Market’s Focus to Move to US Debt

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The Greek question may not have been fully answered yet and risky assets are still able to breathe a sigh of relief and push higher. This is despite poor manufacturing numbers from both the Japanese and Chinese economies overnight.

Politicians in Greece passed the second austerity vote yesterday that allows them to implement the cost saving measures they voted for Wednesday. It now seems certain that the IMF, ECB and EU will pay the next tranche of bailout money to the Greeks sometime next week, taking a considerable portion of risk off the table.

We now think that the focus shifts away from Greece, indeed away from Europe as a whole, and shifts to the debt mountain in the United States. There are still things to sort out in Europe such as the private sector involvement but this looks to be a fair way down the track after Wolfgang Schaeuble, the German Finance Minister, stated that a deal had been reached between with German banks on their participation in Greek debt.

The problems in Greece are dwarfed massively by the problems in the United States. I remember hearing someone say that “Greece has high debts by European standards, the US has high debts by anyone’s standards”. They have also reached their so-called “debt ceiling” and Congress must vote at the beginning of August, 3 months before a Presidential election, to raise it. if the vote fails then there is every possibility that we see the US in some kind of technical default on its debt; a prospect that has more far reaching consequences than Greece, Lehman Brothers or Northern Rock. This is the big one.

US debt yields spiked yesterday as the second round of quantitative easing ended in the US and the market looked at each other and said “Who’s gonna buy this US debt now?”. We, amongst many others, are unsure of the answer to that but expect to see more and more chat about the US debt situation in the next few months.

Data from China and Japan overnight has been poor with manufacturing numbers from China showing the slowest level of expansion in over 2 years as exports slipped. Industry is also constricted by the People’s Bank of China’s campaign against inflation that has seen gradual interest rate increases since the October of last year. Inflation has started to slow however which has shaded the negativity somewhat.

The UK gets the opportunity to push out some strong data today with Manufacturing PMI due at 09.30. This is a slight rebound from the previous month’s number of 52.1 that was largely down to a fall in production during April and May as the country enjoyed bank holidays and the Royal Wedding. Sterling needs good data to push onwards and a bad figure would see GBPEUR testing that 1.10 level fairly quickly.

Latest exchange rates at time of writing

Indicative Rates Sell Buy
GBPEUR 1.1051 1.1079
GBPUSD 1.6063 1.6087
EURUSD 1.4513 1.4536
GBPJPY 129.50 129.78
GBPAUD 1.4978 1.5005
GBPNZD 1.9434 1.9463
GBPCAD 1.5465 1.5494
NZDUSD 0.8254 0.8274
GBPZAR 10.85 10.90
USDZAR 6.7541 6.7838
GBPPLN 4.3799 4.4064
EURJPY 117.01 117.27

Rates are dependent on amount transacted. Please call 020 7801 9080 for a live rate quote

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