One of the main themes in the markets over the past couple of months has been a contrasting level of growth between the European nations and the rest of the world, especially the emerging markets and the US. As the European nations try to deal with the large amount of public debt, and protect their credit ratings, the outlook for growth has been weakened, but the markets had also looked at the prospects for growth in the US, which had seemed to have dealt with the recession better and was coming out of the downturn with higher growth. The previously strong GDP figures had been boosted by stock rebuilding, something which isn't sustainable in the long term, but Friday's surprisingly weak non-farms payroll figure is the piece of data which has really damaged the optimistic outlook. The figure of 431k more jobs is still extremely high in historical terms, but with the hiring of the census responsible for all but 41k of these jobs, the news is very disappointing. Late Friday stock markets tumbled with the S&P500 falling 3.4%, while European markets have slipped by up to 3%, and the Asian markets have followed on the fall overnight. The American consumer is still one of the main drivers of the global economy, although less so than in the past, and as employment fails to pick up after previously strong falls, the prospects for global growth are dimmed.
As the Dollar is seen as a safe haven in times of worries, even more so now that the Yen is struggling with the Japanese change of Leadership, it has taken a boost from Friday's panic, even though it was caused by bad US news. The Euro has fallen below 1.20, against the Dollar to a new 4 year low, and the Pound has dipped back to sit around 1.44 against the US currency. The Pound has managed to keep relatively strong against the single currency, above 1.2050 this morning, although it has hit 1.2140 overnight. The Euro has stayed weak on the back of problems with Hungary, alongside the long running issues with Greece, and comments from the French Primeminister, who expressed equanimity over the EUR/USD rate, haven't helped.
The UK budget is not for a couple of weeks, but already the coalition government is banging the drum for big cuts, with the Primeminister's speech, to be given today, warning that everyone's lifestyle will change with the upcoming cuts. The speech is also expected to revise the previously optimistic/fantastical predictions for growth from the last government, which will mean bigger spending cuts and tax rises are needed. The rest of the day is very quiet on the data front, but we have the BRC retail data for the UK tomorrow, and there is also the BoE and ECB rate decisions, alongside, consumer confidence and PPI data, to give the week some shape. For today at least the Pound seems to be holding it's own and even edging upwards, against the both the Euro and the Dollar, as we get the inevitable moderation of Friday's sharp swings.
Posted in Daily Market News on May 30 2014