Unsustainable bonds and other FX market newsBy james tweed • Dec 20th, 2011 • Category: Currency
Significant items this week:
Tues 20th US – Building Permits, Housing Starts
Wed 21st US – Existing home sales
Thurs 22nd UK – GDP Q3.
US – GDP Q3
Fri 23rd Dec US – Personal consumption expenditure
Thank you for downloading this foreign exchange market report podcast from Coracle Online and Crossbar fx. This podcast is for December 19th.
At the end of last week it looked like the squaring of books and winding down for the Christmas holiday season had begun. Risk is being taken off as the US Dollar strengthens as a result of funds being repatriated and positions closed. Such is the volatility of the markets that now is not the time to leave a position on the table and go away. Disenchantment with yet another EMU summit is an obvious cause of weakness in everything EMU related. The best that is being said about it is that they may have come up with some useful ideas on how to avoid future crises, but that they have done little to resolve the current one. The markets are unconvinced by the usual yawning gap between the claims of the leaders and the details of what they claim to have been decided; and the realistic numbers that can be seen on the ground. Italy had to sell its latest bonds at a 6.47% yield… that is unsustainable in the long term – especially when the sheer scale of maturities in the next few months need to be covered. It’s like a large ponzi scheme where bonds coming to maturity now need to be covered by ones sold today. That’s like using your credit card to pay off a bank loan. Recession for the EU has been highlighted for Q1 next year.
In the UK we now sit on the sidelines of all things EMU after David Cameron exercised the UK veto. Leaving the politics to the side the economic reality is that the UK is heading back into recession. The good news was that inflation fell last month – down from 5.2% to 4.8%, but unemployment reached its highest level since 1994 – up 128,000 to 2.64 million. The jobless rate now stands at 8.3%, up from 7.9% and youth unemployment is the highest it has ever been. All eyes are on next week’s Q3 GDP figures – and the rumour that it may be revised upwards.
We’ll be back in the New Year to update you on the markets, in the meantime, have a very happy Christmas