Tuesday was a big day for data and a big day for India. The Delhi Commonwealth Games are in doubt after reports of an uninhabitable athletes’ village and the collapse of a footbridge which injured more than 20 construction workers. Their problem is clearly a lack of Polish builders. I am sure we could fly a few teams in and knock that job off in the 11 days left before the games start.
Thankfully the US economy doesn’t look like it will collapse but the Federal Reserve has shifted its emphasis a little. In the past they tended to threaten further expansion of the money supply if there was a fear that growth may stall but now they are saying they would step in if the pace for growth slowed. They kept the base interest rate on hold and didn’t alter anything about their current quantitative easing plans but the message was received loud and clear by the markets. This news brought a sharp period of US Dollar weakness last night after the UK markets had closed. The Dollar lost a cent and a half against the Pound and two cents against the Euro in the space of half an hour. As you can surmise from that sentence, Sterling slipped against the Euro in the same period.
Sterling’s lack of impetus was a result of news earlier in the day that the UK government borrowed £15.3 billion in August; £2 billion more than in August 2009 and a record amount for any August on record. The increased cost of interest on government debt was cited as the problem but that doesn’t bode well for the future because until they are in a position to start to reduce the principle amount, as interest rates rise, the cost of servicing the existing debt will only rise. We get a bit of insight into the UK interest rate path when the Bank of England publishes the minutes from their last meeting this morning. A vote of 8-1 is likely for their decision to keep interest rates at their historic low with the ubiquitous Andrew Sentence being the dissenter voting in favour of a pre-emptive interest rate hike.
Later in the day we get Eurozone industrial orders data and that may dampen the market enthusiasm for the Euro which was pumped up by successful bond auctions in Ireland, Spain and Greece; three of the most troubling countries in the Eurozone. The interest rates being paid by these governments is well above the EU base rate but that risk premium is probably considered a small price to pay for stability and for each country being seen to be able to service its own debt requirements without resorting to International Monetary Fund or European Central Bank support. Mind you, when the IMF and ECB are clearly happy to support each country in the region, the risk in buying these bonds is very small in real terms.
In other news, the Canadian Dollar was largely unmoved by inflation data which printed at a surprisingly high 1.7%. There is an outside chance that the Bank of Canada could further hike interest rates in order to stifle inflation; a bold move while the US is threatening to loosen money supply. Today brings retail sales and leading indicator figures which should keep the Canadian Dollar busy within recent ranges. However, further weakness in the US Dollar will boost commodity prices which are largely priced in USD, so the Canadian Dollar may get an unexpected boost.
Overnight tonight we will get New Zealand’s economic growth data which should point to strong growth and may well strengthen the New Zealand Dollar. Gross Domestic Product growth of some 1.1 percent is forecast; a very healthy level if it proves to be accurate. However, yesterday’s current account figures showed that NZ moved from a surplus to a deficit; an unexpected development and one that brings into question the strength of NZ’s export markets. As export’s play such a major role in New Zealand’s economic activity, there is room for an upset tonight, so automated market orders are recommended.
Elsewhere things were a little less lively. The Australian Dollar made some gains as the US Dollar declined late last night on the basis that those selling the USD were looking for higher interest rates elsewhere. The Reserve Bank of Australia has paused its interest rate hiking program but there is little likelihood of any cuts; so at a time when the US central bank is warning of looser monetary policy, the potential for higher yields in Australia is very attractive to international investors.
And finally, the normal image of bank robbers is that they hurry to a getaway car and speed off with their ill gotten gains but an Oregon woman has been charged with a very peculiar bank robbery where, having demanded and taken money from the Umpqua Bank in Grants Pass, she and her getaway driver stopped to pick up her daughters from primary school before heading home where they were arrested.
“So Cindy, what does your mommy do for a living?”
“I don’t know Miss but you can ask her because here she comes now. Can you see her? She’s the one in the ski mask”.