Europe on the up, UK on the down!
Week commencing Monday 27th February 2012
Overriding market Themes
The Euro rallied against the majority of G20 currencies as an agreement on the Greek bailout finally hit the press. The agreement paved the way for investor confidence to return and dampened fears that the regions debt crisis would worsen. The rally saw several technical levels broken and a three month high on EUR/JPY as the optimism gained momentum. Is this the end of the European saga? With German business confidence rising to near record levels and Bond yields in the periphery ebbing lower, the signs are certainly looking good, but we are a long way from rosy. In fact, the G20 group has urged anything but celebrations, by recommending Eurozone countries continue to boost the ESFS in order to continue to qualify for IMF aid should the situation decline further.
Back home, economists saw the UK economy shrank in the fourth quarter as businesses scaled back their investment at home. Mervyn King, ever the pessimist governor of the Bank of England, even went so far as stating that growth will be slow and uncertain. The signs are not good, with unemployment approaching levels last seen in the eighties, and the central bank poised to further enhance its quantitative easing program, we are in dire need of some good news.
In Australia, Prime Minister and Welsh born Julia Gillard has defeated Kevin Rudd in the Labour Party Leadership ballot. She originally ousted Rudd, the former PM, back in 2010 and many saw this latest attempt by Rudd as ‘getting his own back’. Although this doesn’t have a direct impact on the financial markets, it does add an element of political instability to the country, which is still seen by many as a safe haven in Asia. We hope that Gillard can now cement her position at the top of the table, and move on.
GBP This Week:
We are watching the CBI realised sales figures for the UK on Tuesday. We expect a negative figure although a marginal improvement from the previous figure posted in January. More importantly is the Manufacturing PMI release on Thursday however, where we expect a very slight decline as economic woes continue to hit our industrial sector. Halifax HPI and Construction PMI releases on Friday will also impact market movements, with house prices set to drop on the month expect some bearish movements to end the week.
We are relatively negative on the Pound this week, especially against the Euro, as markets adjust to the resolutions being made in Europe.
USD This Week:
This is a big news week for the United States, with Pending Home Sales leading the batch. The Monday morning release is likely to be better than expected as confidence continues to fuel the recovery over the pond. Wednesday sees US GDP for the quarter, expected to close just above 2.5%, and Ben Bernanke testifying to the senate. Thursday, watch for the unemployment figures and ISM Manufacturing PMI release, which are both expected to be better and expected.
We are looking for bullish swings in the US Dollar when Bernanke is speaking. In recent months he has fuelled the greenback bulls and we don’t see why this shouldn’t be the case this week. The US Dollar has given up significant value against the Pound and other G20 currencies, so we believe some retracement is likely this week. We
are therefore USD positive for the week.
EUR This Week:
Tuesday sees the release of German Consumer Climate and CPI for the month, and much like their American counterparts we expect something green to be posted. This coupled with French Consumer Spending for the month, looks good for a European recovery. Of course, in these markets I would always draw your attention to any sovereign bond sales being made this week, and to watch for movements in countries with costs of borrowing. Italy and Spain, the two largest countries at risk of falling fowl of the current credit conditions, seem to be recovering with a 10 and 19 point decline respectively.
We are positive on the Euro for the first time in many months, and expect to see the currency hit back at its recent declines.
In Other News:
Congratulations to The Artist, which swooped five Oscars at the movie industries most glamorous awards ceremony. Meryl Streep also won best actress for her role as Margaret Thatcher in the Iron Lady, a film which I would highly recommend. My only complaint was that Gary Oldman didn’t receive any award for his role in Tinker Tailor Soldier Spy, which although long, was a great film.
We also congratulate Wales on their victory against the English at Twickenham over the weekend. I think that they have what it takes to grab the grand slam this season. England on the other hand looked good, despite their defeat. I think that if this young and relatively inexperienced squad continue to play at this level, they will be unstoppable in a couple of years.
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