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Better economic data help sterling
Publication date: 11 July 2012
Author: Mark Deans, Moneycorp
The Treasury Select Committee was at it again yesterday with Marcus Agius. It was the first time most members had come face to face with a Roman General and they made the most of it. The Honourable Member for Bassetlaw was particularly impressive for his inquisitorial style. “Is this the most damning letter you have ever received? At what point did you realise that you were incompetent? Why did you not have the guts to control your CEO? Which members of your family will you offer as sacrifice to the ravening media?”
In the end though, it all came down to lack of recollection about the most important aspects of the case. Perhaps a poor memory is an inevitable symptom of the political condition. The leaders of Spain and France certainly seem to be chronic sufferers. Both promised in recent election campaigns that they would relax the regime of austerity so hated by their subjects. Both seem to have forgotten and are having to backtrack; François Hollande because he must tackle a budget shortfall of more than €40bn in the next 18 months, Mariano Rajoy in order to put himself in the best possible position for negotiating a bailout.
Prime Minister Mario Monti upped the ante for Italy when he did not quite say that Italy will have no need of EU bailout money. Whilst he dismissed the idea of his country going down the same track as Greece and Portugal, he left room for the bailout-lite that is apparently on offer following Chancellor Merkel’s agreement to deal directly with Spanish banks. “It wouldn’t be prudent to say that Italy will never need to use that fund [the European Stability Mechanism],” he told reporters. Later, Finland’s Prime Minister Jyrki Katainen poured petrol on the flames when he told the Helsingin Sanomat newspaper that “This situation is dangerous, very dangerous.”
With no Euroland economic data to speak of, investors were left to decide for themselves what to do about the euro and they came to the conclusion that buying it would not be a guaranteed ticket to instant riches. The currency retreated by half a yen and half a US cent and by half a euro cent against the pound.
The case for sterling was improved by a better-than-expected set of UK ecostats for May. The trade deficit narrowed to -£8.4bn, manufacturing production increased by 1.2% and industrial production went up by 1.0%. The numbers were all significant improvements on analysts’ forecasts. Sterling starts today unchanged against the US dollar, the yen and the NZ dollar, slightly firmer against the euro, the franc and the Canadian dollar and a touch lower against the Aussie compared with Tuesday’s opening levels.
There are no UK ecostats on today’s list and no pan-Euroland data, although Germany and Portugal do report on inflation. There is not much from North America either, just the balance of trade figures from Canada and the States. The most important release will be the minutes of the Federal Open Market Committee’s policy meeting, which could provide a clue to what might happen next on the quantitative easing front. But the FOMC minutes don’t appear until London has finished for the day, so it could be another quiet one.
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