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FX Day Trading - 29 November 2011
All eyes on the UK economy
OECD predicts mild recession
Chancellor delivers autumn statement today
In past years the people of Longton, Stoke on Trent, have had to make do with the likes of Elton John and Sienna Miller to turn on their Christmas lights. Imagine their delight, then, when Father Christmas himself agreed to do the job this year.
Last Friday, having duly switched on the illuminations, Santa retired to his grotto. As children were filing through to demand iPads, a gang of youths burst in and attacked him, pulling off his glasses and beard. Father Christmas was reportedly "shaken" by the incident and shortly afterwards returned to his home in Derby.
Sterling was shaken yesterday by a gang of reports that the UK economy is not all it's cracked up to be (and that isn't much). Among others, the Organisation for Economic Co-operation and Development (OECD) predicted a return to recession, with a -0.03% contraction in gross domestic product this quarter and -0.15% shrinkage in Q1 2012.
Online spread betting investors turned a blind eye to the ludicrous precision of the forecasts and decided that annual shrinkage of 0.36% was A Bad Thing, especially given the chance of milking it further when the chancellor delivers his autumn statement this afternoon.
It did not help sterling's case when the Confederation of British Industry reported that retail sales had fallen by more than expected in November, in a sixth consecutive month of decline.
The pound fell against most major currencies, with the GBP/EUR and GBP/CHF spreads losing about half a cent. It moved higher against the safe-haven US dollar and yen, helped by FX spread betting investors' upbeat attitude towards the euro.
Following the debunking of a story about the IMF, Italy and €600bn, a new euro-positive rumour emerged. In this one, France and Germany would club together in a bond issue, the proceeds of which would be used for an unspecified but useful purpose.
France and Germany were quick to scotch the rumour but the good had been done; investors were starting to think there could be no smoke without fire, and there was certainly plenty of smoke.
There was even more smoke – maybe even a glimpse of flames – when investors clocked that IMF head Christine Lagarde was rattling her tin in South America. She is hoping to persuade the likes of Brazil and Mexico to contribute to an enlargement of her institution's $390bn eponymous fund.
Italy sold just over two thirds of the €750mn 12-year bonds it had been hoping to offload but had to pay 7.30% interest for the privilege. Belgium's €2bn of 7- to 30-year bonds went at rates between 5.66% and 5.78%, about one and a half percentage points higher than Belgium could have paid a month ago.
They were high rates, then, but they would have been higher still had the European Central Bank not been at work behind the scenes. Investors liked the idea of the ECB buying bonds more than they disliked the idea of Italy paying 7.3% interest.
Italy – and with it the euro – will face a tougher test today when it auctions €8bn of 3- and 10-year bonds.
On the statistical front, Nationwide says UK house prices went up by an annual 1.6% in November and Case-Shiller's US index will probably have fallen by -3.0% in the year to September.
A sprinkling of confidence measures covers the EU and the US. UK money supply data ought to show a small increase in mortgage approvals. The chancellor's autumn statement will be key to sterling's performance.
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The above content does not constitute investment advice, it is provided purely for information purposes and is delivered as a personal view of the writer. Neither the contributing company (or writer) nor Online-Spread-Betting.com accepts any responsibility for any use that may be made of the content.
'Fall in UK Retail Sales Pushes GBP/CHF Spread Betting Market Down', Article by Moneycorp, last update: 29-Nov-11
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