Analysts openly talking about the likelihood of a UK national bankruptcy
MAJOR HEADLINES – PREVIOUS SESSION
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PBOC: TALK OF CHINA MANIPULATING YUAN NOT ACCURATE
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PBOC: MUST AVOID USING CURRENCY ISSUE TO BACK PROTECTIONISM
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NZ Dec Service Sector Activity Index at 48.0
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UK Hometrack House Price Index -1.0% m/m, -9.4% y/y
THEMES TO WATCH – UPCOMING SESSION
Events Today:
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Sweden Trade Balance (0830)
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US Chicago national activity Index (1330)
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US Existing Home Sales (1500)
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US Leading Economic Indicators m/m (1500)
Market Comment:
Timothy Geithner’s comments late last week on China’s alleged FX manipulation and firm USD policy was again in the spotlight over the weekend as China responded with a strongly-worded reply. The PBOC refuted the claims, adding that “directing unsubstantiated criticism at China on the exchange rate issue will only help US protectionism and will not help towards a real solution to the issue”. Geithner’s more blunt tone seems to indicate a more confrontational approach towards China on economic issues.
Things UK are not looking rosy at all. Chancellor darling commented Friday that the UK is facing its sharpest downturn in generations but assured that the government will do all it can to resolve the financial woes. In a startling admission in an article in Sunday’s Daily mail, City Minister Lord Myners, disclosed that the UK banking system was within 3 hours of collapse last October 10 after “major depositors” attempted to withdraw their money en masse. Allegedly, the Treasury was preparing for the banks to shut their doors to all customers, stop electronic transfers and block ‘hole in the wall’ cash machines. He was also vocal in lambasting top bankers whom he said were grossly overpaid and had no sense of society, adding that the ‘golden days’ of huge bonuses in investment banking were likely long-gone.
Elsewhere, BOE known dove David Danny” Blanchflower was again in the press saying that UK rates should ‘obviously’ head down to the US’ near-zero levels, denying that interest rate cuts were losing their effectiveness as a policy tool but welcoming the fact other measures, such as quantitative easing, would soon be at the bank’s disposal.
GBP’s reaction to the above stories was as expected, dropping some 2 ½ big figures in 2 hours at the Asian open.
In Europe, French President Sarkozy unveiled a mini-stimulus package late Friday worth EUR600 mln to help save the French newspaper industry from falling advertising revenues, high production costs and the negative effects of its inability to embrace the high-tech and internet age. In neighbouring Germany, the coalition government will double its 2009 new borrowing requirement to EUR36.8 bln in its supplementary budget to be presented tomorrow. Elsewhere, ECB'S Mersch said he would be unwilling to see the central bank's main interest rate fall much lower than the current 2% level. In an interview with the FT Mersch said that he fears that if rates are too low, it could cause a liquidity trap. He added that a programme of "quantitative easing" would be "much more complicated in the Euro-zone context than some people might believe.
Across the Atlantic, US Pres Obama exuded confidence that his proposed USD825 bln stimulus package would be agreed by mid-Feb, hopefully before the President’s Day public holiday on Feb 16. Senior Republicans were not so accommodative, with house leader John Boehner questioning the effectiveness of the package and the burden it is placing on generations to come.
The Year of the Ox has started with a whimper, apart from GBP’s early heroics, with most Asian centres, apart from Tokyo, closed for the festivities. Once the Tokyo fix was out of the way, FX reverted to controlled ranges with few new developments. The Nikkei determined the extent of risk appetite for Fx markets and drifted from negative to positive during the morning session.
CHART: XAGUSD
Looks to be trading the uptrend channel from Oct 28 low. Rally may consolidate below channel upper limit before bursting higher.
