So much data and so little time was the theme yesterday. The markets were in a whirl of new releases and political shenanigans all of which created a whip saw effect in the markets. I’ll take you through it at an equally breakneck pace or I will run out of screen space.
The German Ifo institute said German businesses are at record levels of confidence in November which surprised the heck out of everyone when the Euro is still relatively strong, the PIGS (that’s Portugal, Ireland, Greece and Spain) are revolting and Germany’s export markets are a long way away from placing record levels of orders. To be fair, this survey was entirely overshadowed by the political fallout from the Ireland deal and the fact that traders sold bonds issued by Spain, Portugal and Belgium as they steer well clear of any kind of European risk. All of this expense and crisis has reopened the debate about the validity of the Eurozone and has prompted the Express newspaper to call for Britain’s exit from the European Union. I bet no one saw that coming; the Express is normally so even handed. However on this occasion, they have a lot more ammunition to throw at the argument.
The UK government confirmed that whilst the second estimate of Q3 economic growth was in line with the 1st, at 2.8% on the year, the figures concealed a sharp drop in retail activity. That is a very worrying sign for the months ahead as the spending cuts and higher VAT levels kick in. Sterling fell for a part of the day but rallied towards the London closing session and is quite well placed against the Euro as we start today. The only UK data today is a retail sector report from the Confederation of British Industry which ought to confirm the GDP data’s findings. i.e. that consumers can’t or won’t increase their spending. However, the fact that the US market is shut for, effectively four days, means the volume of trade today will be thin and that could either prompt wild swings or nothing at all to happen.
Before taking their Thanksgiving Day break, American traders were treated to seven separate data releases and the US Dollar had a very lively trading session. Personal incomes were up slightly more than forecast but expenditure rose less quickly. That is a telling figure and can be seen as a worry for the Federal Reserve which, if it is pumping vast amounts of money into the US financial system, does need to see that money filter through to retail spending if the US economy is to make the recovery they so dearly wish for. Durable goods orders fell a surprisingly sharp 3.3% as business showed their lack of confidence through their lack of investment and new home sales fell a dramatic 8.1%; a figure which probably needs no further comment. All in all, such a drastically poor set of data should have caused a sharp rise in the value of the Dollar as a result of investors buying into the safe haven of US Treasury Certificates. However, the reaction was rather muted; perhaps because the 4 day break was looming and perhaps because of so much uncertainty elsewhere and perhaps because the North/South Korea incident had already caused a significant flight into safe havens. We will probably have to wait until Monday to see what US traders do when they re-enter the fray after gorging in Turkey for 4 days.
In other news, the Canadian Dollar rose as crude oil prices did likewise and as the US Dollar gained a little strength. Russia’s central bank confirmed that it had been investing in Canadian Dollar denominated assets and they are probably not alone. Canada’s solid performance through the global recession and healthy banking system does make the Canadian Dollar an obvious choice for reserve currency holdings. Unlike the UK and America, retail sales were stronger last month and inflation is relatively benign, so we shouldn’t be surprised if the Canadian Dollar gains further strength in the months ahead.
Whilst all this is going on, it is easy to forget what’s really important. The government is trying to decide how to calculate how happy we all are instead of just concentrating on financial wellbeing. It’s a laudable aim but happiness is dependent on so many things. When you are two years old, the most important thing is that your playdough worm making thing doesn’t block up; when you are fifteen, the most important thing is that the girl you fancy doesn’t fancy your mate instead of you. When you are any older than that the crucial thing is that interest rates remain low in order to keep your mortgage payments down while retail prices rise and your job is on the line. It was so much simpler then wasn’t it! Now pass me that extruder and a pot of........let me choose....I think I’ll go for green playdough today.
Oh and Happy Thanksgiving to all our American readers. Enjoy the turkey and the time off; that's certainly worth being thankful for.