A serious number of goals for Portugal was almost the only significant news story yesterday. In a quiet Monday, traders appeared to put their feet up and wait for more groundbreaking news. Even the fact that China has finally relaxed its vice like gip on the Yuan was less market moving than we would perhaps have expected. In allowing their currency to appreciate, the Chinese authorities are hoping they will appease the US, make a good impression before next week’s G20 meeting and slow domestic growth. All are desirable aspirations as far as the rest of the world are concerned and the move is long overdue from an American perspective. The optimism that this generated along with a positive report from the Greek Prime Minister prompted a flow of funds from the safety of the US Dollar and Japanese Yen and into the Australasian Dollars and well as into the Euro and Sterling.
So we saw the pound recover a little after Friday’s tumble and the Euro make gains against the US Dollar and Japanese Yen in particular. As for the Aussie and Kiwi Dollars, well they were stronger than either the Pound or the Euro and we remain near the bottom of the trading ranges on these pairings. And the Euro strengthened even after a warning by credit ratings agency, Fitch that recent events have left it vulnerable to further economic problems and the move towards debt reduction plans and away from fiscal stimulus is seen by some commentators as a certain way to bring on a double dip recession before the year is over.
Today’s major news is the UK emergency budget. We have been well and truly softened up in the past few weeks by speech after press release after speech so we know we ought to expect a rough tough and painful budget. An Ipsos Mori poll shows that the number of Brits who accept that cuts are needed has risen from 40% to 58% so the hype has worked. It is traditional for an incoming party to blame the last lot for the state of the public debt and the appalling state of the economy but this time it does feel a little more authentic. Mind you, I don’t think anyone was under any illusion that things might look better when the new chancellor got his hands on the books. If UK plc was a company, t would have taken a very big carrot to get anyone to take it over. However, as prepared as we are for the cuts and the tax rises, it will still, no doubt, hurt when they hit. We will have to wait until 3 pm UK time to hear what Mr Osborne has to say but I think visors and gum protectors might be in order. The rest of the television day will be filled with the usual array of talking heads telling us in predictable language why it is a good, bad and indifferent budget.
What is important - apart from the suffering of those of us who have just one identity and who work for a living - is the effect it will have on the Pound and most are forecasting a mildly positive response from the markets as the government’s pro-active approach stands a good chance of averting a drop in the UK’s credit ratings. Once the budget and its repercussions are out of the way, we can focus on tomorrow’s release of the minutes from the last Bank of England meeting. Tomorrow is a far busier day on the data front as well with a raft of German, British Eurozone data as well as a smattering us US numbers. The pace of volatility just doesn’t stop and the opportunities it brings are very good news.
And finally, I loved the story of Kenyan, Philimon Rotich who heard about a half-marathon race in East Timor with a $5,000 prize fund. He was almost penniless but managed to get to east Timor where he realised he didn’t have enough for the $40 visa or any accommodation. However, at Dili airport, he saw the president of East Timor, told him his story and his dream of winning the race. The President was so taken with the story that he invited Philimon to stay at his house during his time in East Timor. The happy ending is that Philimon won the 13 Kilometre race and went home with the prize money. A happy ending story without a catch; what a pleasant surprise.