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FX Day Trading - 4 October 2011
More of the same from Ecofin meeting
Greece will not default. Honest.
Stronger UK manufacturing PMI ignored
Denmark's government has imposed a tax on fatty foods. It hopes for two benefits: the creation of a more health-conscious attitude among consumers, and an increase in tax revenues.
Leaving aside for a moment the possibility that the tax probably contravenes EU human rights legislation, it opens the door to a whole range of possibilities for combining revenue-generation with social engineering. What about a tax on chewing gum? On elective cosmetic surgery? Heels higher than five centimetres? Any TV programme with "celebrity" in the title?
President Sarkozy and Chancellor Merkel are ahead of the curve with their proposal to tax financial transactions in Europe. However, if the second Greek bailout is anything to go by, the transaction tax will be a long time coming and at risk of being scuppered by dissenting national governments, including the one in Westminster.
That is not to say the EU does not need the money. Finance ministers agreed yesterday in Luxembourg that they would push ahead and plough more rescue cash into Athens, despite Greece's failure to meet its budget deficit-reduction target.
George Papandreou's government is doing its best and will be rewarded for trying. And there will be no default. Eurogroup leader Jean-Claude Juncker made that clear after the meeting: "Everything will be done to avoid that and it will be avoided."
At the same time he hinted that bondholders will lose up to half their investment when Greece restructures its borrowings (but does not default!).
The ministers decided to hold off from actually signing the cheque for the €8 billion that Greece needs to pay next month's interest and payroll. Nor was there any suggestion that they were closer to beefing up the rescue fund, which currently stands at €440 billion.
All in all the outcome of yesterday's meeting was a surprise to nobody. It thus did the euro no great harm but did it no favours either. There was further erosion on all fronts; one yen, one US cent and half a British penny among others. See also EUR/USD spread betting.
Elsewhere in financial spread betting news, Monday's only important data were the manufacturing sector purchasing managers' indices.
As expected, Australia's 42.3 was the worst performance but Switzerland also disappointed with a lower reading when an improvement had been forecast.
Britain's 51.1 was a positive surprise. Even more surprising was that it did nothing for the pound; the mood of the FX spread betting market seemed to be that, good as it was, the PMI figure would not change the minds of those MPC members who are pushing for a second round of quantitative easing.
Earlier this morning Australia reported an 11.4% monthly increase for building permit issuance that slowed the annual decline from -14.3% to -5.5%, and the Reserve Bank left its benchmark interest rate unchanged at 4.75%.
Coming up this morning are the UK construction sector PMI (51.7) and Euroland producer prices (5.8% higher on the year). After lunch US factory orders are predicted to have been flat in August having risen by 2.4% the previous month.
Given the way everyone ignored yesterday's stronger UK manufacturing PMI, none of those numbers is likely to change things; it will probably be another day of sentiment-driven moves.
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'EUR/USD Spreads Betting Market Drops on Outcome of ECOFIN Council', Article by Moneycorp, last update: 4-Oct-11
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