- Sterling slips on easing housing data
- US stronger on upbeat consumer confidence
- Huge data day to come
Another day and another problem with the Home office which is facing
strike action from disgruntled Civil Servants who, quite rightly, are
angry about the excessive fees consultants’ are being paid while they
are facing job cuts. Doing it on the last day of tax returns was a
masterstroke or a damned annoyance dependent on your viewpoint. And
another day brings another series of arrests under the terrorism act;
we are urged to be reassured but perpetual nervousness is probably
nearer the mark.
Nervous is also a worthy adjective for the financial
markets at the moment. After a day which brought a spike in US consumer
confidence and a slide in UK housing market growth, a spike in UK
consumer credit and an understandable rise in German inflation, we
started today with a sharp rise in home repossessions in Britain and
that is not good for the Pound - or indeed the people who have to deal
with being homeless.
The Pound, as you might expect, is sliding on this
news and analysts are clearly worried that a slowdown in the housing
market shows that the series of interest rate hikes from the Bank of
England are starting to have an effect. The second round effect usually
shows in retail sales and we have to wait until next week for those
numbers. Sterling, as I am sure you are aware, is a little too strong
for its own good at the moment and a sequence of profit taking allied
to the ‘end of the month’ flurry of trades should allow for further
Sterling weakness but whether that will carry through into February is
less clear. The rest of the day will be a blur of data releases and
most traders will end the month with a headache from all the movement
and analysis. Nothing that a quick pint can’t cure though, I’m sure.
However, this evening brings the US interest rate decision and, whilst
we are not expecting any change from the Fed, we were caught out by the
Bank of England earlier in the month and no one wants to be wrong on
this one as well. Not only that but February starts with an equally
packed data calendar, so the beer will have to be a quick one and the
heads will need to be clear for tomorrow morning. Have a great day and
wave goodbye to January as it passes; it was a great month in its own
sweet way.
The rise in German sales tax from 16 to 19 percent was reflected in
German inflation for the first time last month. However, retailers were
clearly nervous of the effects of the tax hike after a month of strong
sales and their discounting managed to offset some of the effect.
German inflation came in at 1.8 percent; well below the 2.2 percent
market forecast but still enough to encourage a degree of Euro buying
overnight. GBPEUR is lower this morning, which is an overdue move in my
view and one helped by the poor UK data as detailed in the main section
above. This morning brought a dip in German consumer confidence
although German unemployment dipped encouragingly last month and that
is good news at last for the German labour market. Today will also
bring the Eurozone employment numbers and Europe-wide inflation.
Traders will watch these with interest although, with Germany making up
a third of the Eurozone, their results will obviously be influential in
the regional numbers. In essence, and without further ado, the bottom
line is, well basically, the Euro ought now to gain against the Pound
on the balance of economic probabilities and we chartists will tell you
that Sterling is due a drop of some considerable magnitude after months
of overplayed strength. As I have said for a number of days, buying
Euros early makes perfect sense and those with Euros to sell, your day
is finally dawning.
New Zealand’s trade deficit was wider than expected in December at NZ$
6.16 billion. An annualised rise of 12 percent in imports made the
trade gap look awful on first reading but this rise in purchases from
overseas does demonstrate a level of consumer and business optimism and
that is a worrying sign for the Reserve Bank of New Zealand which
really needs to start to see signs of a cooling off in the NZ economy.
It does raise the spectre of higher interest rates in New Zealand and
the bond markets are starting to price in a 70 percent chance of a 25
basis point interest rate hike at the RBNZ’s March 8th meeting.
The
exchange rate affect is that the Kiwi Dollar will strengthen as it
attracts interest rate seeking international investors although a lot
of those funds are flowing from Japan and we are fast approaching the
end of the Japanese financial year. By April, many Japanese individuals
and companies which have invested funds overseas will draw them back to
Japan and return them to Japanese Yen to satisfy local taxation
requirements. This has the effect of strengthening the Yen and
weakening the other currencies so there will be volatility in the NZD
over the coming couple of months as the strengthening NZD is buffeted
by Yen buyers who will take advantage of any Kiwi Dollar strength and
create enough troughs and spikes to satisfy any ploughman.
The reason lightning doesn't strike twice in the same place is that the same place isn't there the second time.
Willie Tyler
FX Research and Analysis undertaken by:
David Johnson - Halo Financial
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