Market prepared to wait on central banks

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Given that today is Independence Day in the US, yesterday’s session was always going to be muted, and the slow grind higher in risk before the ECB and Bank of England monetary policy decisions has continued. With the focus so happy to fall on the goings on at Barclay’s other financial machinations have largely been forgotten about in the short-term.

Some readers have asked why we have not devoted any comment to the issue of Libor and the cover-up of certain fixes made to the rate. The main reason would be that, so far, there has not been any reaction to the scandal in the currency or fixed income markets. However, with Diamond’s testimony to the Treasury Select Committee today there is the possibility that should he turn his guns on the Bank of England then we may see some sterling reaction. The hearing starts at 2pm BST and I think everyone will be watching it one way or the other.

There hasn’t been much reaction to anything this week with every single person in markets waiting on what the Bank of England and the European Central Bank will do at their monthly meetings tomorrow.

If any market participants were sat on the fence as to whether the Bank of England will be going for more asset purchases tomorrow then I would point them at the numbers shown in yesterday’s construction PMI release. The figure dipped below 50.0 (48.2) for the first time since Christmas 2010 and shows that the sector that really dragged Q1 GDP lower will have a similar effect on Q2’s as well. Combine this with the manufacturing reading which too came in below 50.0 and we are looking at more and more headlines about a longer than expected recession.

The latest services numbers are expected to show expansion in the sector albeit at a slower pace than May (52.9 vs 53.3) with pressures on retailers still evident in consumer surveys that show inflation vs wages the main concern. We receive similar figures from the rest of the EU today as well which too should confirm that the entire region is in the depths of a recession.

Eurozone retail sales are also due at 10am and expected to remain flat on the month of May. Australian retail sales surprised to the upside for the same time period (0.5% vs 0.2% expected) and AUD is the main gainer so far through the Asian session.

Elsewhere we have a meeting between Monti and Merkel in Rome with further headlines on banking and fiscal union expected.

May we also take this opportunity to wish all our American clients a Happy Independence Day.

Summer months are typically quiet but with everything rocking from Italy to Spain via the US and UK there is little belief 2012 will follow in the same vein. As we move into the 2nd half of the year we will outline our beliefs of where the pain and pleasure will be found in the next 6 months while taking you through the latest measures designed to help the world economy.

Join us for this Thursday’s run down with World First’s award winning Chief Economist Jeremy Cook also deciphers the impact of the morning’s Bank of England and ECB announcements.

Indicative Rates Sell Buy
GBPEUR 1.2427 1.2455
GBPUSD 1.5643 1.5667
EURUSD 1.2570 1.2594
GBPJPY 124.70 124.96
GBPAUD 1.5227 1.5254
GBPNZD 1.9473 1.9503
GBPCAD 1.5858 1.5887
NZDUSD 0.8022 0.8042
GBPZAR 12.66 12.71
USDZAR 8.0903 8.1200
GBPPLN 5.2124 5.2391
EURJPY 100.21 100.48

Please note these rates are “interbank” rates ie they indicate where the market is currently trading and are not indicative of the rates offered. Rates are dependent on amount transacted. It is important to remember that foreign exchange rates fluctuate all the time. The rate you will receive will depend on the amount and currency you require.

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