- On Monday, US Fed Chairman Ben Bernanke is due to give a speech on “stress tests” at Jekyll Island, Georgia at 23.30 BST
- The following day, at 13.30 BST, very important US Trade Balance figures are due for release, which we expect to register at -$29.4 billion
- On Wednesday April’s Advance Retail Sales figures are due at 13.30 BST, which we forecast will rise from -1.2% in March to 0%
- Thursday sees the release of Producer Price Index data. We predict Month-on-Month and Year-on-Year figures for this will be 0.1% and -3.9% respectively. Excluding food and energy, however, we expect the PPI figures to come in at 0.1% and 3.4% respectively
- Finally, on Friday Year-on-Year CPI data, including and excluding food and energy, is released, which we expect to register at -0.6% and 1.8% respectively.
Friday 8 May 2009
Important economic data due from the US next week
Next week there are some big data releases and announcements due in America:
Economic data due from the eurozone next week
Looking forward to next week, CaxtonFX analysts have highlighted some key announcements to look out for in the eurozone:
- On Tuesday, EU Harmonised German Month-on-Month CPI data for April is released at 08.00 BST, and we expect it to come in at 0%, as it did in March
- Also worth looking out for is the release of German 1Q GDP data on Friday next week at 08.00 BST. We forecast Quarter-on-Quarter figures to come in at -3% and Year-on-Year to register at -6%
- At 10.00 BST the same day, eurozone 1Q GDP figures are released. We expect Quarter-on-Quarter GDP for the region to come in at -2.1% and Year-on-Year to register at -4.1%
Sterling loses ground to the euro following central bank decisions
Sterling weakened against the euro yesterday following the Bank of England’s interest rate decision. After a rise earlier in the day, the pound lost ground against most major currencies after the Bank of England decided to maintain its key interest rate at a historical low of 0.5% but expand its asset buying programme by a further £50 billion. This will result in the central bank using £125bn of the £150bn of newly created money to buy further government and corporate bonds. This will continue for another 3 months until the end of August.
At its meeting in Frankfurt, the European Central Bank reduced its the interest rate by 25 basis points to 1.00%, a decision which was in line with expectations. The ECB also announced quantitative easing measures to boost the eurozone economy, planning to spend about £53.6bn buying covered bank bonds following widespread criticism that they haven’t been doing enough to revive the economy. ECB President Jean-Claude Trichet also stated that their decision to cut interest rates by 25 basis points was appropriate at this time, but did not rule out further cuts in the future. Some ECB policymakers do not favor a benchmark interest rate below 1%: Germany's Axel Weber is of the view that if the interest rate falls below 1%, banks will have no incentive to lend to each other, paralyzing interbank lending, while Italy's Lorenzo Bini Smaghi has also put forward a similar opinion.
On Monday, the European Commission sharply lowered the GDP outlook for the euro area, which is now expected to contract 4% in 2009 and 0.1% next year, compared with its interim forecast back in January when the commission said the euro area will contract 1.9% in 2009 and will grow 0.4% in 2010. The eurozone unemployment rate is predicted to rise to 11.5% from 9.9% this year. The International Monetary Fund expects the Eurozone to contract 4.2% this year.
In the UK, Producer Price Index data will be released at 09.30 BST today, and in Germany Industrial Production will be announced at 11.00 BST.
At its meeting in Frankfurt, the European Central Bank reduced its the interest rate by 25 basis points to 1.00%, a decision which was in line with expectations. The ECB also announced quantitative easing measures to boost the eurozone economy, planning to spend about £53.6bn buying covered bank bonds following widespread criticism that they haven’t been doing enough to revive the economy. ECB President Jean-Claude Trichet also stated that their decision to cut interest rates by 25 basis points was appropriate at this time, but did not rule out further cuts in the future. Some ECB policymakers do not favor a benchmark interest rate below 1%: Germany's Axel Weber is of the view that if the interest rate falls below 1%, banks will have no incentive to lend to each other, paralyzing interbank lending, while Italy's Lorenzo Bini Smaghi has also put forward a similar opinion.
