March 16th 2010
Daily outlook
Waning risk appetite in yesterday’s session played into the hands of the safe haven dollar, as official comments from both Britain and the euro zone did little to support their home currencies. Whilst the BoE’s Barker reiterated that a UK economic recovery out of recession will be shaky, the EU member states told markets not to expect too much out of any feasible Greek bailout plan.
Comments from within Britain only added to prevalent fears that both the UK political and economic outlook is far from stable; and following polls over the weekend that once again no clear election majority had been made, a further excuse to dump the pound was met. Investors see this growing inevitability of a hung parliament as hindering any possibly recovery from historic debt levels, as a minority or split government will have less autonomous powers to make the necessary decisive action to lead Britain clear out of recession.
Similarly fears in the euro zone surrounding the debt levels of the single currency states were not appeased by statements from the EU commission, leading investors to see that any single bailout of Greece was not enough to ease the overall debt crisis the EU is experiencing.
Today we see the release of the EU consumer price index and German ZEW sentiment survey, but the highlight for this week’s trade is the FOMC meeting of later this afternoon. Although no change to interest rates is expected to be made, markets are very keen to gage any reference to the reversal of the extreme measures put in place by the Federal Reserve during the worst of the recession.
- United States
February Import Prices
Housing Starts
FOMC Meeting
- Euro Zone
February CPI
ZEW Economic Forecast
- Australia
RBA Policy Board Minutes
Currencies outlook
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Sterling
Sterling was not helped in yesterday’s session by comments from BoE member Barker stating that the UK may have a quarter in the coming year where GDP falls, further reinforcing already prevalent beliefs that economic recovery will continue to be fragile. Although she did shy clear of stating a double-dip recession is imminent, her comments did not look to aid an already fragile pound. As well as this, data released from Rightmove suggested that house price growth is slowing and weekend polls once again suggested that no clear majority has been made in the upcoming election, worrying investors once more that a hung parliament would be to the detriment of a recovering UK economy. With no data due for release today, markets anticipate tomorrow’s minutes from the latest BoE meeting. Although interest rates and monetary easing programs were left on hold, following releases from officials stating that the door was still open for further quantative easing measures, investors will look to these minutes to gage any reference to when this extension might be made.
US Dollar
The dollar once again was the benefactor of safe haven flows in yesterday’s session, especially against sterling which fell 0.9% against the dollar from the morning’s start. The dollar largely maintained its strength throughout the release of several economic reports, with among others Industrial production figures, which although showed a contraction came in above forecast. As well as this the New York Fed’s Empire State Manufacturing survey declined less than expected in March, coming in at 22.86 against a forecast of 22.0. Most importantly the employment component of the report soared to levels not seen since October 2007. Nonetheless trade into the greenback remained largely thin, with investors wary to take bets ahead of today’s all important FOMC meeting. Although it is expected that interest rates will remain at their historic lows, investors will study the FOMC’s message for clues as to when the federal reserve will look to withdraw their ultra loose monetary policy enacted during the worst of the recession; any move away from the ‘extended period’ so frequently stated will look to be dollar supportive.
Euro
Despite the hopes recorded in the media surrounding a definitive bailout for Greece, EU members were keen to dispel this belief early on Monday’s start. The greenback benefited from flows out of the single currency as investors began to speculate once more that a total monetary bailout for Greece was far from being imminent, and worse than this that any potential bailout would not be enough to ease the overall debt crisis the EU is experiencing as a whole. Although finance ministers are continuing to discuss ways in which to provide support to Greece to tackle its extensive debts, France among others warned markets not to expect any hard figures and that there were still barriers to be jumped before any set deal is struck. Although today does see the release of German ZEW investor sentiment survey and consumer prices index, markets will inevitably look to follow developments from the EU commission’s meeting as a sign for how investible the single currency is.
Japanese Yen
Japanese cabinet policy makers continue to urge the BoJ to easy monetary policy ahead of its two-day meeting commencing today. Despite this pressure the fledgling government might be somewhat disappointed. Although it is expected that the central bank will look to loosen monetary policy, some analysts predict that the BoJ will not enact extreme enough measures to dramatically weaken the yen. The Japanese government hope that intervention into currency markets to weaken the yen will aid their falling export market and help fight deflationary pressures already prevalent in Japan.