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FX Day Trading - 29 September 2010
MPC member calls for further QE
MPC member says no need for further QE
Guess which one the market heeds
If the deputy governor of the Bank of England wants pensioners to spend instead of saving their money, Forbes magazine has some ideas about how they should spend it.
The Office for National Statistics has its Consumer Price Index (CPI), which lumps together the cost of a pair of Clarke's shoes, a night at Travelodge, a pork chop, 20 Benson & Hedges, a week's hire of a Ford Focus, etc.
Forbes goes several better with a Cost of Living Extremely Well Index (CLEWI). It includes a pair of Gucci loafers, a suite at the Four Seasons in Manhattan, a 7lb chateaubriand, 25 Davidoff cigars, a Learjet 40XR, etc.
Pensioners will rejoice to hear that the CLEWI went up by just 1.0% last year, far less than the CPI's 3.1% increase. The average price of a yearling racehorse actually fell by 16% to £171k.
So come on pensioners, get those credit cards out. Your central bank needs you. Monetary Policy Committee (MPC) member Adam Posen joined his colleague Charlie Bean yesterday to advocate extravagance.
In a speech at Kingston, entitled ’The case for doing more’, Mr Posen summarised by saying that "a great deal of unconventional monetary stimulus will be needed." He was in no doubt that the MPC should commit to another round of quantitative easing (QE).
Meanwhile, MPC member Andrew Sentance was telling the Nottingham Post that inflation is becoming ‘a worry’ and that there is ‘no need’ for a renewed round of QE.
In a perfect world, the two opinions would have cancelled each other out. But guess what: the official speech (its text appears on the Bank's website) trumped the piece in the provincial rag. Sterling took a one-cent bath and starts today lower against everything except the US dollar than at Tuesday's opening.
It was a shame really, because things had been going well for the pound during the morning. The final revision to second quarter gross domestic product (GDP) confirmed quarterly growth of +1.2% and a +1.7% expansion in the 12 months to June.
Business investment was up as well, by +0.7% in the quarter and by +1.9% in the year after a -23.5% decline previously. Having reacted positively to that news, the pound tanked as soon as the Bank's representative opened his mouth in the East Riding.
The dollar's pitfall was consumer confidence. It had survived a tiny monthly fall in Case-Shiller's house price index an hour earlier but the combination of a 13-point fall in the Richmond Fed's manufacturing index and a five-point slump in the Conference Board's index of consumer sentiment cost the dollar more than a cent against the euro.
It cost it a cent against the pound as well but that was a cent it had pocketed earlier as a result of Mr Posen's speech.
In FX spread betting markets, figures released overnight have had minimal effect on exchange rates. A near-tripling of New Zealand's trade deficit did nothing to the Kiwi, nor did a negative tilt to the Bank of Japan's Tankan business survey do anything to hurt the yen.
Elsewhere in spread betting markets, after a very slow start to the week the ecostat pace picks up again today. Among the Bank of England money supply data will be the figures for August's mortgage approvals and personal loans. Both should be steady or slightly higher (but still low).
Eurozone consumer and corporate confidence measures will lose something because they are officially sanctioned by Brussels, and therefore somehow suspect.
The Canadian industrial product price and raw material price indices (akin to other countries' producer price index) will lack impact now the market has persuaded itself that Canadian interest rates are on hold for the time being.
Overnight there are New Zealand and Australian building permits, UK consumer confidence, Japanese industrial production and retail sales to look forward to.
Yesterday's price action was another clear sign that investors prefer the pound to the dollar, and they would rather have euros than either of them.
The dangling threat of intervention by the BoJ gives a slight artificiality to the equation but there is no reason to look for any change to the big picture today, especially if the Bank continues its verbal intervention campaign to depress the pound.
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'FX Day Trading 29 Sep 2010', Article by Moneycorp, last update: 29-Sep-10
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