On Monday, the European Commission sharply lowered the GDP outlook for the euro area, which is now expected to contract 4% in 2009 and 0.1% next year, compared with its interim forecast back in January when the commission said the euro area will contract 1.9% in 2009 and will grow 0.4% in 2010. The eurozone unemployment rate is predicted to rise to 11.5% from 9.9% this year. The International Monetary Fund expects the Eurozone to contract 4.2% this year.
In the UK, Producer Price Index data will be released at 09.30 BST today, and in Germany Industrial Production will be announced at 11.00 BST.
Sterling falls below $1.50 after Bank of England decision
Sterling fell sharply against the US dollar yesterday, retreating from a four-month high after the Bank of England extended its quantitative easing program. Surprising traders, who had not expected an announcement so soon, the central bank committed an extra £50 billion to its UK asset buying scheme. Most had expected the BoE to wait until the end of the initial three-month period to decide whether more funds would be required to increase market liquidity, and the markets reacted by selling the “riskier” pound for the perceived safe-haven of the greenback. In early trading the pound had strengthened against the dollar after Barclays announced healthy pre-tax profits of £1.37 billion, up 15% compared to a year earlier. After a week of strong London equity market performance, this news further buoyed investor sentiment that a global economic recovery may soon be underway. However, as the Bank of England’s interest rate decision approached at midday, several traders decided to offload sterling to reduce their exposure before the potentially market-moving announcement. The bank’s announcement that they were to hold interest rates at 0.5% was of little note to the markets, however its decision to extend its quantitative easing program surprised many market participants and, as a result, sterling fell heavily against the dollar at lunchtime yesterday.
The pound’s losses were further extended against the dollar yesterday evening as ten US banks were ordered by regulators to raise $74.6 billion to ensure they had sufficient capital should the recession get even worse. The so-called “stress tests” revealed that Bank of America, Wells Fargo, GMAC, Citigroup and Morgan Stanley will need to raise $33.9 billion, $13.7 billion, $11.5 billion, $5.5 billion and $1.8 billion respectively to offset a worst case economic scenario. The banks will be given until 9th November to raise the necessary capital, before being offered a further bailout by the US government. The release of the “stress test” results further extended the selling pressure on the pound, as investors became wary that a global economic recovery may still be some way off.
In early trading today the pound has pared some of yesterday’s losses, as investors continue to digest the results of the US “stress tests,” with some market participants feeling that they may have removed some of the uncertainty surrounding the US financial system. There are some important announcements due on both sides of the Atlantic today: in the UK, April Month-on-Month and Year-on-Year Input and Output Producer Price Index figures are out at 9.30 BST, whilst in the US, 13.30 BST sees the release of Month-on-Month and Year-on-Year Average Hourly Earnings data for April. Also at that time, last month’s Nonfarm Payrolls, Unemployment Rate and Average Weekly Hours are out in America.
The pound’s losses were further extended against the dollar yesterday evening as ten US banks were ordered by regulators to raise $74.6 billion to ensure they had sufficient capital should the recession get even worse. The so-called “stress tests” revealed that Bank of America, Wells Fargo, GMAC, Citigroup and Morgan Stanley will need to raise $33.9 billion, $13.7 billion, $11.5 billion, $5.5 billion and $1.8 billion respectively to offset a worst case economic scenario. The banks will be given until 9th November to raise the necessary capital, before being offered a further bailout by the US government. The release of the “stress test” results further extended the selling pressure on the pound, as investors became wary that a global economic recovery may still be some way off.
In early trading today the pound has pared some of yesterday’s losses, as investors continue to digest the results of the US “stress tests,” with some market participants feeling that they may have removed some of the uncertainty surrounding the US financial system. There are some important announcements due on both sides of the Atlantic today: in the UK, April Month-on-Month and Year-on-Year Input and Output Producer Price Index figures are out at 9.30 BST, whilst in the US, 13.30 BST sees the release of Month-on-Month and Year-on-Year Average Hourly Earnings data for April. Also at that time, last month’s Nonfarm Payrolls, Unemployment Rate and Average Weekly Hours are out in America.
