YB FX Daily Report – 2nd April 2009
The actual G20 meeting is today, but as yesterday was April fools day the protesters decided to parade around the Bank of England, and most will also be out today. After all the hype, the protests went off without much of a problem, even though the protesters faced provocation from city workers waving 10 pound notes from their office windows, this just shows how hard the credit crunch has hit the banks, in previous years it would most likely have been 50 pound notes. Although the protesters dominated the news networks as cameramen rushed to scenes they hoped would erupt into violence, the protests were as calm as the markets.
The calmer markets provided a base for Sterling to continue it’s rally, boosted by the PMI for manufacturing which surprisingly came in higher than expected, but still of course at a level which showed a slowdown in decline, not actual growth, while this morning’s nationwide house prices actually showed a surprise 0.9% rise on the month, although the annual rate is still a drop of over 15%. The rally that started the day before yesterday has continued and Sterling has managed to climb above 1.4550 this morning against the Dollar, and has started to rise up towards 1.0950 against the Euro.
The UK wasn’t the only country that had some better than expected economic news, the US also had a rise in pending home sales, and the ISM manufacturing index came in better than expected, although there was a dark cloud on the horizon with the ADP employment measure showing a fall of 742k jobs in the private sector, which doesn’t bode well for Friday’s non-farm payrolls. However the markets took the batch of data as mostly positive and the stock markets continued to rise, the S&P500 closed 1.6% higher than it opened. The general impression, probably more accurately called a hope, is that we may have seen the nadir if not of the recession as a whole, at least in the pace of decline.
The two major events of today are the G20 meeting, and the ECB rate announcement. The world’s leaders have been trickling into the conference centre in London this morning, but most of the actual negotiation has already been done before the big wigs meet today. Gordon’s idea of a worldwide coordinated stimulus, and China’s hopes of discussing an alternative to the Dollar as a reserve currency, seem unlikely, so the G20 will probably result in more funding for the IMF, more trade finance initiatives, and further commitments to free trade, which will be ignored once the politicians are faced with their own domestic pressure groups.
The event that is likely to shake up the currency markets is the ECB meeting, a 50bp cut is pretty much certain, especially in light of the further sharp fall in the CPI measure of inflation in the past few days. The anticipation will be for whether there is any announcement of QE, unlikely, or any sign that the ECB are open to QE in the coming months. If during the press conference Trichet proves himself open to the idea of QE, and he will be pressed on it, then the Euro will slide, and Sterling could rise up to above 1.10 and even higher, at least until after the Easter break when the next batch of important UK data is released.
Michael Corcoran – Treasury Partner | Treasury Solutions | nabCapital