There aren't many economists, or traders, who are confidently sure that the global economy is out of the crisis, and the fears of a double dip recession are still haunting the markets. The risk aversion has kept the dollar supported, particularly against the Australian dollar which has fallen to 0.82, down 10 cents from the beginning of May - IF YOU WANT TO KNOW HOW THIS TECHNICAL TALK EFFECTS YOU CLICK HERE. The AUD is strongly linked to global growth and optimism, which has allowed the Pound to climb away from it's multi year lows to sit above 1.77, against a huge 14c move from it's lows back in May. The AUD has been hurt not just by the global fears, but also by the domestic re-evaluation of the interest rate outlook, which was previously looking for further rate rises, but are now being discounted. The current bout of risk aversion will probably last a few more months yet, so the Australian dollar is likely to continue to be put under pressure.
There was some slightly better news out of the Eurozone yesterday, in the form of better than expected German Factory order data and a commitment from Hungary's leadership to cut their budget deficit. The news helped the Euro to pull away from it's lows against the Dollar, to sit up around 1.1950, from a low of 1.1880, but it didn't help the Euro make any headway against the Pound. Sterling put in a good shift yesterday, even without any economic data to help it along. The markets seemed to like David Cameron's tough talk on the plans for spending cuts, after first outlining the just how bad the public finances were, he warned that the spending cuts would change our way of life. The tough talk will be put to the test after the budget in 14 days time, but the Pound took some benefit from the speech keeping above 1.21 against the Euro overnight, while also holding around 1.45 against the Dollar.
We've already had the BRC retail figures which has shown a 3% yoy rise, not a bad rise in spending although we'll have to wait to see how the government's cuts impact upon people's spending power, before we can plot a recovery. That is it in terms of UK data, although there is German industrial production figures, which looking at yesterday's factory orders, should be relatively strong. Away from the hard data there is a speech from Chancellor Osbourne who will outline the approach to the comprehensive spending review, which won't report till the Autumn, while the EU finance ministers will meet to discuss the finer details of the rescue plan. The Pound might start to drift a bit lower with no new data, or tough speeches from the PM, to support it, although with the Eurozone's problems outweighing the UK's, Spain is due for some protests against cuts and may even have a general strike in the near future, the Pound is likely to keep hold of most of it's gains.
Posted in Daily Market News on May 30 2014