09-02-2009 : FCG Market Report 9th Febr. 2009
GBP/EUR
Last week saw some well needed respite and recovery for Sterling over the recently mighty Euro. The land mark events were of course the interest rate decisions on Thursday afternoon, and what seemed like for once in a long time there were absolutely no shocks. So expected was the 50 basis point cut from the B of E and the all hold form the ECB that currency traders looked beyond the immediate potentially negative effects of a base rate cut and instead viewed this as a positive move coming for the British economy. Couple with this what can only be said to be disastrous data from Germany where industrial output plummeted by 4.6% in December, the worst slide in like for like information since 1989 then we can begin to see why Sterling had such a good week. Indeed it may well continue to do so for part of this week to come. What will be seen as concerning for Sterling are the Inflation and Unemployment reports on Wednesday and indeed the EZ GDP release on Friday. Whilst it is tempting for those looking to buy euros from Sterling to punt on last weeks trends continuing, if the need for the currency is still some time off then utilising a forward time option under current market conditions would certainly seem a calculated move.
GBP/USD
Sterling maintained a generally firm tone during Friday as the underlying pressure for a stronger correction downward continued.
The dollar was lower on Friday as risk appetite increased and demand for safe haven flows declined. Non-farm payrolls fell the most since December 1974 and the unemployment rate reached the highest level since September 1992. The US Dollar weakened against both Sterling and the Euro in the immediate aftermath, although market reaction to this release was relatively muted.
Sterling was supported by the Bank of England's announcement that the BOE may start buying commercial paper next week and UK industrial production fell 1.7% in December after a 2.5% decline previously, maintaining fears over the economy, and this was the worst performance since 1981.
The delayed release of Obama’s bank bailout plan has sharpened focus on key outstanding issues, such as illiquid assets and the creation of a so-called ‘aggregator’ (government backed) bank to buy them. The FX market may be disappointed by "watered down" policy initiatives.
The disappointment of the U.S bank bailout plan will undoubtedly weigh heavily on the greenback and losses on cable up to 1.50 are expected. Dollar purchasers should look to buy quickly as the rate looks for a good spike in your favour.
CAD
The pound had a strong week against all the majors last week, and the Canadian Dollar was no exception, moving from 1.76 to 1.82 at mid-market level. Early trading on Monday morning showed no signs of this trend stopping as the pound looks to sustain its previous gains – something which it has failed to do over the past few months. This week sees some significant data releases from Canada, with new home building figures on Monday and Wednesday, and the non-manufacturing trade balance also on Wednesday. These are all expected to come in slightly negative, which may weigh on the CAD.
However, Canadian Dollar buyers should not pin their hopes on a continued Sterling rally, as the beleaguered British currency has always struggled to hold its gains against other majors, remaining one of the most under-pressure in the world. In the current uncertain economic times, the shrewd investor may look to use stop loss and limit orders in order to make the most of the volatile market, and insure against any unexpected shifts in risk sentiment.
AUD
Data out last week was dominated by the decision by the RBA to slash interest rates by 100 basis points from 4.25% to 3.25% this triggered the initial reaction to sell the dollar but as news broke that the Australian government is planning a A$42 million stimulus package to try and revive the crumbling economy, investors saw this as a positive sign, confidence started to grow and the Dollar continued to march on as risk appetites grew. Good news also came from better than expected retail figures for the month of December and support continued for the Aussie Dollar.
Looking ahead at this week’s data the release of the ANZ job advertisements is due on Monday, this is a monthly report measuring the amount of jobs advertised in major newspapers and internet sites in major cities. Tuesday sees the release of NAB and Westpac Consumer Confidence Surveys as well as RBA Governor Glenn Stevens’s talk in Kuala Lumpur which may give some clues as to what strategies the central bank may be implementing over the coming months. Thursday holds important information regarding unemployment data out for the month of January which is expected to show that the unemployment levels will be higher than the previous months 4.5% up to 4.7%, although the negative forecast is not a revelation yet any negative surprises could undermine any bullish sentiment that has developed from other areas.
NZD
The only data release of any real significance out of New Zealand this week is retail sales for the month of December on Thursday, which will be watched closely as it is an early indicator for the direction of the NZ economy as consumption contributes heavily to New Zealand’s GDP. These figures are expected to show a further decline from 0% for November to -0.7% for December. However, we do not think that a decline in retail sales will be enough to buck the trend that we saw last week where the Kiwi strengthened from 2.86 (the highest since mid October 2008) to 2.76 this morning as data from the UK is expected to be worse.
To start with we have RICS house price figures from the UK on Tuesday which are expected to show a slight let-off in the housing slump with a decrease of 70% from 73% of surveyors reporting a decline in house prices in their area. This however is not expected to be enough to support the Pound as employment data on Wednesday is expected to show an increase of 10k from 78k in jobless claims which will push the unemployment rate up from 6.1% to 6.3%, further highlighting the growing problems with the UK economy.
All in all the Sterling – Kiwi cross is expected to remain one of the most volatile crosses with swings possibly taking place on the slightest of data releases. We are expecting the rate to remain below 2.8 for the short term and may possibly see it move back below 2.7 over the next few days so make sure you speak to your FCG account manager about STOPS & LIMITS to ensure you buy at the right time.
ZAR
As suspected the South African Reserve Bank used the drop in oil prices and lower than expected inflation figures to cut interest rates at the MPC meeting last Thursday. They cut by a full point from 11.5% to 10.5%. This is the most aggressive and largest cut in over five years. The Monetary Policy Committee stated that the key factors influencing there decision were, rate cuts by other central banks worldwide, along with the slowdown of the South African economy and no real hope for growth in 2009.
It is expected that the MPC will continue to drop interest rates over the next year as lower fuel and food prices bring the inflation rate back into South Africa’s target of 3-6%. There were no major movements in the GBP/ZAR rate over the last week as the Bank of England also cut rates by 50 basis points. This cancelled out any benefits to sterling; therefore we expect the cross to remain trading below 15.0.
Anyone looking to buy Rand in the near future should speak with there FCG account manager about the various types of contracts to make the most of the market movements.