Daily Forex Brief London: Thursday 19th April 2012

A lovely shiny pound

Of the major currencies it has been the proud pound that has been leading the way so far this year. Following yesterday's less dovish MPC Minutes and the surprisingly strong employment figures, cable is back through 1.60 once more and EUR/GBP is at a 20mth low of 0.8180. Against the Japanese yen the pound has advanced by almost 10% so far this year. Numerous explanations account for this more buoyant performance: the pound is very competitive, many sovereign wealth funds and high net worth individuals are still spooked by the euro (see below) and regard UK assets (such as London property and gilts) as safe-havens, and the economy appears to have avoided falling back into recession. In addition, other major currencies such as the Japanese yen, the Australian dollar and the Swiss franc are regarded as being very expensive, so it is little wonder that sterling is on the radar of money managers. Looking ahead, these sources of demand are likely to remain evident for some time to come. The message for a while now has been 'do not underestimate the pound'.

Also in today's Daily Forex Brief:

• UK QE loses its biggest sponsor
• Spain goes back to its roots
• Reserve managers snub their nose at the euro
• Yen softens amidst talk of more BoJ easing

Daily Forex Brief London: Wednesday 18th April 2012

Back in black

Buoyed by more optimistic IMF global growth forecasts for 2012 and increasing speculation that Beijing will soon take further steps to ease financial conditions, the appetite for risk has suddenly improved. Also contributing to the more positive tone was some decent earnings news out of the US from the likes of Coca Cola overnight, some encouraging growth news out of Germany and acceptable auctions in Europe, notably Spain. Apple shares surged 5% amid hopes that next week's earnings will reveal strong demand for iPads. In addition, the falling price of Brent crude is helping to soothe nerves. In Europe, the Euro Stoxx 50 jumped nearly 3% and is now back in the black for the year to date, while the S&P was up 1.6%, its best performance for a month. High-beta currencies such as the CAD and the Aussie did well, the latter now close to 1.04 again. Both the dollar and the Japanese yen have given back some of their recent gains.

Also in today's Daily Forex Brief:

• Euro whiplash
• UK inflation still uncomfortably high
• Lower oil price a welcome relief

Daily Forex Brief London: Tuesday 17th April 2012

If not for America...

Last month's disappointing payrolls report aside, there is a growing body of evidence that the US recovery is looking both more durable and broad-based these days. For instance, JP Morgan Chase Chief Executive, Jamie Dimon, suggested on Friday when announcing his firm's stellar quarterly earnings results, that the US housing market was "very close to the bottom" and that the debt-service ratio for US households was the lowest in twenty years. He was also upbeat on the state of corporate America, claiming that businesses were cashed up, well-capitalised and generating decent earnings growth. Recently, data published by the Federal Reserve showed that the ratio of liquid assets to short-term liabilities for corporations is now the highest in nearly 60 years! Wells Fargo, another US banking heavyweight, reported that mortgage applications soared 84% in the year ended March. Both JPMorgan and Wells Fargo are themselves in a strong position, having passed the Fed's latest stress tests with flying colours and now able to recommence dividend payments to shareholders. Yesterday's US retail sales were also encouraging, up 0.8% in March after a 1.0% increase in the previous month and a 0.7% rise in January. In Q1, retail spending surged at an annualised pace of almost 8%, or around 6% in real terms. Separately, statistics from the American Bankers Association shows that consumer loan-delinquencies fell in Q4 for the first time since 2004. At the very least, the US economy seems better-equipped to deal with exogenous shocks such as the recent surge in oil prices. Let's hope so – the world economy desperately needs the US to shoulder the growth mantle these days.

Daily Forex Brief London: Friday 13th April 2012

China's juggling act

The big question this morning for markets is whether to meet the latest Chinese GDP data with concern that it was lower than expected, or relief that the economy is slowing in an orderly fashion and will be supported by the largest increase in yuan-lending for a year. The initial reaction, as suggested by the Aussie's movement, is that concerns are more about the slower than expected pace of growth, AUD down around 0.5% in the wake of the release. The yen is also the only leader vs. the dollar after the numbers. Also seen were modestly firmer industrial production numbers for March (11.9% YoY) and retail sales figures, which were in line with expectations at 14.8%. China is juggling a lot of balls right now, trying to slow the economy a little, rebalance it towards consumption, ensure that property prices soften rather than crash and control lending so it does not fuel potential new bubbles. For now, it looks like policy-makers are achieving their goals but it's a precarious balance.

Also in today's Daily Forex Brief:

• Monti's continuing battle
• Housing still a big US headwind
• The impending franc attack

Daily Forex Brief London: Thursday 12th April 2012

Asian cheer tempers European fear

Bolstered by some reasonably encouraging growth data, the mood in Asia overnight has been constructive, with broad gains in the major bourses of around 1%. Both Australia and South Korea recorded better than expected employment outcomes last month; in the latter, the unemployment rate fell to 3.4% in March from 3.7% previously. In both Malaysia and the Philippines, exports soared by 15% in the most recent month. Also, Fed Vice Chairman Yellen gave her imprimatur to the Fed's highly accommodative stance (she was hardly going to say anything else, now was she?), and the Fed's Beige Book showed that all twelve regions are growing and that key indicators such as manufacturing, jobs and retail sales are showing signs of strength. Asian currencies are generally stronger overnight – the Aussie for instance is now at 1.04, up from yesterday's three-month low of 1.0226. Asia's better tone was assisted by a slightly more sanguine session in Europe. Apart from some speculation that the ECB might be prepared to re-charge its SMP to bring down Spanish government borrowing costs, there was some good news to emerge from various US companies at the commencement of the latest reporting season. Yesterday's improvement may prove to be merely a brief respite – despite the best endeavours of the Rajoy government it is clear that the Spanish economy is going backwards at a rapid rate. Europe's leaders will need to get its frequent-flyer cards ready because we can expect a lot more of those legendary late-night meetings over coming months.

Also in today's Daily Forex Brief:

• Chinese currency calm
• Will ECB be Saviour or Grim Reaper?