Health dominates the news today, if it isn't the risks to the world's health from swine flu, it is the worries over the health of the US banks, after rumours that the US treasury has told 6 major banks that they have to raise more capital after the results of their stress tests. The rest of the world won't see the results of the stress test until next Monday, when we in the UK are actually enjoying what looks like a typicall wet bank holiday, although most of the rest of the world have their holiday this Friday, and the worries of the results are increasing the nervousness in the markets. Swine flu has also played on nerves in the markets, and has skewed equities with pharmaceutical companies rising and travel companies falling. The overall effect of the health worries has been to slightly depress the equity markets, with the S&P500 closing slightly down, The FTSE stayed relatively steady throughout the day.
The Pound had a good day yesterday as the CBI distributive trade survey showed a return to positive territory, in what was the highest figures for 15 months. In spite of all the doom and gloom, the retail figures in the UK have stayed relatively buoyant, although you wouldn't know this from the amount of empty units and failing high street stores. The Pound climbed above 1.12 against the Euro, in spite of more comments from a member of the ECB, who signalled their reluctance to suing QE measures, only a day after another ECB member said they might be necessary. However the Pound has fallen back overnight, to hover around 1.1150 against the single currency.
The Pound has performed even better against the Dollar, rising up to 1.47 this morning, after a batch of better than expected US data out yesterday, reduced safe haven demand. The US benefitted from consumer confidence figures jumping by more than expected, as well as a regional manufacturing index showing significant recovery, although as usual recently, still showing a pace of contraction. Although the news might have increased optimism on the US economy, it hasn't helped the US Dollar which has also fallen back against the Euro, allowing the single currency to climb back up towards 1.32.
The data trail today is skewed towards the Eurozone and the US. First of all we the usual European commission's month end surveys of business, services, and consumer confidence. These are likely to show a small recovery in line with previous PMIs from the Eurozone, but still stay well into contraction territory.
This afternoon and this evening will be dominated by data out from the US as we get the first estimate of GDP, expected to be much better than the growth out of either the UK, or Germany, as it is buoyed by a positive net trade position following some impressive trade figures. There is also the FOMC decision late UK time, but this in unlikely to change the Fed funds rate, and it is probably too soon for the Fed to judge their QE measures.
A optimistic GDP figure may go some way to easing some of the tension caused by recent worries, and could boost risk appetite giving the Pound another step upwards.
Michael Corcoran | Treasury Solutions Partner | National Australia Bank Limited