handing over the reins to Mark Carney. He took the opportunity to raise economic growth forecasts and state that he expects inflation to subside. It is the first upward revision of growth since before the financial crisis and was seized upon by the UK Chancellor, George Osborn, who stated “our plan is working, huzzah!” in an upbeat speech last night (I made the “huzzah” bit up). Hopes on European economies were limited to the UK however, as Europe reported worse GDP data than expected and unemployment in the region hit 12.1%. Industrial production in the US also failed to meet expectations and some analysts do point to less certain times ahead with slightly deteriorating export data to Canada and Mexico.
The uncertain data posed little concern to equity investors who simply appear drunk on free money pumped into them by central banks. The S&P index in New York gained another 0.5% to post a fourth successive record high close, cementing a 16% gain on the year so far. However, that is a schoolboy performance compared to Tokyo which has gained 45%! I hope these clever equity traders have hedged their Yen exposure….
On the currency markets, reactions felt more sober and correlated to data. The Euro slid 0.5% against the US Dollar and Pound in the wake of the poor GDP data. However, the big news continues to be the continuing US Dollar rally as it gained again against most currencies yesterday. It hit a 10 month high against a basket of currencies on the back of the positive US deficit reduction news we talked about yesterday and the relative strength of the US economy compared to other major economies. The Pound stood firm yesterday, supported by Merv the swerve’s growth forecast and made decent gains against most currencies.
Overnight, Japan reported stronger-than-expected GDP growth and the highest private consumption data since the beginning of last year. This afternoon sees inflation data from the US which could move markets but we expect more of the same. So far today currencies have traded relatively quietly and GBPUSD and GBPEUR are flat at the minute.
Stocks hit fresh highs – 15 May 2013
Markets showed some signs of life yesterday following Mondays quiet session.
Equity markets broadly gained across the board as traders pushed aside any
concerns about economic conditions or the magic money tap being turned off by
the Federal Reserve. The S&P in New York climbed 1.01% to set a fresh
record high, whilst stocks in London gained 0.82% to hit a fresh five and a
half year record. The DAX index in Frankfurt also set a record high, however
Tokyo eased very slightly as people took profits from the recent strong gains.
Equities did seem to stand alone in showing such exuberant risk appetite,
industrial commodities declined on concerns about some poor Chinese data with
Copper declining 2.3% and Oil easing slightly. The poor data wasn’t confined to
China with poor German economic sentiment data announced.
The poor European data hit the Euro, which traded near its one month low
against the US Dollar. Not even separate data showing that industrial
production had exceeded market expectations could pump any life into the single
currency. It’s fortunes were reversed after the London session however by
Fitch, the ratings agency, upgrading Greece yesterday evening. The Australian
Dollar continues to weaken after the release of the annual budget by Sydney
highlighting plans of spending to boost growth.
Its an awkward headline on the front page of the FT today for George Osborn.
The US budget deficit fell faster than forecast on relatively strong US growth.
The US did not subscribe to the austerity plan and this will probably be seized
upon by opposition parties. The NZ Herald overnight went to print saying that
NZ housing is 25% overvalued raising the prospect of interest rate rises.
Normally this would strengthen a currency which is awkward given the NZ Central
Banks recent market intervention to weaken the Kiwi. The South African Rand is
on the slide again, not helped by a fresh wildcat strike at a mine.
This morning saw a flurry of data with generally poor GDP data from Europe.
France has entered a “triple-dip” recession and Germany only narrowly avoided a
fresh recession. UK employment data came in slightly better than expected
which gave an early boost to the Pound. It is currently trading up against most
currencies with strong moves against the CZK, PLN, CHF, EUR and AUD.
Caution takes hold of markets – 14 May 2013
Fairly dull markets in all honesty. The on-going debate about whether the US
Federal Reserve will taper its asset purchase programme kept markets in a
cautious mood. Equities treaded water with New York posting a 0.05% gain,
London inching up 0.1% whilst the Eurofirst 300 index declined a gentle 0.2%.
The outlier was Tokyo which managed another 1.2% gain in the wake of the G7
meeting. Japan escaped criticism which was viewed by the market as a “green
light” to allow the Japanese Central Bank to continue its massive stimulus
efforts. Gold declined on expectations of the Fed shutting down the
printing presses and oil also declined. The UK’s Confederation of British
Industry did its best to cheer up markets by stating it expected the UK economy
would grow 1% this year and 2% next year.
