Not a lot happened in markets yesterday with a quiet data calendar and investors not wanting to commit too much to the game before tonight’s Federal Reserve meeting. The belief that the world economy has dodged a bullet with the Greek debt swap and the belief that further liquidity injections are forthcoming from the worlds’ central banks has allowed equities and commodities to remain close to recent highs.
The recent improvement in the US labour market has caused analysts to reassess their expectations of whether further quantitative easing is warranted by the Federal Reserve. Non-Farm payrolls has published numbers above 200k for the past 3 months and initial jobless claims, people signing up to claim unemployment benefits, is at a multi-year low so why does the economy need further funding? Looking at those numbers it is very true however that the majority of those new jobs being created are part-time work and for the minimum wage whilst those who have managed to remain in the labour market have seen benefits and wages cut through past years whilst also dealing with higher than targeted inflation.
So will Ben Bernanke and the Fed do anything tonight? My money is on no. Much like the Bank of England have tended to do I would expect the FOMC to wait for next month’s meeting as it coincides with the April economic statement on the state of the US economy and would be a perfect checkpoint on the road to recovery.
GBP-EUR was one of the biggest movers on the day yesterday with very little reason attached. Euro demand was strong from local corporates it seems while some are blaming it on noises from a Eurozone finance ministers’ meet in Brussels surrounding further protection and firewalls around the periphery.
Away from the Fed, the news will likely focus on Spain today following calls for it to reduce its deficit further after the Spanish parliament voted to ignore the new fiscal pact. I personally believe this is a non-event. Spain knew they were going to breach the fiscal compact when they signed up for it but have promised to get it under control before the next deadline. These measures are for the longer-term benefit of the EU even though they have been stuck in the depths of a crisis. Missing the targets at the front end is not a problem as long as the trend remains one of improvement.
Data before the Fed will be watched but is unlikely to cause any massive price swings as traders wait for news from Washington. The UK publishes its latest trade balance numbers at 09.30. Last month’s figures showed recent record levels of exports although we expect this to have moderated following movements in energy markets. We also receive the German ZEW economic sentiment survey; analysts expect it to improve for the 4th month in a row.
Indicative Rates Sell Buy
GBPEUR 1.1896 1.1922
GBPUSD 1.5641 1.5667
EURUSD 1.3133 1.3157
GBPJPY 129.05 129.33
GBPAUD 1.4850 1.4877
GBPNZD 1.9036 1.9064
GBPCAD 1.5496 1.5525
NZDUSD 0.8207 0.8227
GBPZAR 11.78 11.83
USDZAR 7.5228 7.5689
GBPPLN 4.8808 4.9072
EURJPY 108.33 108.60
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