Our attitude to high earners is bizarre; the papers laud Wayne Rooney who has just secured a reported £180,000 per week pay deal for, let’s not forget, kicking a football but the same papers savagely vilify anyone who works for a bank earning a tenth of that amount. What makes a footballer more deserving? I wonder if Manchester United supporters will remember this deal when their ticket costs rise in a few months time.
In the foreign exchange markets where some of those bankers work, the markets are still absorbing and analysing the long term effects of the chancellors spending cuts. Every aspect of the cost reductions has a critic and it appears that every single one of them has been able to make their case in the newspapers over the weekend. All the arguments seem to start with, ‘I know we need to make cuts...but’ and proceed with an explanation of why those cuts should be felt elsewhere and not in their own particular area of interest. Whatever the rights and wrongs of the individual arguments, we most certainly do appear to be ‘all in it together’; the mire that is. All except premiership footballers and minor celebrities it seems.
The Pound is certainly in the mire; trading as it is, at the bottom end of its trading range against almost every other currency. There is speculation that the Bank of England will open the taps on further money supply expansion in the near future and that is weighing on the Pound. Tomorrow’s announcement of quarter 3 economic growth figures will be crucial to that decision. The markets are expecting another expansion to an annualised 2.4% or thereabouts, so anything much less than this number will be greeted with further Sterling weakness although you could certainly argue that all the bad news must be priced into the value of the Pound by now.
We also get the Q3 growth data from America this week but forecasts a little more mixed on this one. The figure could be anywhere between 2.1% and 2.4% according to the forecasts I have read and the US Dollar, like the Pound is very weak ahead of this release. In fact the US Dollar is slightly weaker than the Pound overall and that is allowing Sterling to look quite good on the USD exchange rate. It tends to prompt headlines in the national press which suggest Sterling is rather better placed than it really is. The Dollar has the potential to weaken further though after the weekend’s G20 meeting which, as expected, produced a pretty wishy-washy agreement to ‘move towards’ agreement on doing something about countries which weaken their currencies to gain competitive advantage in overseas trade.
America’s northern neighbour, Canada, saw its Dollar weaken for the first week in months as it started to dawn on the markets that if American demand is slowing, Canada’s exports will suffer. The Bank of Canada has made it quite clear that economic conditions are weakening and that precludes any further interest rate hikes for now. Canada’s higher interest rate yield has been part of the story with regard to recent CAD strength.
In Europe, the G20’s limp agreement was greeted with a large yawn and little exchange rate reaction. The Euro is still overvalued, largely due to funds seeping away from the US Dollar ahead of a potential US slowdown and further US quantitative easing. It s unlikely the European Central Bank will be looking to expand EI money supply in the medium term; stability of supply in the very liquid Euro is quite well thought of amongst international investors; hence Euro strength against the US Dollar and Sterling.
Elsewhere, this week brings an interest rate decision from the Reserve Bank of New Zealand. No change is forecast but we will watch their announcement with interest as we seek clarity on the future path of NZ interest rates. It is likely however, that they will stay on hold for the next few months at least.
There are a whole bunch of other data releases this week and many have the potential to be market moving but they are too numerous to cover in detail here. I will cover them in more detail in the reports later in the week.
I’ll leave you with another football story; the scene is a battle for promotion in the Peruvian football league. Before the match, the players in the team, Sport Ancash offered energy drinks to their opposite numbers but mysteriously didn’t drink anything themselves. During the match, 5 members of their opposition, Hijos de Acosvinchos, collapsed a fainted. Denying any involvement, the Sport Ancash team suggested the fainting must have been something to do with the barbeque the team had the night before. Investigations are ongoing but Sport Ancash went on to win the match 3-0 and gained the promotion. Conspiracy theorists couldn’t have written a more interesting script.