Weekly Market Analysis

Always keeping you informed for the week ahead

UK inflation rises to a 14 month high

July 21st, 2013
Welcome to your weekly market analysis email from Currencies Direct where you can stay one step ahead of your friends on the latest news and reviews of the financial markets. Our aim is to provide you with an easily digestible weekly update of how the financial market is performing using the expertise of your dealers who make it their sole aim to keep on top of the market movements.

GBP

Last week inflation figures out on Tuesday took centre stage. UK June CPI Inflation figure rose to a 14 month high at 2.9% below the 3% expectation. This started a tough session for Sterling, which weakened against both the Euro and the US dollar. Inflation has again hit the pockets of UK households with inflation stubbornly higher than average wage rises. The softer CPI data could leave Mark Carney further room for accommodative policy later in the year, especially as markets are predicting that the inflation should ease towards the end of the year. The CPI reading at 2.9% spared the incoming Governor of the Bank of England from writing a letter to the Treasury to explain why the level is so high. Last Wednesday the Bank of England’s rate-setting monetary policy committee voted unanimously to reject more QE earlier this month according to the minutes released. This was a first as this broke the regular stalemate which occurred during the last months of Sir Mervyn King’s time at the Bank. Sterling strengthened on the announcement. On other news out last week, claimant count dropped more than expected. The number of people without jobs fell by 57,000 between March and May against the previous three months, the Office for National Statistic revealed. On other reports out of the UK, retail sales grew 0.2%, which was less than expected in the month of June but on annualized basis spending growth accelerated to 2.2% from 2.1%.

EUR

Last week the Euro managed to shrug off a Fitch downgrade of the European Financial Stability Facility (EFSF) to AA+ from AAA and performed well on the back of USD weakness. The facility has previously been downgraded by Moodys and S&P reducing the impact of the move by Fitch. On other news the Euro zone’s current account surplus shrank from 23.8B to 19.6B in the month of May. It has been a quiet week for the Eurozone data and the bigget news out of Europe was the ECB’s decision to ease collateral rules. They cut the minimum rating for acceptable Asset Backed Securities to 2 A ratings from 2 AAA ratings and reduced the haircut for these assets to 10% from 16% and 22% from 26%. In doing so, the ECB is leaving more liquidity in the financial markets with the hopes that banks will lend but many remain sceptical on whether this would be effective.

USD

In prepared remarks to congress this week, Ben Bernanke raised concerns that inflation expectations have nudged lower, reinforcing the dovish tone emanating from the Fed’s last meeting. Alongside reiterating the expansive policy outlook, the main takeaway from the Fed Chairman’s time with Congress was that the Fed is in no rush to increase rates and while they intend to reduce QE, there is no set agenda for how that could happen. On the economic front, retail sales were in contrast with other better data out of the US last week coming in weaker than expected at 0.4% against the expectation of 0.8%. This rattled the USD, which lost earlier gains against the Euro and the Pound and strengthens the view that US data is still not strong enough to warrant tapering by September. Jobless claims declined for the week ended July 13th. However, continuing claims rose to 3.114 million from 3.023 million to its highest level in 5 months. Despite this we are still seeing gradual improvements in the labour market. The Philadelphia FED survey also surged from 12.5 to 19.8. The improvements in New York and Philadelphia manufacturing are consistent with the overall US recovery. Looking at the large banks results you can see signs of real recovery, with Citibank, Goldman Sachs and Morgan Stanley posting large increases in profits in the last quarter. Moody’s also raised the US’s credit outlook from negative to stable on the day when Detroit filed for the largest municipal bankruptcy in history. It will be interesting to see how the proceedings develop because several other US cities are not too far behind.

The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Head office:

Currencies Direct Ltd
51 Moorgate, London, EC2R 6BH, United Kingdom
T: +44(0)20 7847 9400 · F: +44(0)20 7847 9291
E:info@currenciesdirect.com
www.currenciesdirect.com

© Currencies Direct Ltd 2000-2013. All rights reserved worldwide. Privacy policy | Terms of use
Authorised by the Financial Conduct Authority
(FRN No.504360) for provision of payment services.

