Today's Highlights
Euro awaits Eurogroup meeting
RBA minutes should shed light on interest rate pause
Bank of Japan should weaken Yen
FX Market Overview
Welcome back. I hope your weekend was a good one. Good, like Lewis Hamilton’s rather than OK like the England rugby and cricket teams. Good like Arsenal’s and not rubbish like Emannuel Adebayor’s.
The financial markets went into the weekend with a host of question marks after US industrial production dropped by 0.4% as the tongue-twisting Superstorm Sandy swept successful enterprises aside, swamping stocks and substations. (Try saying that three times fast). We also had a fall in the volume of US treasury certificates being bought by overseas buyers as confidence edged its way into the minds on international investors and they felt bold enough to venture out into higher yielding but slightly less safe assets. Those rather negative headlines were balanced to some degree by news that the talks been all sides in the US over the budget they are going to set before the year-end were said to be constructive. There was a lot of talk of extending the current arrangement to give time for more detailed discussions before a debt ceiling and tax and spending plans could be finalised.
We could see some reversal of that treasury sell-off if the violence between Israeli and Palestinian forces continues to escalate. We are seeing oil prices rise as is always the case when Middle Eastern problems erupt, which they do on an alarmingly regular basis. The rumour is that Israel will call up 75,000 reservists to ensure they have forces on standby should there be a need for a ground offensive.
Those investors striking out from the safe haven US treasuries will not have been encouraged by comments from the leader of the Portuguese opposition suggesting Portugal’s economy is far worse off than either the government or the EU realise. Perhaps he would say that anyway but his view was widely reported. The Eurogroup meeting is a highlight for the week and a decision on further stabilisation plans is expected on Tuesday although there is no0 guarantee we will get a resolution at all. That is the norm for Eurogroup meetings, of which there are many. The more worrying sign within Europe is the growing feeling that those lending to Greece will have to accept further debt write offs before the Greek debacle is over. And an article in The Economist citing France as the biggest danger in the Eurozone has brought anger and scorn from French Politicians. The problem is that such vociferous protests tend to make you think The Economist has struck a raw nerve.
Sterling had a rather good Friday. There wasn’t any data to analyse and very little was heard from politicians or bankers but the Pound had been sold off all week so profit taking had to occur at some stage.
The Japanese Yen has fallen again as the Bank of Japan starts a two day policy meeting. The markets are expecting some aggressive monetary expansion from the BOJ so weakness is a natural consequence. I am sure the BOJ is delighted with a bit of weakness in their currency; Japanese exporters have been crying out for some relief from the strength of the Yen.
The week ahead isn’t overflowing with data and events but there are enough important ones to keep traders on their toes. I have already mentioned Tuesday’s Bank of Japan meeting but we get a speech from the Head of the US Federal Reserve on Tuesday as well as US building permits. We also get the results - if there are any - from the Eurogroup meeting on Tuesday. Overnight tonight the Reserve Bank of Australia will publish the minutes from their last meeting and that will hopefully offer some insight into their decision to pause on interest rate cuts. We will get the minutes from the Bank of England meeting on Wednesday and UK public sector borrowing data on the same day. We will also see a batch of purchasing managers indices and a number of other data items through the rest of the week.
I’ll finish with a cure story; two brown pelicans which were blown so far off course by Hurricane Sandy that they landed in Rhode Island are to be flown by private plane back to their natural habitat in Florida. One landed by a roadside while the other landed on a boat 120 miles offshore. Both were described as thin and a bit beaten up by the storm but public donations will cover the cost of the $2,000 flight back to the warmth of Florida where they will be rehabilitated before release.
Oh and well done to Daniel Craig for flying into Camp Bastion in Afghanistan to personally introduce his new bond movie to the troops serving over there. Top work Mr Bond.
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My dentist entered the 'Dentist of the year' contest. He came second. He has a little plaque.
