It is understandable that the dreadful events in Cumbria should dominate the news and will do so for weeks to come while the grieving and questions continue. The fragility of life and the obscenely casual way that death was inflicted upon small communities in Cumbria leave us all chilled to the core and embarrassingly grateful that we are not involved but our hearts go out to those who are.
The financial markets were hugely volatile once again with sterling finally stepping back from a few days of impressive strength. The UK debt data was largely in line with expectations so that wasn’t to blame. It appeared to be no more than a bout of profit taking and consolidation now that the Prudential/AIA deal is off the agenda and after a Bank of England report which poured scorn on the suggestions that UK inflation would remain high unless, as the OECD suggested, the BOE started to hike interest rates sooner rather than, their preferred option, doing so later. The bank sees UK inflation undershooting the government’s target rate of 2.0% in the medium term I am sure all those on pay freezes and out of work hope they are right.
The euro remained weak and that is clearly in the interests of the Eurozone governments. A weak currency is one of their most valuable assets as they try to steer the group of nations through the recovery from recession and through the potentially fatal debt crisis. We certainly shouldn’t be expecting any attempts by the Eurozone to strengthen their currency any time soon. However, everything has a level at which it becomes attractive to investors and speculators and the euro seems to reach that point around €1.20 against the pound and $1.22 against the US dollar. The euro is being hampered though by news that Iran, a country which made it very apparent that it wanted to sharply reduce its us dollar reserve holdings, has reversed that decision and is dumping Euros and buying back us dollars. I am sure other countries have done the same and are still doing likewise but without the fanfare.
The US Dollar, for its part is in fighting form and remains a very strong currency. It is still benefitting from funds flowing away from riskier investments and that includes the euro at this point and it is still attractive to those who see the US economy as several steps ahead of Britain and the Eurozone on the recovery road. And they are big steps; we’re talking steps from someone with long legs; think of Usain bolt in full flight and those are the kind of steps we are talking about here. However, the markets are likely to be a bit hushed until tomorrow’s us non-farm payroll count is released. A good employment report would be like giving the US Dollar a couple of cans of red bull and we could expect significant dollar strength. But a poor report would end the sugar rush and the US Dollar will lose ground. I would suggest anyone trading in the us dollar should mange the risk of a potentially poor adjustment but keep the opportunity open to benefit from a good movement. If you want to talk about the best plans for that risk management, please speak with your halo financial consultant.
The New Zealand and Australian dollars both gained some strength in the last 24 hours. Improving data from New Zealand, rising expectations that NZ interest rates will rise next week and a slight improvement in investors’ risk appetite are all contributing factors. The fly in the otherwise perfect ointment is the fact that china is slowing its economy and that will impact upon the Aussie dollar in particular. Watch NZ$ 2.12 and au$1.68 against the pound; if these support levels hold, then we will have another push higher in these exchange rates but failure here will call an end to the recent sterling rally against these currencies.
In other news, the credit ratings agencies; the companies that assess the risk associated with various assets, countries and banks, were branded as the "dumbest kid in the class" by, the head of the us financial crisis inquiry commission, Phil Angelides and they were also roundly criticised by billionaire investor warren buffet. Mr buffet also said the agencies should have taken a "meat axe" to their business models as soon as it became obvious that the "grand-daddy of all bubbles" was about to burst. However, Mr. Buffet also holds a large share of moody’s, one of the agencies he criticised and he hasn’t sacked the CEO. Go figure, as they say in those parts.
And finally, the sun is out, many of us are worried about how we might look in our bathing suits and judiciously steering past the cake display at lunchtime as we opt for the fruit but there is one thing we should all steer clear of and not attempt - ever - and it is the cold stone PB&C milkshake, made with peanut butter, chocolate ice cream and milk. It sounds amazing but it contains 68 grams of saturated fat and 153 grams of sugar and a total of 2,010 calories, according to the details on the company's website. In terms of saturated fat, this is akin to scoffing 68 bacon rashers. Personally, I’d go for half a cup of milkshake and half the bacon. Surely that’s a more balanced diet or am I misunderstanding this stuff?