UK Pound Sterling has started the week in a strong position, gaining significantly against the euro, where monetary policy divergence seems to be taking hold and for once the pair start to trade in a slightly more logical fashion. The pound did, however, fail to hold up quite so well against the dollar, giving up recent highs and failing to breach levels peaked on Friday – indicative that yesterday’s moves were more euro-weakness-led as opposed to sterling putting in a strong performance by itself. Public Sector Net Borrowing crosses the wires this morning, and as mentioned previously, whilst this number is normally ignored, today may garner a little more interest simply down to the fact there is little else to pay any attention to. At 2pm BoE Deputy Governor Nemat Shafik is speaking at the David Hume Institute in Edinburgh, where his comments will be closely scrutinised for any forward policy guidance.
US Federal fiscal issues are rearing their head again – it doesn’t seem like that long since the last government shutdown, which stretched the US public sector to breaking point, and it’s looking like we may well have another one on the cards at the end of this month. Last time it was Republicans digging their heels in over Obamacare, refusing to sign off on the budget unless it was completely defunded. They lost that round, and this time they are being sticks in the mud over a planned parenthood programme. Republicans are less likely to be quite such a thorn now, as they know that if they play their cards right and keep their heads down (and don’t come across as petty) they are pretty much a shoe-in to hold the Whitehouse after the looming General Election. Either way, it’s not good for the US and it’s not great for general sentiment either; as for whether there’s much of an impact in the dollar remains to be seen. In other, doom-mongering news, I mentioned previously about margin debt and its prescience over equity returns – since peaking earlier in the year, the rate of change of margin debt in the US expressed as a ratio of total GDP has turned negative, and this has a very strong negative correlation with stock market returns – the last time we saw similar situations were in 2007 and 2000. Hold on to your hats: this could be a violent one.
The euro got off to a fairly bad start this week, dropping noticeably against both the pound and dollar, largely down to nothing more to focus on other than the fact that the ECB are printing a shed load of money. For once the single currency is trading in a slightly more logical fashion, but that never lasts long. From a technical perspective, this certainly looks like a reversal of the recent uptrend for the euro; however, there is significant interest to purchase the euro at around the 1.40 level against the pound and 1.10 against the dollar (corporates who missed the boat last time or were holding out for further moves) and the volumes are certainly significant enough to provide some decent resistance.
Telegraph – no sign of runaway inflation despite robust growth, says BoE deputy.
Independent – Average UK house price to hit £300k within three months.
FT – JCB to cut 400 jobs after emerging market downturn.
Forex News – UK Pound Sterling, US Dollar and EUR single currency commentary provided by Argentex