The economic bad news keeps rolling in, yesterday it was UK industrial production which slumped to a new low, falling by 1.7%, much more than expected, and the DCLG measure of house prices also fell, by 7.4%. The bad news wasn't restricted to the UK, with Japanese GDP revised downwards in Q3 by 0.5%, and the German ZEW index showing mixed signs, with headline sentiment improving, while the current situation index was worse than expected. With bad news coming out everyday, the stock markets seem relatively inured to the pessimistic tone, and the FTSE actually ended up on the day, rising 1.9%, while the German DAX ended up 1.3%. The Pound could not shake off the poor figures so easily, falling to around 1.14 against the Euro overnight, and to below 1.48 against the Dollar.
Canada has followed the global trend and slashed it's interest rates by 75bp to a record low. The central bank has changed it's view from predictions of a mild global recession to one that is much longer lasting and more painful; with most of Canada's export heading for the shrinking American markets, Canada will soon be feeling the pinch. The central bank thinks it is already in recession, much like most developed economies. The cut had the effect of weakening the Canadian Dollar, causing it to fall 1.7% against the Dollar, although it has stayed steady against the Pound, a currency it has actually gained almost 20c against in just the past couple of months.
The US stock markets did not follow the European bourses' rise, in spite of more movement in the approval of a emergency loan to the auto industry, not enough to help them recover, but enough to keep them afloat until Obama sits in the oval office. The bill now has to pass through the two houses of congress, and with an estimated 3m jobs depending upon the auto industry, then the price of failure could be very high. There was a lot of bad corporate news to depress the stock markets with Sony slashing 16k jobs, Rio Tinto cutting 15% of their workforce, and other multinationals cutting their profit forecasts.
There is a relatively light economic calendar today with little of note out for the Eurozone, the UK, or the US. With yesterday's Zew survey, proving to be the best of a bad bunch of news, the Euro has been rising, pushing the Pound down, and rising back, if only briefly, above 1.30 against the Dollar,. As the calendar is light today, the trend from yesterday is likely to continue with Sterling on the back foot throughout the day.
Michael Corcoran | Treasury Solutions | nabCapital