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May 2016

Sterling slips on profit take

Published: Friday 27 May 2016

  • Sterling slips on profit take
  • US Dollar awaits Fed and Yellen comments

So America, you have Donald Trump as a contender for President. How do you feel? Gonna vote for Hilary? Or, how do you fancy postponing this presidential campaign until you can find two candidates that have positive personality ratings instead. We’ve got our own problems with the Dave v Boris v Jeremy Brexit sideshow, so we aren't a lot of help I am sorry to say.
Aside from this, rising oil prices are having an impact on financial markets, as are the rumours over US interest rates and the potential for a slower global growth rate unless China can up its game. Meanwhile, UK growth is in line with most forecasts at 0.4% in the three months to March. Sterling didn’t move on that though, it strengthened when the 'Remain' vote looked more robust and weakened when traders took profit.
The G7 meeting has produced a report showing they believe Britain exiting the EU poses a threat to global growth but surely that is only an issue if they (the G7 leaders) make it harder for the UK to do business internationally. That's not driven by some unknown third party. Personally, I think politicians of all hues have shown themselves to be 'disingenuous', shall we say, over this EU membership vote and few have addressed the real issues of sovereignty, the weakness of the EU model and the potential threats down the line from other member states who may also seek to leave the EU if Britain goes it alone. We are in for a very bumpy 28 days and probably a tumultuous year.
UK consumer confidence was up in the latest report but the impending referendum is still casting a shadow over that index. Nonetheless, we had some more positive news overnight with Chinese industrial profits up at the fastest pace since 2014 and word from the Chinese Government that they have plenty of capacity to borrow to boost growth. That hasn't had a major impact but, if they start doing just that, we would see some movement in the foreign exchange rates. The commodity linked currencies (Aussie, Kiwi and Canadian Dollars and the South African Rand in particular) would strengthen and the USD would weaken as the demand for commodities – and therefore the price paid - rose.
Today has started with a little profit taking in the Pound, which is lower against most other currencies and we look ahead to the US economic growth data this afternoon. This has taken on a much more important slant in the run up to the Federal Reserve's next rate setting meeting. There is a tremendous amount of speculation over whether the Fed will hike rates at that 14th June meeting and a positive revision to the GDP data would make that far more likely. USD buyers may have missed the highs yesterday but may also want to protect themselves at current levels if they fear, as I do, further USD strength. There is a speech from the Fed Chair, Janet Yellen, later today but the event does not lend itself to insider revelations, so I don't think we can expect much from that.
Aside from all this, on the question of 'but is it art?', the Daily Mirror is reporting that students in an art gallery placed a pair of reading glasses on the floor near a wall and waited to see the response. Many visitors saw the glasses and stood to thoughtfully appreciate the 'installation' with some photographing it and discussing its merits. I assume, if they had put a label with Tracey Emin's name on it, someone would have paid a lot of money for the glasses, floor and wall. But who am I to comment? One Twitter user put it much more clearly than I ever could, they tweeted that "It's really just an exacerbated metaphor of society's perpetual blindness to those cognitive of us #art". Seriously.
But we can leave all of this behind us and have an extended weekend in the UK with smatterings of decent weather. I hope yours is a great one.

White Lie

Beth and her son Harvey are waiting for a bus. Beth says to Harvey, "When we get on the bus, the driver will ask you how old you are. When he does that, say you are four years old and mummy won’t have to pay for you to travel. Do you understand, for this bus trip, you are 4 years old and we can spend the money we save on the bus journey in the shops."
Harvey nods intently and Beth can see he is trying his hardest to remember. His frown and the tongue sticking out of the corner of his mouth make that pretty evident.
As they get into the bus the driver asks Harvey how old he is.
“I am 4 years old”, he says; beaming at his mum and knowing he has got it right.
“And when will you be six years old?” asks the driver.
“When we get to Oxford Circus” says Harvey.

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
USD 13:30 US: Prelim GDP q/q 0.5 0.8
USD 13:30 US: Prelim GDP price index q/q 0.7 0.7
USD 15:00 US: Revised UoM consumer sentiment 95.8 95.7
USD 18:15 Fed Chair Yellen speaks    

Daily Currency Insight by David Johnson

Daily Currency Analysis with Chris Verdet

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