Yesterday was a day of positioning. In the moments before a storm ships are brought into harbour, hatches are battened down and tales are told of the last time a squall this big blew through this town. In financial markets this was characterised by market participants becoming aware of their surroundings and what outcome will be born of particular circumstances.

FX markets will be driven by equity markets over the coming sessions; data, unless particularly forward looking, will not be able to stem the tide should the levees surrounding risky assets break. As we said last week it’ll be the major corporations and the financials that are the ones to watch: Goldman, Bank of America, Citibank, GE and AIG would have 2 years ago made up a safe yet dynamic portfolio. Now they are, maybe Goldman excepted, dogs of the mangiest coat. A fairly bearish pricing season has already been priced in however traders will use any excuse at the moment to push USD and JPY into stronger positions at the expense of riskier assets.

We have had a rally overnight with banking interests in particular higher after Merideth Whitney, a prominent banking analyst, upgraded a couple of stocks. Natural resource shares were also higher as commodity prices halted their recent declines and oil stabilised.

The data calendar is busy today. RICS House Prices and BRC have already supported GBP overnight (House price balance improving to -18.1 from -43.8, the best reading since September 2007 and retail sales up 1.4%). UK inflation figures are due at 09.30 which we hope to be broadly supportive. European ZEW should be weak while retail sales from the UK are expected at 0.5%.

World First’s Twitter page is up and running and we will be live ‘tweeting’ the impact of all these data releases and how they affect the markets. Click below for up-to-date news on all things currency. The address is http://twitter.com/World_First

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by Hayley Brown
Food Manufacture - 30 June 2009
Click here to read full article

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The good sentiment focused on global asset classes on Thursday weakened on Friday and has all but evaporated over the weekend. Stock market speculators were quick to cash in gains seen during Thursday’s training session and bank profits before the weekend.

Over the weekend it emerged that the Chinese government had failed to cover a debt auction for 35bln Yuan (roughly $5.1bln) for only the second time in 6 years. This over concern that the stimulus package launched by Wen Jiabao will cause inflationary bubbles in the country’s housing and stock markets and therefore for interest rate rises will occur later down the track. A blow for China is a blow for global confidence and as such overnight trade has seen Asian markets take a pasting.

The Nikkei finished 2.55% lower this morning as oil prices fell to an 8 week low. The news that Kim Jong-Il, the North Korean leader and Premier world nutcase, is suffering from pancreatic cancer has heightened geo-political risk and uncertainty also

We were correct on Friday that the Michigan Confidence figure would leave the market feeling bearish in the afternoon session and we are still confident that GBP falls against USD in particular are nearly upon us.

With a lack of data and corporate earnings markets are likely to slide lower over the course of the day with risky assets being hardest hit.

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GBP found a short term benefacrtor in the Bank of England yesterday as the MPC’s decision not to increase their asset repurchase program saw sterling bid up in the afternoon’s trading session.

Some economists had predicted that a £50bln - £100bln extension would be sought from the Treasury. We were right in our belief however and they decided to hold off. I do believe however that they will extend in August. This sets up a month with a significant policy change hanging over GBP, a month in which we believe we will see sterling lower than current.

No change was expected in the interest rate and none came with the cost of borrowing remaining at 0.5%.

A 48 per cent rise in Chinese car sales in June and the release of better than expected May trade data from Germany both helped optimism rise over the fortunes and likelihood of a global economic recovery.

Consumer confidence figures from the US today may put the hex on this risk rally later today although PPI from the UK, due at 09.30, should see sterling ably supported.

World First’s Twitter page is up and running and we will be live ‘tweeting’ the impact of all these data releases and how they affect the markets. Click below for up-to-date news on all things currency. The address is http://twitter.com/World_First

Have a great weekend

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‘By the pricking of my thumbs, something wicked this way comes’ - William Shakespeare

Asset classes are flying into the teeth of a 2 week period of corporate earnings which will see the normally soporific summer months of the FX market become increasingly volatile.

Other markets that flourish in risk happy atmospheres have given up a large proportion of the gains they made in the period of March til June. The FTSE 100 for example closed at its lowest level since April over the uncertainty that markets feel at the moment. Sterling fell yesterday breaching the 1.60 level against USD and was taken for 3% by the rampant JPY.

The first report was from Alcoa, an American based aluminium producer. They posted a 26c per share loss which beat analyst’s estimations of a 38c decline. This has seen commodity currencies lose a little bit of ground, AUD in particular, but everything is still in a bit of a holding pattern. Holding for what?

