Aside from the arrival of a brand new resident for 10 Downing Street, yesterday was notable for poor US housing data and shenanigans in Japan. Miss Cameron’s arrival whilst her mum and dad were on holiday in Cornwall has sparked a lot of speculation over a Cornish name for the baby but I can’t see her following in the footsteps of the likes of Paris Hilton or Brooklyn Beckham in becoming baby Truro or Clovelly Cameron. She will probably always be called Moy Luvver around the house though.
The Japanese story is a classic case of the Japanese authorities saying a lot but doing nothing and still managing to stop the Yen from strengthening. Traders are always nervous when a currency hits a 15 year high against the US Dollar and that nervousness was enhanced by the comments from the Japanese Finance Minister who promised “appropriate action” to correct the Yen’s recent strength; a characteristically inscrutable response. Traders took this to be the warning of impending market intervention; either direct Yen selling or cash injections into the markets to increase liquidity, and took profit on some of their Yen purchases; weakening the currency a tad. However, the follow through of cash being spent by the Bank of Japan has not yet happened so it may all be hot air.
That does have an impact on the US Dollar and Euro; against which the Yen hit a 9 year high yesterday, but the US Dollar was also damaged by yesterday’s poor housing data. In July, the number of existing homes sold fell by 27.2 percent; a disastrous result and enough to really dent investor confidence in the US Dollar. Oddly, in comparison with recent negative events, the report caused US Dollar sales but the USD recovered some composure before the end of the day. We get new home sales data today and US durable goods orders so there is plenty for USD traders to concentrate on.
The moves in the US Dollar caused fluctuations in the Euro as well. The Euro was also shunted around as the 2nd estimate of German’s Quarter 2 economic growth was announced. The figure of 2.2 percent was in line with forecasts but the detail shows that this is heavily reliant on growth driven by export demand. That means that if the rest of the world is slowing, the Eurozone data will suffer sharp declines and that made traders nervous. All eyes are on this morning’s German IFO institute’s business expectations index; a very well watched bellwether for the German economy’s prospects. With all this nervousness around, I am surprised there are any traders left with anything other than grey hair and perhaps it is a surprise that they have any hair at all but troubling times generally result in cautious trading patterns. These are largely a matter of safety first so the solid secure type assets are in great demand. That is the problem for the Japanese Yen, Swiss Franc and, strange as it may seem, the Great British Pound.
Despite the Bank of England doing its damnedest to keep the Pound weak to aid exporters (see Sam Stanley’s report yesterday), Sterling is in a gentle upward path. That path has a few blockages which will be tough to overcome but there is a feeling afoot that the actions of the UK government will start to yield positive economic growth results in the year ahead and that is supporting the view that Sterling is a proper safe haven. We shall see, UK economic growth data on Friday so traders may well be loathe to get heavily involved in the Pound until then. In the interim, there is plenty of data from elsewhere to keep us busy.
In Canada, the poor US data caused a bit of concern for Canada’s export prospects. Canada, as you are probably aware, sends, more than three quarters of its exports to America so slowing growth in the US is going to have a direct impact on the Canadian economy. However, the Sterling - Canadian Dollar exchange rate is hitting the top of a downtrend which has capped the market for over a year so the prudent CAD buyer may want to buy some of their requirements here.
As for the rest of the day, well mobile phones are in the news for good and bad reasons. Appropriately names Lu Lei was stuck for 12 hours with her arm trapped down a toilet after she tried to retrieve her mobile phone. Foremen had to demolish the cubicle and toilet to free her. But on the upside, a text from 11,000 feet up Mont Blanc to a chap 800 miles away in Shrewsbury, led to two climbers being rescued safely after bad weather closed in and the only contact they had with the outside world was a mobile phone but they couldn’t get hold of the mountain rescue teams. At least they could play Tetris while they waited I guess; or, if it was an Iphone maybe Angry Birds or if it was an old mobile, then the daddy of all games....SNAKES.