Between The Lines; Morning Roll Call

Jun 26 • Between the lines • 2844 Views • Comments Off on Between The Lines; Morning Roll Call

The UK waves goodbye to Mervyn King with a £375 billion tick a tape parade, otherwise known as quantitative easing…

between-the-lines1Tuesday saw the last statement from the UK’s outgoing governor of the Bank of England Mervyn King to the all party treasury select committee. This UK government committee overseas the decisions taken by the BOE and prods and probes the governor on a quarterly basis as to the direction and management of the UK economy. Typically he’ll be quizzed on his monetary policy’s decisions, inflation targets, quantitative easing, where he thinks interest rates should be pegged etc. Oh and who does he think should be on the back of the next ten pound note. On that subject he’d like to see the legendary fiction writer Jane Austen…feel free to make jokes suggesting both Mervyn and Ms. Austen are famed for their fiction writing.

Now there’s two ways of looking at this, we could take the view that the great man’s mind can still stretch to accommodating a bit of light hearted humour amongst the global market turmoil we’re currently witnessing. Or, that he’s been sitting in his office, waiting impatiently for the incumbent Mark Carney to take his seat, busily flicking elastic bands at his colleagues, making paper airplanes and deciding who he’d like on the back of the ‘quantitatively eased’ ten pound note.

In his more serious moments he appeared to discount any fear that central banks have a unified view that interest rates must ‘normalize’ sooner rather than later. King also suggested that on the contrary the BOE has not ruled out negative interest rates for commercial banks depositing their reserves with the BOE. How did sterling react to his statements? Neutral would be the best description.

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Thanks for the service Mervyn and the £375 billion of quantitative easing that (some of us know) will eventually be socialised as losses onto us, the unsuspecting UK ‘Joe Six-pack’ tax payers.

USA consumer confidence rebounds taking indices with it

In other news Tuesday proved to be a good day for the dollar underpinned by better than expected economic data; durable goods orders were up and the confidence of the USA consumer exceeded expectations jumping to a five year high of 81.4.

DJIA and S&P 500 advance as did most European indices

U.S. stocks rallied on Tuesday; the Standard & Poor’s 500 Index (SPX) rebounded from a nine-week low, after the data showing durable-good orders and home sales increased more than forecast whilst consumer confidence climbed. The S&P 500 climbed 0.9 percent to 1,587.88 at 4 p.m. in New York. The DJIA closed up 100 points. The UK FTSE climbed 72 points and the German DAX climbed 118 points.

Forex in focus

The Dollar Index, which Intercontinental Exchange use in order to monitor the U.S. currency versus those of its six major trading partners, gained 0.2 percent to 82.548, after climbing yesterday to the strongest since June 5.

The greenback appreciated 0.2 percent to $1.3091 per euro in New York, after earlier declining as much as 0.2 percent. The greenback increased 0.1 percent to 97.82 yen after falling 0.8 percent. The euro slipped 0.1 percent to 128.07 yen.

The yen has gained 2.7 percent versus the greenback this month, while Norway’s krone has declined 3.7 percent. The euro has led all major gainers with a 2.1 percent increase this quarter. The worst-performing currency, the Australian dollar, has slipped 11 percent. The greenback is the best-performing currency in 2013 and South Africa’s rand has plunged 16 percent.

The two main commodity currencies, the Canadian dollar and the Australian dollar, are still under intense pressure, particularly versus the greenback. Australia’s dollar has fallen 11 percent in the past three months, making it the worst performer tracked by Bloomberg’s Correlation-Weighted Currency index. The kiwi dollar sank 5.7 percent making it the second-biggest loser. The Standard & Poor’s GSCI Index (SPGSCI) of 24 commodities has fallen 5.4 percent this year. Crude-oil futures were 0.1 percent higher at $95.28 per barrel in New York, after rising as much as 1 percent.

The Loonie (Canadian dollar) has fallen considerably over recent days versus the USD and the Aussie is still out of favour with investors. The loonie, as the Canadian dollar is known, fell 0.1 percent to C$1.0514 per U.S. dollar in the afternoon session in Toronto. One loonie currently buys 95.11 U.S. cents. Plotted on a daily chart the loonie versus the greenback is as ‘ugly’ as it can get. Traders who prefer trading commodity currencies need to exercise extreme caution.

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The Aussie dollar actually rose 0.1 percent to 92.55 U.S. cents in Sydney, after earlier dropping by as much as 0.6 percent. Monday it touched 91.48, the lowest since September 2010, before rallying 0.3 percent. However, looking at a daily chart, it still posts as ugly a picture as the loonie versus greenback and may be simply ‘enjoying’ a technical respite. The currency pair’s one-month implied volatility held at 15.3 percent from Monday, when it reached 15.5 percent, the highest since December 2011.

New Zealand’s kiwi dollar was little changed at 77.48 U.S. cents from Monday, when it touched 76.84, the weakest level witnessed since June 2012.

High impact fundamental policy and news events scheduled for Wednesday June 26th

It’s a rather ‘light’ day for high impact news and policy statements on Wednesday. However, traders should still be ‘on their toes’ and light on their feet given that sometimes the medium impact news events can take the markets by surprise.

We have the final quarter’s GDP figures from the USA predicted to print at 2.4%. Crude inventories are scheduled to fall by 1.9million barrels. Late evening we have the trade balance figures from New Zealand which is predicted to see a healthy print of $412mn from the previous month’s $157mn.

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