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FX Day Trading - 17 November 2011
Contagion becomes infectious
All Euroland sovereign borrowing costs rise
Unemployment and BoE hamper sterling
Passengers on a budget flight from Amritsar to Birmingham were hit with an unexpected fuel surcharge when their plane stopped to refuel in Vienna.
The carrier, Austria-based Comtel Air, demanded €24,000 from the 180 passengers to pay for the kerosene. If they couldn't pay they wouldn't fly.
Stewardesses guided reluctant travellers to ATMs inside the terminal to extract the necessary currency. With the cash injection complete, the aircraft completed its journey. Ryanair's Michael O'Leary is angry with himself for not thinking of the idea first.
A different sort of cash injection was going on 450 miles away in Frankfurt, where the European Central Bank was buying Eurozone government bonds more busily than usual to shore up prices.
Seeing how the European sovereign bond market ended the day, it is worrying to think what the outcome might have been had the ECB not been in the market. Without exception, prices were lower and yields higher on the day. The moves were not particularly big but were another step down the wrong track.
A year ago Italy and Spain could borrow 10-year money at rates of 4.2% and 4.6% respectively. Yesterday the equivalent rates were 7.2% and 6.4%.
By contrast, the yield on Britain's 10-year gilts has fallen from 3.3% to 2.0% and the buyers were at work again on Wednesday despite two chunks of bad news.
The first was UK data showing the rate of unemployment rising to a 15-year high at 8.3% and youth unemployment (16- to 24-year-olds) at 20.6%.
The second was another doleful economic commentary from the 'Eeyoresqe' governor of the Bank of England. Never one to stand in the way of the sterling bears, Sir Mervyn tossed them enticing titbits including a downgraded forecast for economic growth and a hint that there could be another tranche of asset purchases by the Bank once the current budget of £275bn has gone.
The net result was a down day for sterling. It did not fall far, less than half a euro cent and hardly at all against the US dollar and the yen. But it was enough to prompt Morgan Stanley to issue a sell recommendation for GBP/USD with a target of 1.5360.
Inflation was the other, if not hot then at least lukewarm, topic yesterday in the spread betting markets. In Euroland the consumer price index (CPI) rose in line with expectations by 3% in the year to October.
The US figure was 3.5%, slightly lower than forecast. US industrial production beat expectations with a 0.7% monthly increase and the NAHB housing market index inched higher to 20(%).
Overnight Nationwide's index of consumer confidence gave more ammunition to the bearish financial spread betting investors when it fell by nine points to 36. This morning's UK retail sales figures will probably be another negative influence.
US building permits, housing starts and jobless claims come out after lunch, followed by the Philadelphia Fed's manufacturing survey. Decently positive figures there would hold back the US dollar and help the commodity currencies.
There is not much from Euroland, just September's construction output. The euro's weathervane will be sovereign bond yields; if they go up it goes down.
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'Financial Spread Betting: UK Consumer Confidence Drops', Article by Moneycorp, last update: 17-Nov-11
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