Currency market report Sep 3 from Coracle and Crossbar fx.By james tweed • Sep 4th, 2012 • Category: Currency
Significant items this week:
Tuesday 4th Sept UK – House prices
EU – PPI
US – ISM Manufacturing
Wed 5th Sept Australia – GDP Q2
Canada BOC Interest rate decision
EU – Retail sales for July
Thurs 6th Sept Australia – Unemployment
EU – GDP Q2, ECB Interest rate decision, German factory orders
UK – BOE Interest rate decision
Fri 7th Sept EU – German Trade Balance
UK – Industrial, Manufacturing production, PPI, GDP estimate for 3 months to August
US – Non Farm payrolls, Unemployment
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The story for the markets in August, with the benefit of hindsight, has been the calm before the storm. Much of the positioning during the low trading volumes which characterise the holiday period has been in anticipation of more stimulus from central banks in September. The biggest bet seems to be that QE is coming: largely to maintain the current rally in equities, bonds and commodities. The key issue is will the Fed and the ECB disappoint the markets? Many think they will but September is too soon to decide if QE is still required. So the data that emerges throughout the next few weeks will be keenly picked over for any signs of a recovery, or otherwise. The suggestion of QE from Bernanke in his Jackson Hole speech saw the US Dollar weaken across the board. All eyes will be on the next round of US GDP figures.
According to the latest data, the Eurozone is officially back in recession. The manufacturing and services index remain at 3 year lows, with Germany also suffering. German GDP fell from 0.5% in Q1 to 0.3% in Q2. It’s becoming quite clear that Germany can’t escape from Europe’s recession. Being dependent on exports, they were eventually going to succumb to the lack of consumers elsewhere in the Eurozone. China and Asia are also slowing down, which influences commodity prices and those economies are dependent on them. Spain is heading for a bailout with GDP down 1.3% and Catalonia tapping up the government for a loan after they found themselves being shut out of the debt markets. Banks have seen another 5% of private deposits being withdrawn from the system last month and Spain simply can’t finance itself at a long term sustainable rate any longer without EU cash. That’s a fact.
In the UK, Sterling is being influenced by what is happening elsewhere, in the absence of any significant data about its economy which isn’t already priced in. All eyes are on how the ECB will support European bond markets. Will the Fed deliver more QE? Can Greece keep up its debt payments? What about theSpanish bailout? And how about the result of that US election in November. It’s ‘tin hats on’ time!