Yesterday EU data diary was a very light one

FX Market Overview

It was sad to see the RAF’s Harriers landing for the last time yesterday. There can be few Brits who wouldn’t love to have a go in a Harrier, a piece of kit that ranks up there with the Spitfire and Concorde as amazing technology which has yet to be surpassed. I remember driving along the A47 through Rutland and having a Harrier shadow my car before the pilot nodded the nose, waved to me and turned skyward. It happened more than 25 years ago and I am sure health and safety would prevent that today but it was an awesome sight I will never forget.

Things were a little less dramatic in the financial markets yesterday but them there traders didn’t like that there Pound yesterday. Very poor unemployment data should probably have been expected but the headline figure showed more than 2.5 million people out of work and the unemployment rate hit 7.9%; all bad news. There is no positive spin that can be put on people losing their jobs and Sterling suffered from the news. There were also rumours of major banks selling Sterling in favour of the Euro and that didn’t help the poor old Pound.

The US Dollar had a good day yesterday after solid gains in manufacturing output in spite of poor car production. That was backed up by an improvement if business sentiment as measured by the University of Michigan and an ‘as forecast’ result in US inflation data. Such a swathe of positive outcomes would, until recently, have resulted in a day of US Dollar selling as investors sallied forth to take advantage of higher risk/higher reward investments, encouraged by the underlying positiveness of the US condition but things are changing. The US Dollar itself is bought as US equities markets attract investors and the US Dollar strengthens.

That also has something to do with the continuing nervousness over the potential for problems in the Eurozone and elsewhere. Yesterday EU data diary was a very light one but that didn’t stop the speculators pulling the currency from pillar to post. Today’s German manufacturing price inflation data and the Eurozone inflation numbers will give them a better excuse to trade and we expect these to reflect the slightly higher inflation seen elsewhere, especially as the Euro has weaken a little over the last few months. That weakness was helped yesterday by news that Moody’s credit ratings agency may downgrade Spanish sovereign debt and it took the Euro to its weakest ever level against the Swiss Franc; the world’s favourite safe haven. The Swiss National Bank has its quarterly meeting today but no change in interest rates is forecast.

The debate rages over whether a new bond should be issued on a Eurozone wide basis. That would suit the smaller, less buoyant economies which are currently paying exorbitant interest rates in order to attract investors but it would mean Germany in particular paying much higher levels than it currently does. What is the incentive from Germany’s perspective and why would Angela Merkel even consider the plan? Well she has, and she has rejected it so, without Germany’s support it looks like a non starter. In the meantime, the Euro remains within current ranges but it is threatening to break out of recent ranges if the Euro manages to attract any more buyers. E leasers meet over the next few days and the Eurozone economic crisis is bound to be high on the agenda. Expect reassuring tones in a joint communiqué and confident rejection of any suggestion that the Euro could fall apart.

Elsewhere, a drought in New Zealand, the world’s largest milk powder producer, has caused prices to rise. That goes some way to offsetting the effects of the fall in production but not far enough and the NZ Dollar remains weak. Sadly, the NZD isn’t so weak that it will let the Pound push it above NZ$ 2.11 but we remain near the top of that range.

And finally, if we needed proof that prisoners in jail have too much time and too much access to legal aid, then I present the case of an ex postman who is serving time for stabbing a woman to death. He is now suing the Post office for sacking him. Quite how he thought he could continue to work from his jail cell and quite is not clear but it does beg the question, why did anyone think it was a case worth pursuing other than to generate legal fees?

http://www.halofinancial.com/

Full report: Yesterday EU data diary was a very light one