We had very different data from the eastern and western hemispheres yesterday. Sterling slipped a tad as the Icelandic ash cloud was blamed for Britain’s trade deficit remaining around £7.3 billion in April; wider than forecasters had imagined but not too awful in the circumstances. A number of reports said that this was in spite of the weaker Pound which should boost exports but Sterling has been strengthening against its main trading partner’s currency, the Euro so I am not sure where they are getting their data.
Either way, the news from the Eastern hemisphere was more upbeat with China’s trade surplus rising to $19.3 billion in May, well above expectations and massively higher than the April figure. This was attributed to increasing demand for China’s exports which bodes well for the global economic recovery. And the other Eastern hemisphere news was that New Zealand saw its interest rates hiked overnight by 25 basis points to 2.75 percent as the Reserve Bank of New Zealand expressed its concerns over rising inflationary pressure ahead. They suggested this would be a pattern of increases to bring NZ interest rates back to neutral but judiciously avoided stating where neutral was. The markets see 3.5 to 4 percent as the target in the medium term. The New Zealand Dollar made some gains after the widely expected hike, especially against the Euro which is still under pressure.
And there is little chance that the European Central Bank will emulate the RBNZ when they meet to set the Eurozone interest rate today. No change is expected but traders will watch the press conference and the statement from the ECB in search for signs of interest rate hikes to come. However, with debt problems still haunting the European trading area as well as the tighter core of the Eurozone itself, interest rates are likely to stay very low for a very long time. The fact that Hungary and Bulgaria are now in danger of defaulting on loans is further grist to the mill for Euro bashers.
The Bank of England is also announcing its interest rate and asset repurchase levels today. As with the ECB, no change is forecast to either figure and the fears expressed yesterday by credit ratings agency Fitch will be ringing in the ears of the Monetary Policy Committee as they meet. Whilst Fitch warned over the immensity of UK government debt, the fact that the UK government has changed and the new team have a clear run at the problem without having to answer for the last 13 years of debt accumulation, will make it easier for Britain to retain its triple A rating; at least in the short term. The Confederation of British Industry added its support to the government planned preference for spending cuts over tax rises. However, they offered a warning over the panned changes to Capital Gains Tax which they felt would need to be quite narrowly defined. It is a fair point that an increased tax on saving and investing does seem an odd move when debt and overspending are the problems that need to be tackled but I’m just a trader so what would I know. But we will all know a lot more about that when the ‘emergency’ budget is announced on 22nd June. Fingers crossed everyone.
The US Dollar story is rather a positive one with Federal Reserve Chairman, Ben Bernanke making it clear that the US recovery is modest but on track and the Federal Reserve’s Beige Book which surveys the 12 districts of the Federal Reserve, showed that every district reported growth and optimism. That is very good news for America, will boost Chinese and Japanese output as well and will have a positive effect on Canada which is seeing positive data on all fronts. Today’s release of the US trade deficit figures should show an increase in imports relating to the improved confidence in the US economy but president Obama’s plans to expand US exports are not yet on the radar. However, the President’s rather personal attacks on BP and its directors are seen as over the top and a rather blunt piece of pandering to populist sentiment. Whether it will harm US/UK relations as some newspapers would have it is rather unlikely.
So have a great Thursday; the sun may be a bit scarce in Britain but it is still very warm. Perhaps some ice cream would perk you up. I hear that Frederick’s Dairies in Lancashire have launched a new Ice Cream flavour that encapsulates the feeling of the seaside. Yes fish and chip flavoured ice cream will be coming to a town near you soon. Sorry, has that put you off your elevenses?