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FX Day Trading - 30 November 2011
European stability fund toned down
€1tr target out of the window
UK chancellor gets a nod from the market
There is a delicious irony in the first result that pops up in a Google search for TUC. It begins: "Trades Union Congress – TUC – Britain at work".
Most of Britain will indeed be at work today but a goodly proportion will face the harassment of school closures, transport delays and other aggravations.
TUC General Secretary Brendan Barber says the strike is all about "winning public support" for public sector workers and their index-linked pensions. Hmm, that will be the support of the other 80% of folk in the private sector who earn less, retire later and lost their defined benefit pensions years ago. Mr Barber cannot be faulted for his optimism, anyway.
And nor can the EU leadership. Finance ministers convened again in Brussels for another jolly discussion about the euro and what not to do about the crisis of confidence in government debt. Presumably they went there in the expectation of making progress.
In fact all they managed to do was water down the European Financial Stability Facility (EFSF). A figure of €1 trillion was originally attached to the fund; after yesterday's meeting investors were left in no doubt that the eventual number will be significantly lower.
Luc Frieden, Luxembourg's finance minister, said that figure "will be very difficult to reach, in view of the changed market circumstances".
Spread betting investors also raised their eyebrows at the ministers' "reassurance" that the EFSF would provide protection for between 20% and 30% of their Euroland government bond holdings. The prospect of losing between 70% and 80% of their assets in an event of default did not send them rushing to buy Italian or Spanish bonds.
And therein lies the problem. At its auction yesterday Italy managed to sell most of the €8 billion ten-year bonds on offer but only in return for a yield of 7.56%. A month ago Italian bonds of similar maturity sold with a 6.06% yield. In other words, Italy's borrowing costs have gone up by a quarter in a month. Ouch.
In Westminster, the chancellor was taking pride in Britain's distance from such troubles, noting that the country's borrowing costs are now similar to Germany's. There was no boasting about the economy though.
The Office for Budgetary Responsibility has again slashed its forecast for UK economic growth and does not expect to see 3% expansion until 2015. And even that cautious prediction assumes a positive resolution of the Euroland debt crisis; without one the outcome will be "much worse".
Financial spread betting investors were comfortable with the Chancellor's message, partly because they had feared worse and partly because they could see worse going on already across the Channel. Sterling extended the previous day's gains against the US dollar and the yen and reversed Monday's losses in most other cases.
As usual on the last day of a month, today's ecostats are mostly low-key ones. At midnight Gfk reported a minute improvement in UK consumer confidence from -32 to -31. German retail sales rose by a respectable 0.7% in October.
The only stand-out figures yet to come are German and Euroland unemployment, Euroland inflation, Canadian third quarter GDP and US data for employment change and pending home sales. There are no UK figures so the pound will try to consolidate yesterday's gains.
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'Sterling Spread Betting Market Higher Despite Lower UK Growth Forecasts', Article by Moneycorp, last update: 30-Nov-11
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