At the Moment, If All Else Fails to Inspire……
….. then let’s see whether we can give Sterling a slap. This is certainly what happened yesterday during European trading hours where the dearth of economic data and lack of surprises from Central Bank speakers (well most of them anyway) left traders with a blank bit of paper and no pen. The Pound affirmed its status of being the current whipping-boy currency following the disappointing manufacturing and industrial production numbers yesterday morning. As I mentioned, given the much worse than expected trade figures from Tuesday, economic pundits had marked down their assumptions for yesterday’s data but the outcome proved even less palatable. Given the lack of anything more relevant, Sterling was sharply sold off, touching a low of 1.4870 against the Dollar and dipping down to 1.0950 versus the Euro. Then apathy took over and we stopped….. traders awaiting some new input. It came in the form of a Sky TV interview with Adam Posen, a BoE policy-maker who pointed out that recent Sterling weakness was not a sign that the markets had lost confidence in Britain’s inflation outlook, and therefore not too much should be read into the currency’s move. He added, "If markets really believe there's a major inflation threat -- then you would be seeing interest rates shooting way up and you would be seeing the pound moving a lot more." Sterling accordingly bounced, back up to 1.5000 and 1.1000 but that was enough for the time being and we spent the rest of the day largely unmoved. We got nothing from the US and have seen little from the Far East this morning. Given the lack of economic data scheduled today, this leaves both currency and short-term money markets in the doldrums.
What we did get between yesterday’s close and today’s opening was interesting however. The outcome of the US 10-year note sale helped ease any concerns for this evening’s 30-year auction and lifted the prices of longer dated treasuries in Asia. This follows yesterday’s statement from the Chinese that on a day to day basis, they were still net buyers of Treasuries and that they were active in the market every day.
We also had the result of the RBNZ monetary policy meeting at which, as had been expected, they left the Kiwi interest rates unchanged at 2.5%. The Governor, in his statement that followed, reiterated previous guidance that it would not be until about the middle of the year that the Bank expected to start removing its policy stimulus measures ie tightening rates and withdrawing liquidity. This leaves the Dollar exposed to further losses against its Australian neighbour, who appear to be well on the way to additional tightening measures.
Events to watch for today are the Swiss National Bank rate decision this morning. No change in rates expected but further comments on the Franc’s strength (with possible intervention dialogue) likely. Then this afternoon we get the US trade data for February. An increase in the deficit from January’s number is pencilled in.
Outside that, look for further posturing from Eurozone officials, proclaiming success in averting the crisis, and therefore expect this apparent win to put a short-term floor under the currency. There is still a real danger however that the whole fabric of the Eurozone set up has been damaged…. frayed around the edges at least… and the slightest hint of a requirement for external assistance will spur the market to resume its selling of the currency.
An event worthy of note is that today, 11th March is World Plumbing Day - a celebration of all things to do with provision of safe water and sanitation. Now I am not sure how this monumentus day should be marked, but I think that I will go and turn a couple of taps on……. What have the Romans ever done for us?
Today’s Data & Major Events:
Morning UK DMO auctions £900 million of 2032 gilts
09.00 EU ECB monthly bulletin
09.30 UK BoE GfK NOP quarterly inflation attitudes survey
10.00 EU current account data
13.00 CH Swiss National Bank monetary policy assessment
13.30 US trade data (exp -$41.5 bill after last -$40.2 billion)
13.30 US weekly jobless claims
18.00 US Treasury auctions $23 billion of 30-year notes
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