Prince William carried out the largest ever voice brokered forward currency deal yesterday when he executed a trade worth €17 billion between Barclays and Credit Suisse. He was taking part in the annual fundraising day at ICAP; a terrific event which has raised £64 million for charity since it started in 1993. I wonder if he’ll be demanding a bonus for his efforts; after all, the guy does have a wedding and honeymoon to pay for.
But while the Prince was ‘largeing it’ in the city, the markets were impressed by the best factory report from the Confederation of British Industry in 30 months. The fact that much of this growth was stimulated by export demand will be seen as both understandable when Sterling is relatively weak and encouraging at a time when every country is looking to boost exports to grow their economies, Sterling had another good day, gaining ground across the board but still failing to follow through with any substantial breakouts of previous ranges. Today’s Bank of England interest rate decision looks set to be a damp squib. Traders tend to get excited about the BOE decision day but unless they make a change they almost never have a press conference or enlighten us in their statement. We have to wait another fortnight for the minutes to get a handle on their discussion so the release of the minutes is by far more interesting than a ‘No change’ announcement. Sterling still slipped a little lower overnight, dropping back from the top of yesterday’s movement.
The Pound’s largest fall was against the Australian Dollar which was boosted by a sharp improvement in employment data. A fall to 5.2% in the jobless rate resulted from the creation of a fresh 54,600 jobs; more than three times the general forecasts. Understandably, the Australian Dollar strengthened across the board.
Australia’s neighbours, New Zealand saw their central bank leave its base interest rate on hold overnight. The Reserve Bank of New Zealand’s decision was widely forecast and the Kiwi Dollar showed little reaction but it is weaker against the Pound in particular today after a steady rally in the Sterling - NZ Dollar exchange rate through yesterday’s trade. Perhaps the RBNZ’s clear message that interest rate hikes in 2011 would be more muted than they previously envisaged, had something to do with the NZD’s slide or we could speculate that it was £17 billion worth of NZ Dollars that were sold to the Prince by Barclays but that would be no more than a guess.
On the Euro front, would you be surprised if I said that there were still ructions over the Irish bailout and a lot of debate over whether the Euro should/could/might collapse? No I thought not. Nothing much has changed in the last 24 hours. It is like being in Groundhog Day as far as the Euro news is concerned but the International Monetary Fund does appear to be ramping up the pressure on the European Central Bank to get more of a grip on these ailing economies and to perhaps set aside more funds to deal with the expected increased demand for support. And Jean-Claude Juncker, who heads the group of EU finance ministers criticised Germany for dismissing the idea of a Eurozone bond without even considering the proposal. The Idea was floated as a way of lesser Eurozone economies raising money by, effectively, trading off the good credit rating of the likes of Germany and France. It’s a bit like having your cousin underwrite your loans by acting as guarantor but, in this case, the cousin isn’t keen. German taxpayers and voters wouldn’t like it and Angela Merkel knows that all too well. There is a meeting of EU finance Ministers next Friday but I don’t think this idea will get much support from Germany which is pretty well the only country that has to take part if the plan is to be successful.
On the ‘things to watch’ front, the rise in US Treasury yields may well come into play trough Today and in the days ahead. With US Treasuries offering 3% return and virtually no risk, Japanese investors in particular may well be drawn in and that would strengthen the US Dollar. So don’t be surprised if we see USD strength in the days ahead. And Swiss Bank, UBS has announced that 2011 is likely to be an immensely volatile year as rates of growth vary across the globe and as each economy starts to plan for a way to exit these extraordinary financial stimulus measures. I have to agree and that is excellent news for all clients. Both buyers and seller have the opportunity to do well in volatile markets whereas gentle trends will favour one demand or the other. Bring it on as they say in some of the former colonies. The only thing to remember is that risk management is paramount in periods of high volatility so companies which have not looked at their 2011 costs and currency plans should think about that now.
Today’s data diary is light but potentially very influential. German inflation is important and the Bank of England decision is too. We will also get the ECB monthly bulletin and US wholesale inventories. All could be market moving in this tense environment. Sadly the Prince isn’t trading today so volumes may be lighter.
I’ll leave you with a terrific ‘Health and safety gone mad’ story. In Britain, Christmas crackers are now classified as ‘Category 1’ fireworks so only adults over the age of 16 can buy them. I know a lot of people have accidents each year from pulling too hard on crackers and toppling the turkey and suchlike and the jokes can be painful but I can’t ever remember the snap in the cracker causing 3rd degree burns or an explosion. Please tell me if I am wrong. I guess it’s only a matter of time before cocktail stick are branded offensive weapons and Blancmanges have to have lifebuoys nearby just in case someone falls in.
Written by David Johnson, Director at Halo Financial