UK
On Friday, the main focus for the UK was BOE Governor Mervyn King and the Financial Stability Report. A decision was made for banks to raise their capital levels to protect them from any losses if economic conditions in the Eurozone deteriorate. The central bank estimates it has an exposure from UK lenders to vulnerable countries including Greece, Ireland, Italy, Portugal and Spain, totalling £169bn.King also called for fundamental reform of the process by which Libor is set. This is a very significant change and would probably lead to Libor rising far higher during periods of financial stress such as the present. This weekend, Barclays Plc Chairman Marcus Agius resigned after the bank was fined a record £290m for trying to rig interest rates.
GBPEUR hit a high during the trading day of 1.2483 and posted a low of 1.2363, after a brief spell trading just above 1.24 over the weekend markets have opened this morning at around 1.2390. Strong long term support has yet to be broken at 1.2345, the more likely scenario is to break resistance at 1.2435, a close above 1.2496 is the key for further gains.
Since Friday morning, GBPUSD has posted a low of 1.5512 and a high of 1.5712 amid the rise in risk-taking behaviour. Markets have opened this morning at around 1.5660. After breaking to a new high last week, near term resistance is now as high as1.59.
Earlier this morning, a survey undertaken by Hometrack showed that house prices in the UK stagnated in June as global economic gloom curtailed demand.
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WORLDWIDE
The euro surged to a high of 1.2692 against the dollar on Friday as the EU agreed to directly recapitalize commercial banks through the European Financial Stability Mechanism, while the group said it would drop the senior loan status for Spain as the government looks to tap up to €100bn from the EFSM.
So far this morning euro has fallen against major peers before data today that may show the currency bloc’s jobless rate climbed to a record and manufacturing contracted, boosting prospects the ECB will cut interest rates this week. Analysts are pricing a 37% chance for a 25bp interest rate cut according to Credit Suisse.
German Chancellor Angela Merkel held her ground as she continued to reject Euro bonds, and went on to say that the easing borrowing condition for Spain’s is a special one-time case – curbing speculation that Italy may get a similar deal should it require assistance.
German retail sales fell unexpectedly in May for the second month in a row as consumer spending was weighed down by weak economic prospects and the unresolved Eurozone debt crisis.
French finance minister Pierre Moscovici Sunday cut the government’s growth forecasts for this year and next after the French economy stalled in Q1. Extra taxes and spending controls are to be announced this week in order to stick to deficit-reduction targets.
Eurozone annual inflation remained unchanged at 2.4% in June. Though the rate remained comfortably above the central bank’s target, the ECB feels that there is no inflation risk at present in the euro area.
Canadian GDP rose 0.3% mom in April, up from 0.2% expected. GBPCAD moved from 1.6040 over the weekend, to trade at 1.5936 after the release.
Confidence among US consumers declined more than expected in June to the lowest level this year as the labour market showed few signs of improving. The University of Michigan final index of sentiment fell to 73.2 this month from 79.3 in May.
The Chinese manufacturing sector remained in contraction for an eighth consecutive month in June, as output, incoming new orders and employment continued to decrease.
Large Japanese companies were less pessimistic about business conditions in the three months to June and plan to ramp up capital spending ahead, the Bank of Japan’s closely watched tankan survey showed earlier today, as solid domestic demand helps to brighten the outlook for the nation’s economy. The result is likely to take some pressure off the central bank to take further policy steps at its meeting next week, but with recent price data suggesting that the BOJ’s 1.0% inflation goal is still some way off, its easy monetary policy stance will likely remain unchanged.
