Rising inflation expectations and a diving Great British Krona helped another leg downhill on Tuesday by dire production data.
That’s the euro down 0.4 per cent or so against the dollar and crossing the $1.30 mark. Sterling (aka the Great British Krona) is also continuing its torrid start to 2013, losing another 0.9 per cent against the dollar and touching $1.50. Read more
That’s the considered opinion of Julian D. A. Wiseman (most recently head of UK rates strategy at Société Générale but writing on his personal blog here) on the Monday after Moody’s cut its credit rating for the UK from Aaa to Aa1, taking the Bank of England down with it. For those keeping count, that makes it a downgrade that was neither surprising, nor informative nor, in itself, damaging (as Martin Wolf put it)… but more to the point it was just plain silly. Read more
Here’s the dovish BoE minutes that started sterling sliding (click through for the pdf): Read more
It’s Carney live. We know George Osborne is frustrated excited. Mark Carney, the next Governor of the Bank of England and the man Osborne once called “quite simply the best, most experienced and most qualified person in the world to do the job”, is in front of the Treasury select committee.
Here’s the live feed:
Dark matter may more commonly be associated with physics, space exploration and Professor Brian Cox, but, according to Deutsche Bank’s FX strategist George Saravelos, there’s a good chance that it’s becoming a recognisable force in the world of foreign exchange too.
Of course, whilst you need complex structural analysis of the universe to detect the real dark stuff, in FX its presence is arguably more easily sniffed out. Mostly, says Saravelos, via the closer inspection of short-term derivative flows and the murky parts of balance of payment statistics. Read more
So, would a sovereign downgrade hurt sterling? And if so, how much? It’s hard to model this as historic comparisons are muddy and sterling crosses each obviously carry their own difficulties. Consider this chart from Morgan Stanley, by way of illustration:
The collapse in sterling is really quite eye-catching. Just in time for summer…
So, the UK has apparently been the most targeted nation for inbound M&A in 2012 so far, coming out on top in both nominal terms and as a percent of GDP.
He argues: Read more
Sterling corporate bond issuance is soaring, but euro-denominated bond sales are at a six-year low, reports the FT. UK and international companies have sold more than $42bn worth of sterling-denominated bonds so far this year – a 41 per cent increase compared with the same period last year, according to Dealogic. Meanwhile, euro-denominated corporate bond sales have slumped almost a fifth, to $179bn – the lowest figure for the period since 2005. Dollar bond sales have increased 7 per cent. Corporate borrowing costs have climbed in the UK recently, but not to the same extent as in Europe, leading several continental companies to turn to London’s bond market, including France’s GDF Suez and EDF. UK investors are also open to longer-term bonds than the European market. Read more
Please, please, please don’t accuse the Bank of England of getting involved in currency wars.
It hasn’t deliberately deflated the Great British Krona Sterling in the past couple of years. In fact, monetary policy has has nothing, repeat nothing, to do with sterling’s decline. Read more
Here’s a safe haven idea you may not have thought of.
The Great British Krona. Read more
Compare….
Compare and contrast.
The yield on the UK 10-year gilt falls below 3 per cent for the first time since November on Tuesday morning… Read more
UK-based interdealer brokers hope that a new interbank lending rate for sterling, to be launched on Monday, could help protect bank balance sheets from fluctuating interest rates, reports the FT. The rate, created for sterling loans, will help UK banks and building societies as well as international institutions which also trade in the pound, hedge rate risks more effectively. The Repurchase Overnight Index Average (Ronia), to be published by the Wholesale Market Brokers’ Association, which represents interdealer brokers, is a secured lending rate that banks charge each other, backed by collateral. Some strategists say Ronia could challenge Libor as the established market benchmark rate as Libor is an unsecured rate, rarely used beyond one month. Read more
Stagflation or not, sterling has responded positively to Wednesday’s GDP release.
From Reuters: Read more
How weak is the dollar?
A timely question asked by Goldman Sachs on Tuesday morning, what with the euro reaching a 15-month high of $1.45 earlier today. Indeed, on the face of it, there is weakness everywhere. Read more
The post budget sell-off continues, leaving cable close to an important support level at $1.5980.
Next stop $1.5750, according to chart watchers. Read more
It’s Friday, so we shouldn’t be doing this but … it’s misery (index) time!
Société Générale has an update of the infamous index, which was first developed in the 1970s by American economist Arthur Okun. Basically it measures inflation plus unemployment, which means it can act as an indicator of the dreaded stagflation. Read more
… is the title of the 1973 album from ‘prog rockers’ Genesis, and it also sums up the UK’s inflation problem, according to Bank of England hawk, Andrew Sentance.
In a speech at the Institute of Economic Affairs ‘State of the Economy’ conference on Thursday, the Monetary Policy Committee member says the value of the pound needs to be a key area of focus (not neglect) for the UK’s central bank, if it is to have any hope of mitigating the impact of global inflationary pressures. Read more
Fresh off the wires — a suggestive double-dip GDP figure for the UK:
It seems ingrained in the FX market that rate rises are currency positive, but this has not always been the case. In an environment where inflation is problematic the market asks the question – is the central bank ahead or behind the curve?
Those are the opening thoughts of HSBC’s in-house FX guru David Bloom and team on Monday. Read more
It’s sometimes said that conspiracy theories are really a back-handed compliment to belief in the power of government. Because they can’t possibly be that incompetent, can they?
And so we turn to the Bank of England’s 2 per cent inflation target. Read more
Trading was cautious as dealers awaited the next developments in the long-running eurozone fiscal saga, the FT’s global market overview reports. The FTSE All-World equity index was down 0.3 per cent following a soft showing in Asia, while commodities were mixed, the dollar weaker and core bond yields off their highs. The FTSE Asia Pacific Index was down 0.3 per cent, but volumes in many centres were thin as traders continue to close positions ahead of the year end. South Korea’s Kospi Composite fell 0.4 per cent, the market taking a breather after hitting a three-year high on Wednesday, while the Shanghai Composite and Hong Kong’s Hang Seng lost 0.5 per cent and 1.6 per cent, respectively. In Shanghai, banks lost ground on continued concerns about additional tightening measures from Beijing. Trading was cautious ahead of the Spanish debt auction. The FTSE Eurofirst 300 was up 0.2 per cent and London’s FTSE 100 was higher by 0.3 per cent, with bask still under some pressure on sovereign debt exposure concerns. The dollar index, which tracks the greenback against a basket of its peers, was up 1.1 per cent to 80.22 in the previous session. The euro was up 0.2 per cent to $1.3240 and sterling, which fell sharply on Wednesday after UK labour data showed the jobless total and unemployment rate rising for the first time in six months, was up 0.3 per cent at $1.5593. Read more
Remember that forecast-busting UK GDP reading? You know, the one boosted by a particularly strong performance from the construction sector.
Well, Tuesday’s purchasing managers survey puts it into context. Read more
This is a chart from Lloyds TSB showing the EUR/GBP exchange rate, versus the two-year EUR/GBP currency swap spread:
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