All the snow makes the expected escalation in wildcat strikes this morning barely imperceptible, as large swathes of the country don't turn up for work anyway, and with the weather expected to carry on for most of the week, our groaning public transport system will likely continue fail to get employees to their place of work. The economic data released last week showed that it's not just the roads that are frozen to a standstill, as Japanese industrial data fell by almost 10% on the month, Eurozone inflation fell to 1.1%, and US GDP fell by 3.8% on an annualised basis. The US GDP number was actually better than expected, which goes to show just how pessimistic investors are on the US economy, but looking at the details the extra production hasn't been sold, it is sitting in warehouses waiting to get shipped which is likely to weigh on production in the coming quarters. As you would expect with so much negative data, equities fell on Friday the Nikkei down 3.1%, the DAX 2%, and the S&P500 dropped 2.3%.
The currency markets reacted as usual, taking their lead from equities, as investors once again sought safe haven currencies, with the Euro suffering as the markets belatedly reassess their views on Eurozone strength. The Pound managed to climb above 1.13 against the single currency overnight, and almost to 1.45 against the Dollar, before a downgrading of the credit rating of Barclays has weighed on Sterling bring it down below 1.12, and 1.43 respectively. With Sterling climbing so far last week, it was the best performing major currency, it is no surprise that it opens weaker this morning as traders take profit, and it may come under more pressure throughout the day
Sterling got a bit of a rest last week, but we start again this week with PMI survey for manufacturing for the UK and the Eurozone. With wildcat strikes, plus a decent level of snowfall, it seems the 70's are coming back, and the manufacturing figures have also regressed, although the headline figure was slightly higher, the annual pace is still contracting at 6%, near all time lows.
Later in the week we have the BoE and the ECB rate decisions, which are expected to be a 0.5% and a no change respectively. On Friday we have the US non-farm payrolls which is expected to show a further half a million job losses in the past month.
With Sterling climbing so far last week, it may find it hard to extend it's gains into this week and is likely to fall back, but it will still finish the week higher than the start of last week as it slowly ratchets itself upwards.
Michael Corcoran - Assistant Manager | Treasury Solutions