Weekly Market Analysis by www.currenciesdirect.com

Always keeping you informed for the week ahead

Equities move higher in Europe and USA

June 30th, 2013
Welcome to your weekly market analysis email from Currencies Direct where you can stay one step ahead of your friends on the latest news and reviews of the financial markets. Our aim is to provide you with an easily digestible weekly update of how the financial market is performing using the expertise of your dealers who make it their sole aim to keep on top of the market movements.

USD

As the markets are over reliant on fast and easy money it is not unusual for a kneejerk reaction to occur when the taps are turned off. This negative sentiment hit Chinese stocks for a second day at the beginning of last week as the Shanghai composite lost another 0.2%(from a low of 6%) as global fears of a fall in growth alongside an apparent credit crisis from China start to become very real. As China’s demand for raw materials continues to falter, it is likely commodity currencies, such as AUD and ZAR, will continue to take the hit. It wasn’t until last Thursday that risk appetite returned to the markets. Equities moved higher in both Europe and the US following comforting comments from Central Bank members at the ECB and the FED. Mario Draghi along with other ECB members stated that an “exit” from current policy is distant. In addition comments from the US came someway to easing fears of a near term tapering of stimulus. In addition China’s interbank rates eased reducing tension. On the macroeconomic data front, US durable goods data came in better than expected at 3.6% against the expectation of a 3% number and in addition US housing data came out in line with expectations. Initial jobless claims in the US declined last week, according to data released by the Department of Labour. According to the figures, the number of people who applied for unemployment fell by 9,000 to 346,000 in June which is in line with the consensus. The continued good run in US economic data raises the expectations that the Federal Reserve will look to taper monetary easing by September, although we will also need to see continued strength in the labour market. The fact that the markets are looking to US data as an indicator for the timing of the Fed’s tapering is raising uncertainty in the markets and volatility. The USD is gaining strength on the back of the good numbers but the main focus will be on next week’s non-farm payroll data.

GBP

In Britain, new figures suggested that the UK never suffered a double-dip recession in 2012 but suffered a deeper collapse in output following the global financial crisis than previously thought. The new data shows that the economy is even further away from a full recovery. The Office for National Statistics had previously suggested that the economy shrank by 0.1% between the last quarter of 2011 and the first quarter of 2012 but has now decided last year that growth was flat. The ONS said, however, that the first post-crunch recession in 2008/2009 was deeper than first estimated, meaning that economic output is now 3.9% lower than its pre-crash peak, compared with a previous estimate of 2.6%. Mark Carney takes over from Sir Mervyn King on Monday and he will be under pressure to take more action than his predecessor. Despite the impact of the global financial crisis, UK has shown considerable improvement suggesting that growth in Q2 will likely be much stronger. Therefore the currency markets were torn between trading the disappointing past or the promising future. Cable slid to a low of 1.5265 in the aftermath of the news, but has since stabilized just below the 1.5300 figure as traders await the start of North American trade.

EUR

Last week EU finance ministers thrashed out a deal in relation to failing banks making it clear that “shareholders and creditors are liable first and foremost” and this move pushes the Euro area one step closer towards a euro banking union. In yet another European meeting, the EU leaders agreed on new steps to fight youth unemployment and promote lending to small business after deals on banking resolution and the long-term EU budget gave their summit a much needed lift. The 27 leaders resolved to spend 6 billion euros over the next two years to support job creation, training and apprenticeships for young people. Leaders also approved plans for the European Investment Bank to lend hundreds of billions of euros to small and medium-sized enterprises particularly in southern EU states where bank finance has largely dried up due to the Euro zone’s debt crisis. In other news out of the Euro Zone, businesses sentiment improved in June showing their best reading in over a year. Despite the confidence indices are still in negative territory, many parts of the economy saw an improvement.

The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Head office:

Currencies Direct Ltd
51 Moorgate, London, EC2R 6BH, United Kingdom
T: +44(0)20 7847 9400 · F: +44(0)20 7847 9291
E:info@currenciesdirect.com
www.currenciesdirect.com

© Currencies Direct Ltd 2000-2013. All rights reserved worldwide. Privacy policy | Terms of use
Authorised by the Financial Conduct Authority