Forex Market Commentaries - UK and Euro Crisis

As Europe Burns the UK Plays Second Fiddle

Oct 20 • Market Commentaries • 2930 Views • Comments Off on As Europe Burns the UK Plays Second Fiddle

The latest incumbent in charge of the UK government’s spin and posturing is, as we say in the UK, playing a blinder. Mired in accusations of sleaze with regards to the former News Of The World Sunday newspaper, a former defence Minister, involved in defence ‘matters’, such as who gets what political help and reconstruction in return for multi billion ammunitions contracts in order to aid the ailing UK economy, has his best friend and best man following him around globally handing out business cards. As to what services and products he was offering to sell remains clouded, but we could take a wild guess. What a shame the News Of The World wasn’t around to do a sting and set them both up.

Not the only minister involved in sleaze, The justice minister, Jonathan Djanogly, has been stripped of his responsibility to regulate firms that “ambulance chase” the public following a Guardian investigation that revealed how he and his family could profit from controversial changes to legal aid he was piloting in parliament.

Whilst these scandals rumble on the UK inflation figures revealed a dangerous spike, perhaps not the best time to unanimously agree more QE, but yesterday we learned that the Bank of England’s monetary policy committee were in fact 100% unified in their commitment to another £75 billion, in fact most suggested £100 billion. The figure for QE has now reached £275 billion, money used to buy up junk assets from banks, some of which are tax payer owned, to enable them to stay solvent..just.. Combined with the bailout of banks estimates put the combined bailout figure at circa £1 trillion.

Now sock puppets in the mainstream media will suggest the figure is closer to half that once for example RBS shares get to 70p, (they’re currently at 23p), and when the UK economy recovers the junk assets can be sold and there may be a shilling or two of profit..but a snapshot of where the UK is currently at in terms of its economy is disastrous, which is why the government’s spin mandarins have wasted no time in playing the eurosceptic xenophobic card.

With great timing the Machiavelli knife has been twisted and the chatter in the UK media is now centred on the question “is it time to have a referendum on leaving the EU?” Not withstanding the fact that some of us would have liked a referendum on spending circa £1 trillion to prop up the ‘broken system’ the cost factor of leaving the UK’s main trading partnership has been over looked, despite the UK chancellor using that very argument to prop up Ireland in their time of crisis.

Committed Europhile President Sarkozy’s timing is not of Machiavelli standard, he and Merkel have lost the initiative, control and momentum over the Eurozone crises. The mainstream media have given the leaders an enormous amount of latitude with regards to finding a solution, but unless a definitive blueprint is laid before a sceptical audience after this coming weekend’s meeting then most commentators will begin to question if the overall Eurozone problem is that insoluble and unsurmountable that “talk” is all there is.

French Finance Minister Francois Baroin has revealed the depth of the disagreement over the ECB which, along with Germany, has rejected using its balance sheet to bolster the €440 billion European Financial Stability Facility. While Germany endorsed enabling the EFSF to insure a portion of cash-strapped nations’ bond sales, Baroin said France wants to turn it into a bank that could tap the ECB.

 

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Everyone knows the reticence of the central bank and everyone also knows of the reticence of the German position. For us it is and will remain the most effective position. The Americans do it, the British do it.

In short The French want the fund to become a ‘bank’, as such it can then leverage the rescue bailout fund many times over, perhaps five fold, thereby giving it fire power of circa €2 trillion. Greece remains mired in recession and its overall debt is forecast to climb to €357 billion euros this year, or 162 percent of annual economic output, given that few economists believe this sum can be paid back (an inevitable default) the European stability fund of circa €440 billion could in theory be used up by Greece, before attention focuses on Italy, France and Spain. As a consequence of the continual prevarication and what could be a fatal irreconcilable difference the markets have fallen in morning trade.

Markets
Asia/Pacific markets fell sharply in overnight-early morning trade. The Nikkei closed down 1.03%, the Hang Seng closed down 1.73%, the CSI closed down 2.42%, the SET is down 2.93 and the ASX 200 down 1.63%. In Europe the STOXX is currently down 1.72%, the FTSE is down 1.17%, the CAC is down 1.66%, the DAX 1.46%. The SPX equity index future is up circa 0.3%. Brent crude is up $83 a barrel and spot gold down $17 an ounce.

Currencies
The yen’s record high of 75.95 versus the US dollar on Aug. 19 caused the Japanese government to adapt their currency policy. Japanese authorities have been highlighting the benefits of the strong yen. Cheaper overseas acquisitions aid a nation that imports about 80 percent of its energy needs. Japan will increase a fund to help companies cope with a surging yen by about 25 percent to 10 trillion yen ($130 billion), according to the Democratic Party of Japan.

The government will increase its foreign-exchange reserves for the state-run Japan Bank for International Cooperation in order to aid exporters and encourage acquisitions overseas. The Japanese cabinet is scheduled to agree on this plan at a meeting tomorrow. The yen rose 0.1 percent to 76.73 versus the dollar in Tokyo. The Japanese currency has risen 5.7 percent versus the dollar and 3.3 percent against the euro year to date.

The pound fell 0.4 percent to $1.5709 as of 9:40 a.m. in London, and has fallen 0.5 percent to 120.56 yen. It weakened 0.2 percent to 87.42 pence per euro. The pound has fallen 0.9 percent in the past six months, according to the Bloomberg Correlation-Weighted Indexes, which measures a basket of 10 developed-market currencies. It has gained 3.4 percent against the euro.

The euro has declined 0.2 percent to $1.3734 at 9:30 a.m. UK time, erasing its 0.2 percent gain over the past two days. The currency has also dropped 0.3 percent versus yen to 105.42 yen. The currency has fallen versus twelve of the sixteen major counter party pairs in morning trade. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, climbed 0.2 percent to 77.179

Economic data releases that may affect the NY opening and afternoon Europe sessions.

13:30 US – Initial and Continuing Jobless Claims
15:00 Eurozone – Consumer Confidence October
15.00 US – Leading Indicators September
15:00 US – Philly Fed October
15:00 US – Existing Home Sales September

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