Market Highlights
- Inflation concerns hamper thoughts of recovery
- ECB out of recession
- Gold takes centre stage as dollar tumbles
Inflation concerns hamper thoughts of recovery
The pound had another dramatic week as the ever anticipated inflation report gave it a real slap in the face. The Bank of England members tried to give some hope to an already battered economy and perhaps raise a smile on the ever concerned consumer. Alas, it didn’t do anything but confirm this country as almost third world. Last week started off with a possible downgrading from Fitch and as if we didn’t know it we are most at risk for a cull from the major economies. Perhaps it’s the 800bln debt were carrying that brought them to this conclusion. For my mind this is old news but it was to the detriment of the pound and traders sold it off like a 2 for 1 sale down at Tesco. So comes the inflation report and Mervyn King added a few more nails to the coffin. Whilst he did see improvements and possible inflationary pressures somewhere along the line it wasn’t enough. Even when there were huge dollar sell off’s sterling didn’t benefit as much as other higher yielding currencies and gains were limited. As gold reaches high after high sterling is being bought in much more limited amounts. It is still perceived as high risk and whilst it will not be used to fund carry trades it is this confidence in the currency that will shackle it for some time to come. All that was taken from the report was that we could see further Quantitative Easing in the future. And with that brings further pain to the consumer. Mervyn King will now don the cap of Scrooge in a not so happy ending for most consumers this Christmas. Had the markets more faith in the dollar then we would see the pound crumble in to obscurity. So what can we expect this week? Perhaps it’s the weather but Im feeling rather glum. It was November last year that the pound was on the back foot and this year is no exception in the lead up to Christmas. We have inflation figures tomorrow which will only compound the report for last week and could bring further pound weakness with it. I’m trying, I’m trying…..markets expect a healthier retail sales figure this week on Thursday which could bring a bit of cheer to the market and to the office here so I’ll hold on to that hope and start praying. I will end on a good note though. The FTSE is holding about 5,300 (not that anyone really can see why) There I go again…
ECB out of recession
Harmonised eurozone data is expected this week and should show recovery is setting in. I have a bit of an issue with the word “Harmonised”. This suggests that each of the economies is working well together for a greater good but yet the Eurozone as a whole is about as unbalanced as comes. German and French GDP is down again and inflation in Ireland is down 6.6%. Am I missing something? Apparently. There was great cheer as the Eurozone stumbled out of recession, albeit on a technicality. Ask anyone, anywhere, anytime and the man on the street may disagree but economists loved to be proven right so let’s hope this week they are proven wrong, if only to bring a little more reality to the situation. Eurozone CPI is due this morning and could compound the ECB’s ideas surrounding its loose monetary policy as it tries to come up with an exit strategy. Exit strategies are the least of their worries as there is real concern for the economy coming in to New Year. I have real concerns around Germany and France and the strong currency headwind they are trying to negate. This makes for an even tougher job for Jean Claude Trichet.
Gold takes centre stage as dollar tumbles
Dollars dollars everywhere but do we care? Markets are apparently taking all this recovery chatter in their stride when it comes to the Dollar. But are they? When you look at it properly the flood of money in to gold is just another safe haven bet. Perhaps it’s the fact it’s shiny and lovely to look at that people forget this. Whatever it is I can see 2010 being the year for gold. Further uncertainty and boredom of the dollar will see other assets benefit as the greenback takes a back seat. China are once again looking to diversify but I think they just like the sound of their own voice and this story doesn’t carry the weight it did at the end of last year. US consumers will be in focus this week as we have retail sales figures today which while expected to be better then last month that wouldn’t be very hard. They need to better a -1.5% figure for September. The cash for clunkers programme will aid this figure so expect rather large holes to be picked upon its release. Please bear in mind that the cash for clunkers programme is all but gone now. Inflation figures on Wednesday will back up the rhetoric from the fed that they aim to keep rates at historically low levels for some time to come. Stock markets and Gold will look to benefit from a market now being ambushed by fear. If peoples hopes were up then it is without any real substance. Hope is still a wonderful world but when it comes to finance the figures never lie.
By Conor Sheridan, FX Delaer
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