After the more dovish BoE minutes this morning, sterling has continued to soften, breaking below the 1.57 level against the dollar - marking a new low for the year vs. the single currency. The main surprise was that two members of the Monetary Policy Committee voted for a GBP 75bln increase in bond purchases under the Bank’s QE program. The extent of the sterling reaction reflects the fact that markets were wrong-footed, thinking that if anything the Bank was perhaps a bit more cautious on the need for further stimulus.

Posted on 22 February 2012 @ 2:00 pm

Yen primarily a rates story

The yen has continued to weaken since last week’s surprise move from the BoJ, but it’s not simply as a result of the BoJ’s decision to further expand its bond-buying program. The best explanatory factor behind the move in USD/JPY we’ve seen over the past week is the divergence between their respective 2Y swap rates. While yen rates have fallen, US rates have risen, even though the Fed further pledged to keep rates on hold at its latest meeting. As such, the US 2Y swap has added 9bp so far this month, a pretty notable move in a near-zero rate environment.

Posted on 22 February 2012 @ 10:49 am

More fragments of good news in the UK

Not for the first time, the UK sits somewhere between the US and what we are seeing in Europe as a whole. It has not had the run of positive data-surprises that have been witnessed in the US, but nor has it been beset by the never-ending fiscal woes of the eurozone. The latest borrowing numbers certainly fit into this category. The main (ex-interventions) measure recorded a stronger than expected surplus in January (GBP 10.7bln), a month that is characterised by high level of corporate tax receipts. This element was up 8.6% vs.

Posted on 21 February 2012 @ 1:04 pm

Buy the hype, sell the type

A bastardisation of the ‘buy the rumour, sell the fact’ expression, but nonetheless entirely accurate in this instance. Since the Brussels bureaucrats penned the Greek deal at around 4:00am this morning, the smart money has emerged as a seller of the single currency specifically and risk assets more generally. On three separate occasions the euro has tried to penetrate the 1.33 level, only to be thwarted by determined sovereign wealth fund-sellers each time.

Posted on 21 February 2012 @ 11:49 am

Public sector involvement potentially worthless

The big focus in recent weeks has been the private sector involvement in the latest Greek aid package, but it’s the part played by the public sector (governments and central banks) that is far more interesting but also concerning. At the time of the first bailout back in 2010, interest rates applicable to lending, whilst below market rates, were still designed to be being punitive. Now, with rates lowered again as part of this package (by 1.5% for 5 years and beyond), some contributors will actually make a loss on such loans.

Posted on 21 February 2012 @ 11:10 am

Beware the Greek hype

It has been quite a remarkable morning for the single currency, which is up 1% at 1.3250. Contributing to this latest spike is the dollar’s weakness across the board as it loses favour during this spurt of risk appetite. Other high-beta currencies such as the AUD, Kiwi and the NOK are also around 1% higher today. Once again, short-covering by hedge funds and traders has been a major factor behind today’s euro buying. In addition, the euro has benefitted from optimism that European finance ministers will get awfully close to finally signing an agreement on a second Greek bailout package.

Posted on 20 February 2012 @ 12:04 pm

Record trade deficit adds to yen woes

Adding to the recent woes of the previously impregnable Japanese yen was the announcement overnight that Japan registered a record trade deficit last month. The seasonally-adjusted trade shortfall reached JPY 0.61trln in January, extending a run of deficits that commenced in April last year. Over this period, the cumulative trade deficit is JPY 4trln, or around USD 50bln.

Posted on 20 February 2012 @ 11:18 am

Britain’s two-tier housing market

Even more apparent over recent months is the two-tier nature of the British housing market. In London, house prices have been rising, whereas in the North, West and in Northern Ireland prices have been falling.

Posted on 20 February 2012 @ 10:03 am

As good as it gets for risk assets

Risk assets and currencies have received a further fillip overnight after the PBOC announced another 50bp reduction in the reserve requirement ratio for their banks. With house prices down in most major cities again last month, and property lending and construction slowing markedly, the only surprise is why it took so long to make this decision, which many commentators had been expecting weeks ago. More reductions in the RRR can be expected over the course of this year, because at 20.5% for the country’s largest banks it is still very high and therefore restrictive.

Posted on 20 February 2012 @ 9:28 am

Equity bulls cheer despite Greek worries

It is an old cliché but an apt one nevertheless – equities around the world continue to climb the wall of worry, gradually setting to one side concerns about Europe, Greece and global growth. Instead they are choosing to focus on the positive growth surprises that are emerging, especially in the United States. Consider the news out of the US just in the past couple of days: initial jobless claims fell to a new four-year low, housing starts are up 35% since February of last year and manufacturing is showing more signs of strength.

Posted on 17 February 2012 @ 11:34 am

Forex News

Sterling hurled lower