The weather girl on the TV said we should look forward to ‘unsettled conditions’ and, just for once, she was so right; not about the weather necessarily but that expression certainly applied to the financial markets and the political scene.
Ireland remains the focus of most media attention with the agreement to accept a bailout from the EU and International Monetary Fund in the balance and the survival of the current government in an equally precarious position. The Euro, which initially rallied on the news that Ireland was agreeing to the bailout over the weekend, fell yesterday as the repercussions of the move started to sink in. Analysts are nervous of the potential for Spain and Portugal to also call for similar EU support. German Chancellor Angela Merkel signalled that a sequence of serial bailout demands across the Eurozone would be very serious and, as if to highlight the point, traders sold Spanish bonds heavily as Spain is seen to be the most likely next candidate in the series. However, by the end of the day the pace of the Euro sell off had slowed and some profit taking was seen.
There is also a threat to Sterling in the UK government’s plan to lend Ireland £7 billion. If traders are nervous about Ireland’s potential to default, how should they feel about a country which already has a heady level of bank exposure to Ireland and then puts itself at further risk of loss in that scenario! The Pound is though, about a cent and a half stronger against the Euro today than it was 24 hours ago.
That is not the case against the US Dollar though, the Pound fell after US Data showed the economy grew at an upwardly revised 2.5% in Quarter three and that gave the markets the little piece of good news that it needed. The US Dollar strengthened across the board and remains pretty strong ahead of a barrage of data due later today. Part of that strength resulted from investors seeking a secure home for their funds as the war of words rages between North and South Korea. That is in spite of the American President making it clear to the World that the USA supports South Korea after the bombardment of an Island owned by the South but disputed by the North. Against the Pound, the USD has broken a support level which has been in place since May and we could well see this pair target $1.55.
On a less warlike front, we also get the revised UK growth data today and, based on recent Bank of England comments, most analysts are expecting a slight downward revision to the original estimate of 2.8% year on year growth. That slippage is already priced into the value of the Pound though.
Before that we get the results of the well respected German Ifo surveys on business confidence. Little change is forecast but the survey does have the potential to move the markets, so beware. But the bulk of trading will take place this afternoon around the release of no less than 7 main data releases. These include manufacturing, housing and personal income and expenditure data; all could be market moving and all will be watched very closely. This is especially so when tomorrow is a US public holiday and Friday will see a lot of traders stay away from their desks, turning the break into a 4 day weekend. That lack of liquidity has two major effects. Firstly it will mean many traders will square their books before the break; we should be prepared for a very volatile afternoon. It also means that the next two days could offer terrific opportunities for significant volatility and anyone with a short to medium term requirement would do well to use an automated market order to target the exchange rate they desire. Your Halo Financial Consultant can talk you through the opportunities.
The knock on effect of the US Dollar strength is strength in the Canadian Dollar and also the Australian and New Zealand Dollars which are all pressing the Pound to lower levels as I write.
But we don’t care about all that do we! All we are concerned about is the fact that William and Kate are to wed next April and we will all get a day off. The newspapers are already going to town on telling everyone how to book a few days off and get virtually two weeks of extra holiday linking the Easter and Mayday breaks. You will be pleased to know that Halo Financial will be working through the whole period and that may come as a shock to Halo employees but I am sure they will get over it.
And finally, how desperately sad it was to hear that a 2nd explosion has ruled out any chance of survival for the 29 miners trapped underground in New Zealand. After two other positive outcomes in recent mining incidents, this is a stark reminder of just how dangerous mining is. It is hard to imagine and I would hope few of us ever have to experience the grief being felt in that community right now. I know we have a lot of Kiwi readers; so if you are affected by this dreadful tragedy, you have our sincerest sympathy.