Later in the session, US retail sales we unexpectedly positive adding fresh
impetus to the recent US Dollar gains. The dollar gained against most
currencies with a 0.5% gain against the Pound. The Euro managed to chalk up
gains of 0.2% against the otherwise strong Dollar but it still remains near a
one month low. The Yen resumed its falls and passed the ¥102 to the Dollar for
the first time in 5 years. The Aussie Dollar continued its slide in the wake of
the interest rate cut and speculation the Reserve Bank of Australia will be
forced to cut further.
Overnight, New Zealand reported weaker-than-expected sales data which caused
some weakness on the Kiwi Dollar but it has since recovered. The Royal
Institute of Chartered Surveyors released data showing a positive house price
expectation balance in the UK, the first time since mid-2010 and housing demand
is apparently at the highest level in over three years.
Markets look fairly range bound today and with a light day on the data
front, we do not expect any fireworks. GBP is having a mixed day with decent
moves against the SEK (weak inflation data hit the SEK badly), CAD, AUD and
Aussie and Kiwi Dollars slide – 13 May 2013
It’s hard to remember what happened last week, all I can recall is the staggering coverage of Sir Alex Ferguson retiring from Manchester United. Millions of people who have never been to Manchester seem overcome with grief. However, digging through my notes on the week I can just about come with enough material for our comments but certainly not the 16(!) pages that one national paper wrote about the great masticator of Old Trafford. Ferguson’s retirement announcement was greeted with record breaking equity market levels, so hopefully his pension is sufficient. New York stocks posted a succession of record highs throughout the week. Stocks in both the US and Europe gained 1.2% on the week. However, these performances were put to shame by Tokyo who posted a whopping 6.7% gain last week. Stock markets are above per-financial crash levels, so it’s good to know that all is ok in the world.
The US Dollar had a very good week with strong gains against most of its counterparts. It hit a four year high against the Japanese Yen and pushed the Euro back under $1.30. Chatter than the better-than-expected employment data from the US is leading traders to think that the Federal Reserve will soon end it’s ultra-loose policies (an end to free money) which would end the monthly debasement of the US currency. Otherwise, there is little in the way of explaining such a strong move for the greenback.
We think an end to money printing/quantitative easing/non-standard financing arrangements, whatever you want to call it, is a long way off. As if to prove the point, more accommodative action was taken this week by central banks around the world. Australia, South Korea, Poland, Denmark and the Eurozone all reduced interest rates and New Zealand admitted to intervention in the market to try and stem recent gains for the Kiwi Dollar. The central bank actions led to a difficult week for the Aussie and Kiwi Dollars who both saw its value slide, with the Aussie hitting an 11 month low.
The continuing unorthodox methods employed by central banks continues to convince us that all is not ok in the world and the stock market exuberance is purely driven by free money spat out from the printing presses. Whoever can predict when/if we will ever return to normal will make a lot of money. Assuming any of us knows what “normal” is anymore.
Anyway, back to the daily grind. The week ahead sees lots of data from the Eurozone, including inflation and GDP which will be watched closely. Germany is expected to report returning to growth, anything less than the expected +0.6% would almost certainly hurt the Euro. US industrial production and retail sales will also be closely eyed as will UK employment data. A busy week awaits, good luck.
Daily Comments – 9 May 2013
Markets were busy again on Wednesday with stocks rising and currencies moving choppily. Encouraging data releases from both China and Germany helped to lead global equity markets higher. Chinese exports picked up when compared to the same month in 2012 and this has gone some way to distract attention from the recent question marks over the economy’s strength. However some sharp commentators have cautioned that there were simply 2 more trading days in April 2013 accounting for the uplift, so demand may not be rising quite as quickly after all.
After some ropey data releases over the past few months, the self confessed economic powerhouse that is Germany, Is showing signs of turning the corner. Industrial production numbers comfortably beat expectations as German companies reported a strong rise in orders in the first quarter. The single currency rose across the board in reaction to the news and had a brief foray below the €1.18 level versus sterling before giving some of the gains back to finish back in the low €1.18’s. The euro performed better against the greenback and hit a weekly high of $1.3194, gaining 0.8%.
Other European news of interest came from Poland as the Polish central bank unexpectedly cut interest rates to try to boost the economy, whilst the Norwegian central bank kept rates unchanged.
Further afield, the Aussie and Kiwi dollar were not playing along with the usual script as strong Chinese data usually makes for a rallying Aussie and kiwi. Talk of intervention by the Reserve Bank of New Zealand to stem the rise of the currency led the Kiwi lower against the majors.
