Mixed data lets Euro strengthen
NZ interest rates decision tonight
BOC interest rates on hold and positive outlook
FX Market Overview
There was plenty of Eurozone data yesterday and manoeuvring your way through it is a tricky task. German factory orders rose 5.2% in October, comfortably wiping out September’s 4.6% contraction and reassuring markets that there is life in Deutschland yet. Eurozone economic growth was confirmed at 0.2% in the 3 months to September. These were the positives. The negatives included further confusion over what the EU leaders would agree this weekend. These are unknown unknowns in the Donald Rumsfelt school of thinking and that makes it hard to traders and investors to pre-empt any announcements. They did have a shot fired across their bows by Standard and Poors who warned that the Euro Financial Stability Facility (EFSF) a fund designed to steady the ship in the Eurozone, runs the risk of having its credit rating downgraded even before it has managed to get into its stride. That follows a previous warning from S&P that 15 of the 17 Eurozone members were also on the watch list for downgrades. In the end, the euro had rather a good day but that is likely to be undone as we approach the week end and the EU meeting.
Moves by the Bank of England, designed to calm fears failed to lift the Pound. The UK’s central bank announced it would make short term cheap money available to UK banks if there was another credit squeeze. The markets largely ignored the news but shares in the banks most likely to need such a fund went up and the shares of Barclays and HSBC, the best funded UK banks, fell. That’s the law of unexpected repercussions in action. Early this morning we heard that the British Retail Consortium’s shop price index reflected a very poor November of high street activity and that does not bode well for the Christmas binge. Discounting is rife already and, whilst that is good for stocking filling, it is bad news for the profitability and sustainability of retailers.
The Canadian Dollar was boosted by the Bank of Canada leaving their base interest rate on hold and signalling that the economy was growing at a robust pace. That reduced the fears of an interest rate cut and boosted confidence in the Canadian economy.
The Australian Dollar strengthened overnight after news that Australia’s economy grew 1 percent in the three months to September after growing a revised 1.4 percent in quarter 2. That’s the fastest pace in four years and well above financial market estimates. It reduces the likelihood that the Reserve Bank of Australia will follow through with another interest rate cut in the short term and that boosts the attraction of the Aussie Dollar to international investors.
There was no suggestion that the Reserve Bank of New Zealand would follow the RBA’s suit in cutting interest rates but we will get that decision overnight tonight.
Today brings both the UK and German industrial production figures which, if recent data is a good guide, should favour the Germans and sour attitudes towards the Pound. Sterling sellers may want to look at their requirements early. However, many traders will be keeping their powder dry until tomorrow’s twin interest rate announcements by the Bank of England and European Central Bank. Neither is expected to make any changes but with so many competing pressures, nothing is set in stone yet. And many will be quiet ahead of the decisions, if any, that come from the EU summit on Thursday and Friday; another damp squib? We will have to wait and see.
Have a great Wednesday, I hope the weather doesn’t get you down. It seems the UK is getting a bit of everything over the next few days. Snow, sleet, hail, sunshine, cloud and I guess that means we will get a plague of frogs and the rest of the biblical effects. I don’t know why I left the duvet really.
One of the lessons of history is that Nothing is often a good thing to do and always a clever thing to say.