UK
Sterling started off positively on the first day of trading this week, with the two key developments over the weekend seen as the primary driving force for the initial rally in risk correlated assets, with little data out yesterday the markets were driven by the weekend’s developments.Sterling recovered from its weekend losses against the euro to trade at the high of 1.2415 from the early morning low of 1.2285.
Against the US Dollar the pound reached a morning high of 1.5581 but as the day progressed fell to the low of 1.5497 with an overnight low of 1.5462.
Banks in the U.K. are in better shape than lenders in much of the rest of Europe and could be doing more to help the economy, Andrew Haldane senior Bank of England official was quoted as saying yesterday.
‘The Bank of England should purchase bundles of small business loans in an effort to boost the supply of credit and end an investors strike that is holding back the economy’, BOE policy member Adam Posen said yesterday. Posen said major central banks around the world should engage in a fresh round of stimulus and target their efforts at parts of their economies most in need of help.
A survey of UK businesses says short-term business prospects have improved, with the consensus on current trading levels at a 12-month high. However the Eurozone crisis may harm longer-term growth, says the report by the Centre for Economic and Business Research.
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WORLDWIDE
The 100 billion euro rescue for Spain’s banks moved Italy back to the frontline of Europe’s debt crisis yesterday as an initial rally in the country’s bonds fizzled out on concern it may be the next to succumb to asking for bailout.
Italy has 2 trillion euros of debt, more of a share of its economy than any developed nation other than Greece and Japan. The Italian Treasury has to sell more than 35 billion euros of bonds and bills per month, more than the annual output of each of the three smallest euro members, Cyprus, Estonia and Malta.
The euro drifted lower during trading yesterday as cautious investors gave the Spanish bank recapitalization plan a luke warm reception, fretting about the forthcoming Greek election and continuing concerns over the way the Spanish deal is structured. The euro reversed all of the weekend’s gains against the dollar falling from the high of 1.2646 to end the session near the low of 1.2484.
Skepticism quickly overpowered any euphoria stemming from the weekend’s news of Spain’s plans to secure a banking recapitalization from international creditors, as a rally in the euro and in Spanish government bonds reversed after just one morning session of trading. The bailout funds may provide the country with enough money to shore up its banking system after three failed attempts in as many years.
The German government said Monday the aid request by Spain will send a positive signal to financial markets. “It is good that we know now that an aid request by Spain is on its way,” said Chancellor Angela Merkel.
Rather than a euro failure, an orderly Greek exit from the currency has Nomura Holdings chief strategist Jens Nordvig predicting a stronger and more stable monetary union. While Societe General goes one step further and suggests that the entire euro might break up because of the cost of Greece’s departure, the nation accounts for just 2.3% of the 17-nation GDP. It also has 356 billion euros or 4.3% of the region’s total debt.
In China exports rose to 15.3% in May and more than double the pace analysts estimated while industrial output and retail sales trailed forecasts, signalling that last week’s interest-rate cut was aimed at countering a domestic slowdown.
In Japan the Yen’s gains faltered against its major counterparts after comments by the International Monetary Fund stoked speculation global policy makers will tolerate attempts by Japan to weaken its currency.
