IFX Market Report for 06/06/2012

    150 150 Daniel Fountain
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    With the Queen’s Diamond Jubilee celebrations and 4 day weekend, UK data has been pretty thin on the ground this over the last few days. The big news this week from the UK comes on Thursday with the BoE interest rate decision.Some economists now predict that the BoE will launch a new £50bn round of quantitative easing, and there is mounting speculation that the interest rate, already at a record low of 0.5%, could be cut further. BoE’s Posen, who surprisingly dropped his call for more QE in April, is expected to change his vote back and there is an outside chance that fellow members Bean and Weale will also push for more QE.

    Against the US dollar, sterling has remained in a tight trading range due to the extended weekend. The dollar strengthened and GBPUSD fell to around $1.5370 on Tuesday before sterling regained losses this morning to trade at 1.5430.

    In the build-up to the ECB rate decision sterling had weakened to a 1 month low against the euro, breaking through various support levels on its way to a low of 1.2292 suggesting the trend of the last few weeks had finally reversed. The pound has picked up slightly and is now over 1.2360 again.

    In data released this morning, UK PMI construction figures were slightly better than expected. The posted figure of 54.4, beat expectations of 54.2, but fell a long way short of last month’s 55.8.


    The US dollar strengthened against its major competitors on Tuesday, on the news that the G7 held an emergency meeting to discuss the European debt crisis. Some weaker than expected economic results from the Eurozone and the better than expected US non-manufacturing data also contributed to the currency’s gains.
    Against the euro, the US dollar strengthened, EURUSD fell to a low not seen since June 2010 of 1.2322 on Friday, however Monday saw it move back above 1.25 to reach a one week high, currently it is trading at 1.2502.

    Today is the release of the ECB‘s interest rate decision, its board is expected by some to consider a cut to interest rates. Some analysts see any decision to leave the key lending rate unchanged at 1% as a signal that a 0.25% cut may be on the cards for next month.

    Ahead of a planned trip to the markets by Spain today, their budget minister admitted the cost of borrowing had effectively shut the country out of the markets. Prime minister Mariano Rajoy had been insisting it wants EU money to fund its banks without conditions being placed on the government and a Troika review every three months.

    Japanese Finance Minister Jun Azumi stated during a teleconference that the G7 has agreed to cooperate to deal with the troubling situation in the Eurozone, namely in Greece and Spain. The possibility of a Greek exit from the Eurozone was not discussed at the emergency meeting. The G7 meeting today will be followed by a summit of leaders from the Group of 20 nations in Mexico on June 18-19.

    Activity in the US service sector grew at a slightly faster rate in the month of May. The ISM said its non-manufacturing index crept up to 53.7 in May from 53.5 in April, a reading above 50 indicates growth in the sector. Economists had expected the index to come in unchanged compared to the previous month.

    Retail sales in Eurozone declined more than expected in April as record-high unemployment and recession fears kept consumers away from discretionary spending. Data released by Eurostat showed that retail sales in the 17-nation currency bloc fell 1% month-on-month in April, faster than the 0.1 drop forecast by economists. Also, this reversed a 0.3% gain in March.

    German industrial orders declined in April due to a sharp deterioration in foreign demand, official data showed. Factory orders declined 1.9% in April from a month ago, when it grew 3.2%, data from the Federal Ministry of Economy and Technology revealed. The rate of decline exceeded the 1.1% drop forecast by economists.
    Australia’s GDP jumped a seasonally adjusted 1.3% on quarter in the first three months of 2012, the Australian Bureau of Statistics said. That shattered expectations for an increase of 0.6% following the upwardly revised 0.6% gain in the previous three months (original reading was a 0.4% gain).

    In the second reading of Eurozone GDP figures released this morning, growth is reported to have contracted by 0.1% in the first quarter of 2012 despite the initial estimate reported growth remained flat at 0.0%.

    Daniel Fountain / 05.06.2012

    Editor, Hotel Designs


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