As the dust settles after the UK budget many of the papers are calling the 50% tax band an 'attack on middle Britain', although I'm not sure quite how many of 'middle' Britain earn north of 150k per year. The effect on the Pound was relatively short lived, although it did drag Sterling down from 1.47 to around 1.44 against the Dollar, the market has since rallied and the Pound once again achieved 1.47 before once again falling back, in what proved an volatile day of trading. The Dollar slipped as corporate earning figures from American Express, Amazon, and Microsoft, came as, or better than, expected. The Dollar was also hit by worse than expected existing home sales, although prices did also rise, so there is some evidence that the terrible housing market in the US, falls in which was the first domino to fall and start this whole mess, is starting to bottom out.
The data from European companies was also positive with Barclay's making hopeful noises about their first quarter profits, and promising to start paying dividends, and Credit Suisse also posting profits double what was expected. In fact there was more good news for the Eurozone, as the phrase 'better than expected, but still showing contraction can once again be used for the PMIs released yesterday. All this helped prepare the ground for the Pound to fall below 1.11 against the Euro this morning, after climbing to 1.12 yesterday, as a newspaper report that the rating agencies are looking at the UK's credit rating in the light of the budget, hardly news with a downgrading in the UK's credit rating always something that the Chancellor would have been desperate to avoid.
The AUD has benefitted from the overall better than expected corporate earnings reports rising back above 0.71 against the USD, and as the Australian economy doesn't have the public finance problems of the UK, it has also an economy which has yet to dip into recession, so it's no surprise that the AUD has forced the GBP/AUD rate down to below 2.04. While the worries over the results of the US stress tests persist, and they will until they are announced on the 4th of May, then the markets will stay uncertain.
Today sees the first estimate of GDP and the latest retail sales numbers. The GDP figures were expected to be weak as it won't include some of the latest improved measures, but even the 1.5% expected drop was too optimistic, as the figures came in at a whopping 1.9%, the biggest drop since 1979. The terrible GDP figures were contradicted by the retail sales figures which actually showed a rise in high street activity of 1.5% from the same period a year ago, although this is skewed by the timing of Easter.
The Pound has remained remarkably resilient in the face of this news, falling only a few pips from where it opened this morning.
Michael Corcoran | Treasury Solutions Partner |Wholesale Banking | NAB Limited