Euro rises against US dollar following ECB decision
After initially losing ground early in the day, the euro rose strongly against the US dollar yesterday after the European Central Bank announced a cut in interest rates to 1% and its intention to embark on a quantitative easing program, which buoyed investor mood. President Jean-Claude Trichet’s announcement that the ECB is to buy £53.6 billion of euro-denominated covered bonds, used largely to finance mortgages in Europe, improved investor confidence that an economic recovery in the region may soon be underway. Trichet described the central bank’s plan to buy debt as “credit easing” at a press conference in Frankfurt, promising more details of the purchases next month. This puts the ECB on a similar path to the one already taken by the US Fed and the Bank of England. Following the ECB’s decision risk appetite improved and investors bought back into the higher-yielding euro, selling off the “safer” US dollar.
This bullishness continued into yesterday afternoon after better-than-expected US jobless claims data and German manufacturing figures further encouraged investor sentiment that the global economic slump is bottoming out. Elsewhere, the results of US government “stress tests” on nineteen major American banks did little to dent demand for the single currency. The US government ordered ten of the banks tested to raise $74.6 billion by November 9th in a bid to ensure they have sufficient capital should the recession get even deeper. Bank of America, Citigroup and Morgan Stanley were all ordered to raise more money, however JPMorgan Chase, Goldman Sachs and American Express will need to raise no additional capital. Interestingly, despite this being less than positive news, investors did not react to the results by buying into the perceived safe-haven of the dollar, with many instead viewing the results as clearing up a lot of the current uncertainty in the market. The euro finished the day up at 1.3388.
In early trading today the euro has continued its rise against the dollar, as investor appetite for risk continues. In the eurozone today, German Month-on-Month and Year-on-Year Industrial Productions data for March is released at 11.00 BST, whilst in the US, 13.30 BST sees the release of April’s Nonfarm Payrolls, Unemployment Rate and Average Weekly Hours figures. Also out at that time in America is the Month-on-Month and Year-on-Year Average Hourly Earnings for April.
This bullishness continued into yesterday afternoon after better-than-expected US jobless claims data and German manufacturing figures further encouraged investor sentiment that the global economic slump is bottoming out. Elsewhere, the results of US government “stress tests” on nineteen major American banks did little to dent demand for the single currency. The US government ordered ten of the banks tested to raise $74.6 billion by November 9th in a bid to ensure they have sufficient capital should the recession get even deeper. Bank of America, Citigroup and Morgan Stanley were all ordered to raise more money, however JPMorgan Chase, Goldman Sachs and American Express will need to raise no additional capital. Interestingly, despite this being less than positive news, investors did not react to the results by buying into the perceived safe-haven of the dollar, with many instead viewing the results as clearing up a lot of the current uncertainty in the market. The euro finished the day up at 1.3388.
In early trading today the euro has continued its rise against the dollar, as investor appetite for risk continues. In the eurozone today, German Month-on-Month and Year-on-Year Industrial Productions data for March is released at 11.00 BST, whilst in the US, 13.30 BST sees the release of April’s Nonfarm Payrolls, Unemployment Rate and Average Weekly Hours figures. Also out at that time in America is the Month-on-Month and Year-on-Year Average Hourly Earnings for April.
New Zealand dollar makes gains following better employment figures
The New Zealand dollar managed to gain ground against the aussie and sterling yesterday, after stronger than expected jobs data and a pick up in risk appetite. Data revealed the unemployment rate rose to 5 percent, well under the 5.3 percent forecast. The kiwi also gained support after a relatively positive reaction to the US stress tests on banks saw equity markets climb higher. This led to the US dollar losing some of its safe haven appeal and more demand for higher yielding currencies.
Sterling falls below 2 against the aussie dollar for the first time since 1996
The Australian dollar dropped below the 2 mark against sterling yesterday, in the first time in nearly 13 years. Sterling fell sharply against the aussie as the BoE surprised markets by extending its quantitative easing program and committing more money to its asset buying scheme. Many in the market had expected the central bank to wait until its initial 3 month plan had finished before determining whether further liquidity was needed. The aussie continued to be well supported as its high yield attracted more investors as optimism over the financial sector grows. Some analysts have suggested that sterling’s value now represents the effect of quantitative easing and low interest rates and this does not suggest that the currency will weaken any further. However, if optimism over the recovery of the global economy continues demand for high yield currencies is also likely to grow. This means that over the shorter term the aussie is likely to be better supported over the pound.
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