Blog

Let us start with the good news from the UK economy before we dive into the bad and the ugly. UK CBI distributive trades showed a good rise in the number of retailers expecting an increase in sales- the number was up from -8 to +23. John Lewis says weekly department sales up 15.1% so good feedback there. UK GDP revision for the fourth quarter came in at 0.3% and upward revision from 0.1%- better than expected- so why has the pound dropped further?

I was bemused on the fall in the pound following the upward revision- I can only attribute it to speculators thinking the data would be stronger than 0.3% and buying the rumour and then selling the fact. Sterling has had a mini run lower over the last week falling 3% against the euro, 2% against the USD and 4% on the Yen. Mixed economic data will not be helping- particularly UK investment data which was appalling, dropping 5.8% in the last quarter to leave the year on year figure down a whopping 24.1%. In addition Nationwide house price data came in weaker than expected at -1.0% much weaker than the forecasted +0.4%.
Read the rest of this entry »

This was definitely not a surprise but the markets appreciated the affirmation from the Fed which removes any potential near term surprises from the Fed. Equities picked up on the news but risk appetitie is far from returning. Europe came back to the fore and this morning the markets are in a tailspin of fear again as the threat of a sovereign downgrade looms over Greece. This opens up th epossibilty of Grrek bonds being illegible with the ECB, making it more difficult to borrow.
Read the rest of this entry »

Yesterdays US consumer confidence data came in weaker than expected and highlights the delicate recovery phase for the US economy. This also backs up recent dovish comments from the Fed asserting that interest rates will need to remain low for a prolonged period and that liquidity withdrawal may not be a foregone conclusion. The data helped to spook the markets and strengthened the natural safe havens of the JPY and USD. The Yen was also lifted on good export data pushing GBP/JPY back below 140.00 and USD/JPY down to 90.00. At the moment for recovery we have an east and west divide with robust recovery coming from China, Malaysia, Honk Kong contrasting the jitters in Europe, the UK and the US. The tide has shifted.
Read the rest of this entry »

As fiscal concerns and a continuation of the dovish stance from the MPC continue to weigh on the pound. Throw into the mix increased political uncertainty with the narrowing of the polls and the future does not look bright for the pound. Today we had members of the MPC commenting on the quarterly inflation report where the bank lowered its growth and inflation forecasts underlining a dovish stance on monetary policy. King was his usual cautious self and highlighted the fragility in the UK economy and reaffirmed that inflation is likely to come down later in 2010. On the deficit he did note that we have a very large fiscal deficit and that rating agencies are to remain “somewhat uncertain” until the deficit is tackled. King affirmed that he would be immensely surprised if rating agencies downgraded the UK…not so confident myself- you can read our opinion on this by clicking here

Read the rest of this entry »

In the last month sterling has lost over 1% against the euro and just under 4% against the USD. The surprising move is the fall against the euro as the Greek fallout has held court in the media for sometime now and yet sterling falls against the euro. Weaker retail sales and weak business and mortgage lending have compounded the weak sentiment, however the real danger for sterling is the UK deficit. The economists are arguing with each other on whether to cut now or later- the common agreement is that cuts are inevitable but when? Economists should focus more on the how and what to cut and the politicians should lay their cards on the table with their full deficit reducing plans outlined now to avoid further uncertainty. The credit agencies want credible plans and not political or economic disagreement.
Read the rest of this entry »

The Federal Reserve raised their discount rate by 0.25% overnight.  The Federal Reserve Discount Rate is the emergency lending rate at which US commercial banks are able to borrow funds from one of the Federal Reserve Banks around the country. Given that there is currently no ‘emergency’ and that short date rates will remain linked to the Fed Funds Target Rate, which remains at 0.25 - Zero %, then banks will continue to use the money markets. What the move does do however, is confirm that discussions are taking place amongst members of the FOMC concerning the likely exit strategy, and probably more important the timetable, in order to normalise the current situation. The feeling is still strong that an official tightening of monetary policy won’t occur until the autumn at earliest but the raising of the Discount Rate was enough to provoke a further strong run for the Dollar.
Read the rest of this entry »