Yesterday saw further signs of the severity of the economic downturn in the US with the release of several pieces of US data. Most notably the slump registered in the Philadelphia Fed Index & the continued rise in Jobless Claims. The consensus was for the jobless figures to climb to 4.83 million, however the actual figure came in around the 5 million mark.
The recent concerns over the US economy & its amounting debt level is making the markets nervous that it could be too much and thus US Treasuries were sold lower which in turn drives up the Fixed Rates in the US market.. What happens in the US market spills over here and as a result rates have, over the past couple of days, started to head north. Leading some to believe that we are getting to the stage where it is going to be difficult for any fixed rates less than 3 years to make new lows as we face a similar problem to America of giant issuance of government debt this year.
It also seems that, irrespective of where the BoE sets Base Rate, 3 month LIBOR is struggling to go any lower at present as it has edged slightly higher over the last couple of days yesterday setting over 2.07%.
Whilst in isolation watching current fixed rates & Libor move a 1 to 10 basis points in either direction may appear significant movements, it is easy to forget that less than 6 months ago these rates were in excess of 300 basis points higher. Those in the market currently chasing the lows in the term rates may be missing the bigger picture as recent history has shown. For example in the FX markets when we became complacent with the likes of GBPUSD up over $2, those chasing the extra cent ended up loosing out by 10 to 50 cents.
Over the past few minutes we have just had the release of the UK retail Sales figures for January, posting a surprise rise. This has had a positive effect on Sterling, as this morning it opened up close to 1.42 against the USD & around 1.1250 against the Euro, after this release it is sitting around 1.450 to close to 1.13 respectively.
With UK & Eurozone data out of the way for today, it just remains for the US to post is CPI data later this afternoon, which expectations are that the headline annual rate of inflation will register a negative number, prompting headlines of deflation.
Michael Corcoran - Treasury Partner | Treasury Solutions | nabCapital