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FX Day Trading - 26 Feb 2010
A Lousy Day for Everything
Greek Default Would Sink Euro
UK and US GDP Revisions Today
Luxury goods manufacturer Mont Blanc has fallen foul of the Indian courts for selling a £16k gold fountain pen. It commemorates the 140th anniversary of the birth of Mahatma Ghandi, an ascetic who famously used pencils down to their last centimetre.
As marketing clangers go, Mont Blanc's howler is up there with the Greek coin celebrating 12 years' membership of the euro.
In fact any coin celebrating 12 years' membership of the euro could be added to that list if Carl Heinz Daube's worst dreams come true.
The head of Germany's Finanzagentur - the federal finance agency that handles government borrowing - told a conference in London yesterday that 'if a country goes bankrupt, it will be the end' of the euro.
It was not an unreservedly optimistic assessment, especially with Greece's credit rating at risk of falling from' investment' grade to what is cruelly known as 'junk'.
Sharing the platform with H Daube was his opposite number at the UK Debt Management Office. Robert Stheeman had a more upbeat outlook, at least as far as gilts were concerned.
He said that 'politicians of all colours are taking the situation very seriously indeed. Investors derive a lot of comfort that there is agreement across the spectrum that the deficit needs to be brought under control.' Mr Stheeman also suggested that a hung parliament might be 'less disruptive' than assumed.
Be that as it may, the fear of a hung parliament was certainly stalking the market yesterday after a new opinion poll pointing to Labour winning the most seats.
That possibility weighed on sterling, as did some truly awful figures for business investment in the fourth quarter of last year.
Investment was down by -5.6% quarter-on-quarter and fell by 24.1% over the year as a whole.
Investors' disenchantment with the pound was made clear by the way they focused on those bad numbers while ignoring the CBI's distributive trades survey which rose by 31 points to +23 in February.
They have been equally dismissive of an improvement in UK consumer confidence from -17 to -14 announced overnight although, to be fair, minus-anything does not portend a stampede to the high street tomorrow.
A similar cherry-picking approach saw the market focus on worse than expected weekly US jobless figures and a falling house price index while they ignored a +3.0% increase in durable goods orders that was twice as big as forecast.
All in all it was a bad day for the euro, a bad day for the pound, a bad day for risk-appetite, a bad day for share prices and a bad day for pretty well everything else.
There was not exactly an equality of misery but the pound, the yen and the Canadian dollar start this morning within shouting distance of yesterday's opening levels against each other; it is hard to read that as anything more than coincidental.
An armful of Japanese statistics this morning boiled down to a picture of slower deflation (-1.3% instead of -2.0%), faster industrial production (up by 18.2% in the year to January) and higher consumer demand (retail trade grew by a seasonally adjusted 2.9% in January).
As yet there has been no reaction to a -1.0% monthly fall in Nationwide's UK house price index. Perhaps because it was up by 9.2% in the year to February and because there will surely have been a skew in turnover as a result of the reimposition of stamp duty.
Investors will also be keeping their powder dry in readiness for the revised fourth quarter GDP figures.
After an earlier provisional +0.1% the consensus today is for an upward revision to +0.2%.
Euroland's main contribution will be CPI inflation, which was probably +1.0% in the year to January, and Switzerland's KOF leading indicator completes the batting for Europe.
A busy afternoon for US statistics will bring a revision to Q4 GDP and its related consumption measures, the Chicago purchasing managers' index, the finalised University of Michigan consumer confidence index and existing home sales.
It is likely that sterling's fortunes will hang on that GDP number.
After several disappointments investors have learned to be wary of over-optimism and there could be relief at any figure above zero.
Any significant upward revision should put a spring in sterling's step but woe betide it if a minus is involved.
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'FX Day Trading 26 Feb 2010', Article by Moneycorp, last update: 26-Feb-10
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