Now that my identity as ‘The Stig’ has been rumbled and I have arranged for my stunt driver Ben Collins to pretend it was him, they will be seeing a lot more of me around the office now. Gone is the white helmet and gone is the racing suit so it is back to pin stripes and sensible shoes after all these years. Ah well; it was good while it lasted.
As for the other passion in my life, the currency markets; well that’s a pretty hairy place right now. Take the US Dollar as an example, in the last few days we have heard the head of the US Federal Reserve warn of a slowing economy, the minutes from the last Fed meeting spoke of sluggish and modest growth and then yesterday’s US manufacturing sector supply managers index was remarkably upbeat. That raised level of expectation raised a few eyebrows and raised the appetite for risk. This was especially so after China’s purchasing managers were equally upbeat. Even the poor showing in the ADP payroll report failed to stifle the enthusiasm but Friday’s official US employment might change all of that if those numbers are equally downbeat and it will be interesting to see if today’s release of the US factory orders data matches the supply managers’ optimistic expectations..
The consequence was that investors exited the safety of the US Dollar and bought higher yielding assets elsewhere. The US Dollar weakened and the Australian, New Zealand and Canadian Dollars all strengthened. The renewed optimism in the US and China also boosted commodity prices and the countries behind all of these currencies are heavily reliant on commodity exports, prompting another reason to buy.
These strengthened against Sterling and the Euro both of which were hampered by their own purchasing managers indices; both of which reflected a moderation in growth prospects. Sterling had a poor day as it fell against everything except the US Dollar. The Pound had been riding for a fall as it tested the tops of its trading ranges over the last few weeks and a period of correction was inevitable at some stage. That stage was yesterday and may extend into today and onwards unless we can find a reason to buy the Pound. It must be said though that the Pound did find buyers around the €1.20 level and bounced before the end of the day.
The Euro is trading in a nervous tentative narrow pattern ahead of today’s European Central Bank decision. No change is expected from the ECB in either their base interest rate or the level on quantitative easing but we can expect warnings from the head of the ECB, Jean-Claude Trichet that they are watching and ready to react if they see further economic slowing. At 1 percent, the Eurozone base interest rate is certainly what you would call ‘accommodative’ but there is room to lower that if needs be. The other big data for today is the Eurozone economic growth data. This is the 2nd estimate of the quarter 2 number; the first guesstimate showed that German manufacturers had almost uniquely salved growth from the jaws of contraction for the whole region so it will be very interesting to see if that is still the case now that more of the data is available for analysis.
The other major talking point in the forex market is a bit narcissistic really; the Bank of International Settlements (the central bank for bankers effectively) publishes a triennial report assessing volumes of currency traded and the significant changes in the breakdown of the volumes. This report reflected growth in volumes after the collapse of Lehman Brothers to $4 trillion per day and reflects that the US Dollar is still a component of 85 percent of trades and that London accounts for more than 36 percent of the market. So when London is on holiday, the drop in volume is hugely significant.
And finally, you know that jar in the corner of the bedroom with all your spare change in it. I think blokes have these more than women because we don’t carry purses but most houses have a dumping place for small coins. Anyway, a chap in China called Zhao called in at a car dealership in Jining (it almost sounds like Ching-ching but not quite) and paid for a 100,000 Yuan (£9,500) van in all the change and small notes he had accumulated in just such a jar over a period of several years. It took extra staff working in shifts to count the cash but Mr Zhao is apparently delighted with his new van. Penny for your thoughts?