The banking sector started the global crisis, and in the many months since 2007, it's never been far from the forefront, and once again returning to the headlines over the weekend, with the Bank of America needing $20bn from the US government, and a guarantee of it's $118bn assets, Citigroup announcing $8.29bn losses, and across our side of the pond RBS made history with reports of a staggering £28bn loss. A significant chunk of the loss is due to the disastrous takeover of ABN Amro, as RBS decided to takeover another major bank at the peak of the bubble and shortly before one of the biggest crisis in financial history. The UK government have already indicated they will be taking further measures to prop up the banking system, and attempt to stimulate the housing sector, however with prices falling steadily (see the rightmove figures below), many potential purchases are likely to wait till the market bottoms out, even if loans are available.
Sterling has lost a little of it's previous momentum from Friday, opening lower this morning, around 1.47 against the Dollar, and just below 1.11 against the Euro. This is in spite of a reported slowdown in European export figures, with a 4.7% drop month on month. The negative news keeps rolling out of the Eurozone, with Spain's finance minister warning that the country faced it's deepest recession in 50 years, and Germany estimating that it's GDP declined by 2% in the 4th quarter of last year. The Euro has still stayed strong despite the realisation that it will suffer along with everyone else from the global slowdown, and that is probably why it has yet to drop, as everyone else is also suffering and the Euro may still be benefiting from safe haven flows with the US government finances making the Dollar less attractive.
Trading will be light today with Martin Luther King day over in the US, and tomorrow we have the coronation/inauguration of President Obama, with US data releases understandably kept to a minimum. The optimism the event will bring could give the Dollar a boost, but with expectations so high, and with any action to shore up the economy weighing heavily on the public purse, any boost will likely be short lived.
The Rightmove survey was released overnight in the UK and as usual contained bad news on the housing sector with asking prices down 7.3% from a year ago. For the rest of the week we get a bumper crop of data, containing CPI (tomorrow), Government finances an January MPC minutes (Wednesday), CBI report (Thursday), and finally retail sales and a first estimate of Q4 GDP on Friday. Not much of this data is likely to be Sterling positive, so although the Pound may still climb upwards in the long term, the coming week could prove a struggle.
Michael Corcoran - Assistant Manager | Treasury Solutions