The Bank of England’s MPC announcement is due today at 12.00 and while there is 0% probability that they will move exchange rates the view is split 50/50 on whether they will increase the ‘Quantatitive Easing’ facility from £150bn to £200bln or even £250bln. As we said yesterday and previous, an further expansion of the money supply will lead to the increased likelihood of a sovereign debt rating downgrade in the future. My money’s on a hold but needless to say it will be a volatile market in the aftermath.

Lost behind this hubbub of data, debt and depression is the G8 meeting which has proved to be a complete non-event.

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The decline in the pound’s strength that we warned of 2 weeks ago has begun as sterling endured another day of losses against its major trading partners. Moving through trend support against the dollar yesterday points to a cable rate of around 1.57 and possibly lower from there. It’ll come as no surprise as to what’s driving it.

Stock markets were once again lower yesterday as US corporate earnings numbers weighed on sentiment. It is becoming inlcreasingly obvious that a poor earnings season will have wider reprecussions than just on a corporation’s balance sheet. Sterling speculators also believe that there is significant event risk surrounding Thursday’s Bank of England meeting and announcement. We would suggest that should the MPC decide to increase the quantitative easing facility that sterling will probably get mullered as fears over our fiscal position as a country evolves. Raised public debt is obviously the way to get people talking about cutting the credit rating of the UK; a potentially apocalyptic occurrence.

News from the NIESR was also poor in that they think that the bottom of the recession was not in Q1 and that a 0.4% fall in GDP is likely in Q2 for the UK economy; all things are pointing to a weaker sterling in the short term. Unfortunately weak data from Europe is also something we are not able to rely on any more; German Factory Orders exploded higher posting an increase of 4.4% against a consensus view of 0.5%.

Following the NIESR warning over our GDP figures we get a look at how the EU performed over Q1 as their figures on growth are released at 10.00 BST while BRC shop prices are due at 10.30 and German Industrial Production is expected to rise; verification will come at 11.00. G8 news flow will also have an effect today although one of dollar’s major critics Hu Jintao, the Chinese Premier, has returned home to deal with the breakout of violence in Urumqi.

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Falls in the price of crude oil saw optimism that the worst of the downturn is over recede yesterday. Equity markets heavy in oil and other natural resource stocks fell heavily in early trade impacting risk and giving speculators the chance to sell out of risky positions.

As a result sterling fell to a 6 week low against the dollar of 1.6096 and to a 2 week low against the euro of 1.1570 or 0.8643 in EURGBP terms.

The news that the Bank of England is considering an extension to its quantitative easing program contributed to sterling’s decline. Any expansion of the public debt will see more pressure heaped on our already fragile credit rating with sterling the obvious victim.

Weak housing data from Europe allowed us some fight against the single currency and prevented us from losing more ground. It was published yesterday that house sales in the EU were worse in Q1 of 2009 than in Q4 of 2008; a feat that has not been repeated and shows how far behind the curve the EU is currently lagging.

It is once again a quiet day for data with only a couple of bits and bobs to be wary of. Industrial and manufacturing production numbers are due at 09.30 and given the increases we have seen in their respective PMIs recently we are looking for a figure of around 0.2%. German factory orders are also due at 11am with a 0.5% increase expected. All of these may be irrelevant however should commodity and equity markets continue to behave as they did yesterday.

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Friday was a boring day as a bank holiday in the US saw volumes collapse and sideways trading across all asset classes.

The one piece of data that carried a hint of interest was the services PMI figure from the UK which stayed above 50.0, signalling expansion, but didn’t move as high as some analysts has expected. It however made little difference into the weekend’s trade.

This week is quiet data wise although the lead up to the G8 (Weds to Fri) will provoke some volatility. I expect a fairly hawkish air from the G8 at their summit in Rome and subsequently a strengthening of risk averse assets. For the unitiiated we expect the USD and JPY to strengthen.

ISM Non-Manufacturing is due from the US at 15.00 with an increase expected. This is the only piece of data today although the RBA announcement is due overnight with a hold expected at 3%.

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Yesterday was dominated by US jobs data with the morning’s trading taking on a stagnant air as traders waited for the release. The afternoon was bearish as it became clear that 467,000 jobs were lost in the month of June in the US, a loss similar to the entire population of Liverpool. Risk appetite pulled back and aversion dominated with equity markets falling lower.

The ECB held rates at 1% as we expected and the ‘post-match’ press conference was a damp squib. The euro fell off against both sterling and the US dollar as European unemployment data disappointed. Joblessness is now sitting at 9.5%; a ten year high and is likely to continue rising.

Construction PMI, unlike Manufacturing PMI yesterday, moved lower posting a figure of 44.5 against a consensus of 45.9. This moved sterling lower as a lot of analysts, myself included, believe that a return of housing market strength is needed for a sterling recovery.

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