Spanish budget calms nerves
UK GDP revised upward. Sterling strengthens
US GDP revised downward
FX Market Overview
Thursday started with trepidation and ended with a little more confidence running through markets after Spain announced a budget which focussed on spending cuts rather than the tax hikes that some had feared it might. Spain’s budget had all the hallmarks of a nation preparing for demands that may be made by the EU if Spain asks for financial assistance and in a stark contrast, today’s French budget sounds like it will be a tax raising affair rather than a cost cutting one, so there may be a lot of unhatched chicken counting going on. However, for the time being at least, the Spanish budget kind of settled market nerves and the net effect was Euro strength coupled with weakness in the safe haven US Dollar. Today’s French budget, Spanish and Eurozone inflation data and the rumbling noises from China may all have an effect on the Euro and on market confidence so Friday will be a busy day.
The Chinese story is an interesting one; China starts a week long public holiday today and, as recent Chinese data has been almost uniformly poor, many analysts are suggesting the Chinese authorities may use the public holiday to add financial stimulus to their economy. If they do, then the Euro and the currencies of the commodity producing countries like Australasia, South Africa and Canada will all strengthen and the likes of the US Dollar and Swiss Franc (preferred safe havens) will weaken.
Sterling had rather a good Thursday for the most part after another upward revision was made to the quarter 2 economic growth data. The UK economy apparently shrank by just 0.4% in Q2 compared to the previously estimated 0.5%. That is a minor adjustment and it’s still a minus number but it does present the outside chance that Quarter 3 was the point at which the UK recovery started. We won’t have those figures for a few weeks but they are now eagerly anticipated and bets on Sterling strength ahead of that data are picking up. There is no UK data today so the EU figures and US numbers will drive sentiment.
The US Dollar weakened again after US Durable Goods orders were reported to have fallen by 13.2% last month and Q2 economic growth data was revised down from 1.7% to just 1.3%. Both are very significantly worse than expected and that doesn’t bode well for the future. Today’s US highlights will be the personal income and expenditure figures along with both business and consumer sentiment indices. So the afternoon of the last working day of the month and quarter is going to be a lively one.
Adding to this will be the Canadian economic growth data for July. The Canadian Dollar has benefitted from not being the US Dollar to some degree but the Canadian economy is also performing rather better than forecasts. Today’s release of the Canadian economic growth data will be an interesting one. This data is expected to show a fall in the annualised rate of growth from 2.4% to just 2.0%. If the facts match the forecasts, we should see a drop in the value of the Canadian Dollar through later trade.
Aside from the financial markets, the shock news is that someone has put a beach towel on Lewis Hamilton. We may be seeing the end of two eras in fact as Lewis Hamilton announces his plans to leave McLaren to drive for Mercedes. That means Lewis cutting ties with a company he has driven for since he was 13 years old and it probably means Michael Schumacher will retire...again. I dunno ... them Germans.... Comin’ over ‘ere ... stealing our drivers.......
I have a nut allergy. When I was at school the other children used to make me play Russian roulette but force-feeding me a packet of Revels.