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June 2016

Trading error strengthens Pound

Published: Wednesday 08 June 2016

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  • Trading error strengthens Pound 
  • RBNZ rate decision tonight – no change is expected
  • Clear signs of Chinese economy slowing down

Yesterday marked a better day for the Pound as Sterling strengthened up to 1.4660 vs USD and 1.2857 vs Euro - despite better than expected finalized first quarter Eurozone GDP and German Industrial Production for April.  The move has been attributed to a trading error as it happened at 5:00 GMT and on the back of no real news. It does however underscore just how nervous and illiquid the current market is and volatility is set to continue until we get some clarity after the referendum. The Pound consolidated later in the day as according to the latest Times YouGov poll results, the ‘Remain’ camp has now taken a lead back by a single point: 43% remain vs 42% leave. This marks a stark difference to the previous poll which had the leave campaign in favor at 45%. For now, fundamentals are being largely ignored as markets continue to focus on the likely outcome of the vote.
 
Last night we had Prime Minister Cameron and Farage face EU questions from a live studio audience. The heated debate centered on the economy, security, sovereignty and especially immigration. Following the debate, an online poll by the Telegraph newspaper indicated that 71% of people believed Farage won the debate over Cameron.  Make of that what you will. The Pound has not yet reacted.
 
Overnight, Chinese Trade Balance was worse than expectations at 325bn with a 4.1% fall in exports. It is clear that the Chinese economy is slowing and the upcoming retail sales and capital expenditure releases will be closely watched. Any further signs of deterioration and commodity currencies could further fall.
 
This morning we had UK manufacturing production data which came in better than expected at 2.3% compared to the previous 0.1%. The uptrend enjoyed by the Pound yesterday could be sharply reversed today. 
 
In the afternoon we have Crude Oil levels and this evening New Zealand’s Rate Decision. Investors see a 32% chance of a rate cut here, down from 80% only a month ago. Furthermore, 10 out of 17 economists in a Bloomberg survey predict the rate will be held at 2.25%. 

Dangerous Dog

 As a young guy enters a country store, he spots a sign saying, “DANGER! BEWARE OF DOG!”
 
He looks around and all he can see is a big soft looking St Bernard who is fast asleep in the middle of the floor.
 
“Is that the dog we’re supposed to beware of?” he asks the owner.
 
“Yup, that’s him” comes the reply.
 
“He doesn’t look dangerous to me. Why would you post that sign?”
 
“It was the only way to stop people tripping over him.”
 

Today's Major Economic Releases 

 
Market BST Data/Event Previous Expected
GBP 09:30 UK: Manufacturing production m/m 0.1 2.3
GBP 09:30 UK: Industrial production m/m 0.3 2.0
CAD 13:30 Canada: Building permits m/m -7.0 1.6
NZD 22:00 New Zealand: Official cash rate 2.25 2.25
NZD 22:00 RBNZ rate statement    

Daily Currency Analysis with Joe De Berniere

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