Spain’s government debt isn’t the only thing in the spotlight now that their football team has landed the Jules Rimet trophy for their world cup final exploits. They should keep a careful eye on that cup; it’s made of silver and gold and the Spanish government could do with the value of that in cash. Look out for any suspicious burglaries at the Spanish FA.
But when traders could tear themselves away from the football, they were pretty busy in the currency markets last week. During my interview on CNBC on Friday, the show’s hosts were very aerated about the fact that President Obama had said that China was not a ‘currency manipulator’; they asked my view. He was being polite and taking the politically correct line but it was a lie. We all know China controls its currency in a vice like grip; they don’t allow it to be traded freely so everyone buying goods from China sends US Dollars, increasing the value of the USD and keeping the Yuan weak. It also boosts their USD reserve holdings. Mr Obama is a politician though, so speaking untruths is not an alien concept to him, especially when there is political capital to be gained from doing so.
The other exciting news was the fact that the Euro appears to be stabilising to some degree. Many analysts had been very negative about the single currency and stories of the ‘inevitability‘of the dissolution of the Eurozone were rife but last week’s German data showed a positive picture for the future of exports; helped largely by the Euro’s recent weakness. In contrast to the poor state of the Spanish and Greek economies, the German export engine is in full swing and that growth is creating jobs and re-establishing the economy. But it is just Germany that is doing well so we can’t start to think that the end of the Eurozone couldn’t come about as a result of the German public’s disillusionment with the whole Eurozone concept; especially as they feel they are funding all the failing states. In fact, research group Capital Economics suggests that the breakup of the Eurozone would be a very positive thing economically speaking because it would allow for a rebalancing of the economies of the countries within the Euro bloc. Against the Pound, the Euro has made some gains in the last few days but it remains within the existing trading range; perhaps this week’s EU inflation data and the raft of UK data will have an effect on that position.
As for the UK, well the public debate amongst members of the Bank of England’s monetary policy committee about the future direction of interest rates is vexing traders. The Bank left UK interest rates on hold last week bit without a press conference, we don’t know how the voting went or what was discussed. We will have to wait for next week to get the minutes but it would appear that another split vote is the most likely scenario and we should expect the minutes to show the committee members are as split on the right policy as the rest of us are. They are right to be concerned though; last week’s trade gap figures showed that, far from Britain seeing a healthy export led recovery, the trade deficit widened as imports grew though a strengthening Pound and exports did the opposite for exactly the same reason. We should also note that if Europe’s economy struggles, UK exports to Europe will do likewise.
Sterling had a poor end to the week last week; falling to its lowest levels in a number of days against the US Dollar, Euro, Australasian Dollars and the Canadian Dollar. Some of the fall was due to profit taking amongst speculators and some was a general realignment of strategies as the EU looked to be a tad less vulnerable. There is also an element of concern over just how sizeable the UK budget cuts will have to be before the economy will have a chance to turn around. This concern is accompanied by the fear over large scale unemployment growth and sluggishness in the property and construction sectors.
In the US, things are still very mixed. US economic data has been ambiguous but policy makers and interest rate setters have maintained a stance of allowing recovery to gather pace if it can but not adding to the immense cash stimulus packages in order to force growth. This is a massive week for US data with both consumer and producer inflation data, the trade balance, retail sales, various business and consumer sentiment indices and industrial production data to keep traders on the edge.
And finally, football fever really has got the world in its grip; motorists stuck for hours in a jam on the M60 near Manchester, hopped over the central barrier and played a game of football on the empty opposite carriageway while they waited fro the traffic to start moving again. ‘Jumpers for goalposts’ and ‘match abandoned when the other carriageway was reopened’ I would guess.