IFX Market Report for 03/05/2012

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    The pound rose to the highest level in 22 months against a broadly weaker euro reaching a high of 1.2325 helped by reports which showed UK PMI construction rose to 55.8 in April against expectations of 54.0 and UK mortgage approvals unexpectedly rose in March to 49.86k. Against the dollar, sterling starting the day trading near the session low of 1.6159 but recovered in the afternoon to end the session near the high of 1.6238.

    UK Chancellor of the Exchequer George Osborne made a last-minute decision to attend yesterday’s meeting of European Union finance ministers due to indications that the gathering could result in key decisions being made on new bank capital rules.

    Further QE for the UK economy is still an option, Bank of England rate setter Paul Fisher told a daily newspaper that additional bond buying, or QE is still an option on the table and the reluctance of banks to lend in the UK is a barrier to economic growth.

    This morning Nationwide house prices fell on average by 0.2% in April from March and 0.9% on the year.

    In data just released, UK PMI Services, widely regarded as the most important of the 3 PMI’s, has fallen to 53.3 from 55.3 last month and missed the forecast of 54.2. So far the currency markets have shown a muted response GBPEUR is marginally off overnight highs of 1.2320 at 1.2296 and GBPUSD is 1.6162.


    The euro suffered heavy losses against its main trading partners yesterday after economic indicators underpinned fears of a deepening slump in Eurozone manufacturing, contrasting unfavourably with Monday’s robust US manufacturing data. In particular EURUSD fell for the third day from the high of 1.3240 to end the session near the low of 1.3122. From a technical point of view, 1.3100 has become the new psychological support level whilst 1.3032 is the April 9th low if the declines continue.

    Italy’s construction data was among the standouts, sinking to 43.8 further below the 50 cut off point that distinguishes growth from contraction. Germany finished off the bad run with a below-consensus 46.2 compared with an expected 46.3.

    Eurozone unemployment rate rose to 10.9% in March the highest level since the euro was formed in 1999 as spending cuts continued to hit the working population.

    Speculation that ECB President Mario Draghi will signal today that policy makers are moving closer to cutting interest rates to spur growth in the Eurozone also put the euro under pressure, over the past 12 months it has weakened 6.6%, the worst performer of the 10 developed-nation currencies.

    On a more positive note, Greece has had its government debt rating raised out of default by credit rating agency Standard & Poor’s. S&P upgraded the crisis-hit nation to “CCC” from “selective default” after the country completed the biggest debt restructuring in history earlier this year.

    Private-sector jobs in the US increased by just 119,000 last month, according to a national employment report calculated by payroll processor ADP, the gain was far below economists’ expectations of 175,000.

    US factory orders fell by 1.5% in March which is the sharpest pace in three years, a sign that demand is slowing amid an uneven economic recovery.

    Spain will auction 3 + 5-year bonds today amid speculation that the Eurozone’s fourth-largest economy will follow Greece, Ireland and Portugal in seeking a bailout.

    China’s manufacturing expanded at the fastest pace in a year rising to 53.3 in April from 53.1 in March, reducing pressure on policy makers to open the taps on credit in the world’s second-largest economy. This is the fifth straight month in a row the reading has been above 50 which shows expansion in the field.

    Daniel Fountain / 02.05.2012

    Editor, Hotel Designs


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