Yesterday was an odd one for the markets because the data was so inconclusive. The German export data was very positive it must be said with the fastest growth rate since 1984 but, as far as the Euro is concerned, all the good work this did was undone by a slowdown in the rise of French business confidence which showed that we are likely to see less buoyant growth data in the 3rd quarter of the year.
Most analysts and traders are using all their angst on preparations for this evening’s US Federal Reserve interest rate decision. There is no expectation of any change in the base rate but there is a growing feeling that the Fed will announce that it is reinvesting some of the funds which are now being released from their quantitative easing program, thus extending the time scale of the QE plan if not the volume of funds within it. This would be an understandable response to a sequence of less than encouraging US data releases and such an announcement would probably not surprise anyone. Hence the effect on the US Dollar is likely to be muted.
The Pound was a tad softer yesterday as traders took profit ahead of last night’s housing data release. The RICS report showed a slowdown in house sales as new listings outpaced buyers. That is hardly surprising when it is so hard to get a mortgage unless you really don’t need one and unless you have to move, most home owners are sitting out the downturn in the hope others will reignite the market.
But the UK wasn’t the only market with soft housing data; the Australian home loans data showed the 10th consecutive month of decline as Aussies joined their Brit cousins in sitting out the downturn; especially after a sequence of interest rate hikes. And to cap off a trio, New Zealand House prices grew last month at their slowest pace since December 2009 as higher interest rates and lack of consumer confidence take their toll. This after noon’s Canadian data may well show this has become a quartet, so be prepared for a weaker Canadian Dollar as the day progresses. We also heard yesterday that Australian Business confidence fell to its lowest ebb in nearly a year. That did nothing to stop the Australian Dollar from losing ground against all comers.
As well as this evening’s US interest rate and QE announcements, today brings a barrage of Eurozone inflation numbers especially from the German regional statistics. Inflation is not a problem for the Eurozone though, so unless these numbers are dramatically different from the market consensus forecasts, we can expect little volatility after their release.
What is causing a lot of nervousness is a sequence of data release from China; currently the powerhouse behind the relative strength of the Asian and Australasian markets and of the commodity markets which has a wider ranging effect. China is, as we have mentioned a many times, trying to slow its pace of growth from the unsustainable 11 percent we saw last year. So this morning’s news that the pace of Chinese imports has slowed was widely expected. However we are talking about degrees of slowdown here. The market forecast was that imports would have grown less than June’s 53% year on year figure but the 22.7% that was announced was below estimates. It is still immense expansion though and exports grew 38.1% so China’s trade surplus increased. That is not what the US wants but it probably doesn’t worry Chinese authorities too much even though they will voice their concerns publicly.
So the general mood of the market at the moment is that the US Dollar has knocked Sterling off its perch a little; the Pound is lower against the Euro but not by much and it is better placed against the Australian, new Zealand and Canadian Dollars as the commodities market slowdown takes its toll and the housing data does a tad more damage.
Whether this will be a different picture after this evening’s US federal reserve announcement is open to animated debate but the fact is, we will have a busy period overnight tonight and this is a terrific opportunity for those with any kind of currency requirement to place an automated order to see if they can grab some of whatever they need at better exchange rates than we have at the moment.
While you ponder that, ponder this. A strip club which has seen members of the local church protest outside its doors for the last 4 years has finally had enough. The owner and some of the dancers decided to turn the tables on the church by protesting outside their premises on Sundays. I’m not sure whether they are likely to dissuade church goers from doing so but America is a free country so they certainly can’t complain. So the exam question for the day is “Is it immoral to protest by judging someone else’s morals?” 2,000 words please; you have two hours and no conferring. If you need extra pages, just raise your hand.