It was another day of volatility yesterday, with Asian and UK stocks recovering after recent falls, following on from the late recovery in US stocks from the previous day, and the rally wrapped around the globe back around to the US; at one point the S&P 500 was up 1.5%, although in a mirror image of the previous day it actually dipped rather than rallied just before closing to finish 0.6% down. The last minute dip was caused by news that China was reviewing it's Eurozone Bond holdings due to the problems of sovereign debt. China isn't just one of the largest manufacturers in the world, due to it's extremely large foreign currency reserves, they are also one of the largest investors. If the rumours are true and China is looking to move some of it's reserves away from the Euro, then the single currency will suffer and as it is already close to it's worst month against the Dollar since October 2008, it has already fallen 8% this month, this would not be welcome. The Euro had a volatile day against the Dollar yesterday, it slipped from 1.2350 down 2c, and then back up again in early trading today.
The weaker Euro helped the Pound climb, and it reached 1.1830 overnight although it has fallen back slightly to hover just under 1.18 this morning. The Pound's rally is on the back of the general retreat from Panic seen yesterday, excepting the wobble over China, caused by decent US durable goods figures and new homes sales, as well as an upgrade of predicted global growth from the OECD. Even with the risks that the Eurozone slowdown has to global growth, the OECD has changed their forecast to 4.6% for this year, which compares very favourably with the 3.7% during the decade up to 2006. Of course a lot of this growth will be in China and India whose major imports are raw materials, so it may not give the developed economies much of a boost, but the OECD predictions have helped calm the markets a little, and this allowed the Pound to push back above 1.45 overnight although as always seems to be the case it has dipped back this morning to sit around 1.4450, still higher than the average of the last few days.
There is a little data out today, and the CBI distributive trade numbers will be in the spotlight after claims that the government's implied rise in V.A.T (they have refused to rule out a raise), could cost a lot of jobs and would impact on retail sales. Over in the US we have the latest estimates of GDP for Q2, and much like the first estimate it is likely to put the UK 0.1% upgrade into the shade, with an annualised figure of 3.4%. Those of a pessimistic mind will be looking at the US weekly jobless claims which did rise to 471k last week, and although the figure is expected to fall back to around 455k, a figure of over 450k has historically been associated with a growth rate of less than 1%.
For now the Pound seems to be holding onto it's gains from the OECD optimism, and it is likely to manage to hold onto them throughout today.
Posted in Daily Market News on May 30 2014