As with equities and currencies, commodity markets were reacting to the data releases and copper being closely tied to Chinese demand, rose 2% on the day. Gold was up $20 to $1472 an ounce and Brent crude was down at $104.34 a barrel.
So far today equity markets are down on opening levels after yesterday’s positivity with profit taking to blame for some of this. Sterling is moving along nicely this morning and looks attractive against USD, AUD, AED and JPY at the minute. UK data is released at 12:00 today and features the Bank of England rate decision and subsequent statement which will of course be taken to with a fine tooth comb. Later on, US unemployment claims data will provide interest too.
Markets firm following good jobs data – 7 May 2013
Last weeks concerns about a slowing global economy were pushed aside as US jobs data beat expectations and prompted a surge in risk assets. Equities gained strongly to close the week up as did commodities, which had suffered some brutal selling earlier in the week. The data showed that 165k jobs were created in the US and revisions of previous data added another 114k. This takes the unemployment rate down to 7.5%. the lowest since December 2008. Other big, if not unexpected, news was the European Central Bank cutting interest rates by 0.25% giving comfort to markets that Central Banks are still happy to provide support through accommodative policy.
The US Dollar gained on the positive jobs news, climbing 1.3% against the Japanese Yen. It struggled against the Euro, however, as markets struggled to form a consensus. The Euro traded wildly in response to statements from the head of the European Central Bank that they would consider negative interest rates which saw an initial loss of 1% for the single currency, only to reverse losses and close 0.4% higher. The UK Pound had a decent week following better-than-expected data, as the services sector grew at the fastest pace in 8 months and helped push sterling close to a three month high against the US Dollar.
It was a fairly quiet day yesterday with London and Tokyo closed for a bank holiday and markets consolidated Fridays movements. US Equities nudged up modestly to set a record high for the S&P 500 index. Asian markets who had already closed for the weekend when the US jobs data was released, caught up and broadly gained across the board. The standout performance was from Malaysia where the index gained as much as 7.8% during the day as traders cheered the electoral majority won by PM Najib Razak’s National Front party. The Aussie Dollar was the high profile mover on the currency markets yesterday, losing 0.6% as markets act on expectations of an interest rate cut following poor manufacturing data.
A relatively dull week ahead for data after last week. However, we still have house price data, interest rate decisions (anyone expect a change!?) and trade balance data from the UK. Australia is expected to cut rates during our early morning tomorrow and announce employment data later in the week, followed up by the G7 meeting starting on Friday. Anything could happen but like Southern UK, markets seem happy to bask in the sunshine for the moment.
Daily Comments 2 May 2013
Many markets were closed yesterday for the May Day bank holiday and as such, trading volume was thin. However, we still did see a bit of action as data from around the globe provided more evidence that the global recovery is faltering. China reported a slowing manufacturing sector, which triggered a sharp fall in commodity prices as markets expect less demand for materials. In the US, there was also poor employment and construction data. US manufacturing also slowed but not as much as the market expected. This coincided with a meeting by the US Central Bank, where it said that its easing programme (money printing) could be raised or lowered as required. This is widely seen by analysts as code to ease concerns about the Fed turning off the free money any time soon.
By the time the closing bells rang out, equities in the US were down 0.93% and Tokyo lost 0.44%. The outlier was London which gained 0.33% as it stood out from the crowd and reported relatively upbeat manufacturing data. Commodity traders were beaten and bruised as copper lost 3.7% after the poor Chinese data. Oil also sank below $100 a barrel and Gold slumped $20, to halt its recovery from its recent steep falls.
Currency markets we less dramatic but the Pound is enjoying a rare stint in the sun (literally – its actually sunny in the UK for change) with the manufacturing data providing fresh support for the recent rally. It touched the highest level since February against the US Dollar to close at $1.5590. It also gained 0.1% against the Euro and was firm against most of its counterparts. The Euro also managed gains against many currencies with a 0.1% gain against the US Dollar. The Aussie Dollar was the big mover on the day as traders aggressively sold in the wake of poor Chinese data. The Aussie Dollar is closely linked with Chinese confidence as much of the Chinese commodity requirement is sourced from the land down under. It lost 0.9% against the US Dollar and the Pound is comfortably back in the AU$1.50’s again.
Most markets are back open today but we expect most traders to wait until after the European Central Bank interest rate announcement this afternoon before committing too much to the market. UK Construction PMI released at 9:30 was better than expected and should help keep the Pound supported this morning. More US employment data is out this afternoon but the big driver will be the ECB at 12:45.