After a tumultuous week in terms of data and an even more extraordinary week in terms of how badly Britain copes with snow, we seem to be returning to some sort of normality. As far as the snow goes, the thaw in my part of the world was a welcome sight and as far as the markets go, getting the EU bond purchases underway and getting the US employment report out of the way both cheered traders. There is some good news from the UK as well, the Engineering Employers Federation (EEF) says its members have added jobs and will continue to do so into 2011.
The European Central Bank’s decision to leave their base interest rate on hold but to embark upon a round of bond buying did steady the good ship Euro but it may be a short term reprieve. The markets are still nervous about the depth of the debt within the peripheral Eurozone economies as evidenced by the lack of follow through buying of the Euro after the rumours of ECB bond purchases were proven to be accurate. Now there is talk of the production of a pan-European bond to be issued to balance out the disparity between the various Eurozone nations. It does have the whiff of desperation and that is not a good thing to be telegraphing to the markets right now which is probably why the ECB is pooh-poohing the idea. The Euro has held onto its gains over the weekend but the week ahead holds all manner of reasons to be nervous. The head of the European Central Bank Jean Claude Trichet announced that the ECB would continue with its extra-ordinary measures to stimulate the economy and many analysts are starting to see last week’s short term boost in the value of the Euro as nothing more than an opportunity to sell the shared currency.
The US Dollar had a very mixed week and looks set to continue in that vein as we head into the 1st full week of December. Friday’s US employment report was a poor one, just 39,000 new jobs were added in November, well below even the most pessimistic forecasts; causing a slow decline in the US Dollar. This is a break with recent performance, poor US news has tended to cause US Dollar strength as investors take their leave of higher risk assets and buy into the security of US treasury certificates. The drop in durable goods orders will be part of that change and tension ahead of the 1st round of QE2; the second phase of quantitative easing is keeping traders and investors on tenterhooks. Who knows whether this expansion of the US government’s commitment to funding the markets will pay off in the long term but in the short term, it does seem a bit Canute like to some elements of the markets. Sterling and the Euro both gained ground against the US Dollar in the latter part of last week. The Head of the US Federal Reserve, Ben Bernanke, says that a new round of recession doesn’t seem likely and that appears to have calmed the markets but “does seem” is hardly a definitive “no chance” and that means the US economy could still be bin for a bumpy ride. Further weakness in the US Dollar does seem likely.
Commodity prices have eased higher in the last week as confidence in a general global economic recovery has improved. That rise in oil and base metals has given the countries which export these things a real boost. The Canadian Dollar has gained against most currencies but those gains were limited by a Canadian employment report which was poorer than forecast. However, the Australian and New Zealand Dollars and the South African Rand have all been boosted by the commodity story.
This week looks, on paper, like it will be big for data but the chance of big surprises is pretty slim. We are expecting no change in the Bank of England decision on Thursday, nor the Australian, Canadian or New Zealand decisions due in between now and Thursday. However we do get a wave of industrial and manufacturing data from across the globe and some of that could be enlightening.
But the really big news isn’t in the markets at all. What concerns Brits is that Ann Widdecombe is no longer being thrown and dragged around on that ballroom dancing show and England are doing rather well in the 2nd Ashes test. These are by far the biggest news of the moment. Have a good week everyone.