Daily Forex Brief London: Tuesday 24th April 2012

Seeing red

Yesterday proved to be a fairly tumultuous day in markets, in stocks especially. For Europe, it was a combination of the economic and political that conspired to put pressure on investor sentiment. Events in both France (a likely change in president) and the Netherlands (a backlash against austerity) impacted sentiment, as did the softer PMI data for both France and Germany. For now, it appears that the factors that were supportive for most of Q1 (ECB 3Y money, Greece inching back from the brink and better US data) are waning, but suitable replacements have yet to be found. For FX, this is seeing a stronger return to 'risk-off' moves into month-end, so the dollar is firmer against most (the yen excepted) and the Aussie is suffering the most, helped by softer inflation data overnight.

Daily Forex Brief London: Monday 23rd April 2012

Cautious pessimism

During April, markets have displayed a far more cautious tone to that seen through most of the first quarter. FX markets were earlier than most to adopt this tone, with high-beta currencies turning at the start of March, much earlier than most equity markets. As we enter the last full week of April, this approach seems set to continue. The first round of voting in the French presidential election campaign has strengthened the view that Sarkozy is unlikely to see a second terms and markets are slightly nervous regarding his likely successor, Francois Hollande. The US Federal Reserve also meets this week, but all the signs are that it is unlikely to satisfy those hoping for a fresh round of quantitative easing, despite the ongoing underlying weakness of the economy. Furthermore, the latest PMI data from China (HSBC manufacturing series) increased to 49.1 (from 48.3), keeping alive concerns about the extent of the slowdown currently being seen in China. Finally, the latest producer price inflation data in Australia appear to have further cemented the case for a fresh rate cut next month. Cautious pessimism is likely to remain the theme as we head into month end.

Daily Forex Brief London: Friday 20th April 2012

More trouble and strife

Yesterday's bond auctions might have gone well enough, but unfortunately other issues are brewing in Europe and moreover they are getting progressively worse. In Italy, as the economy reverses more rapidly than expected, the fiscal dynamics look increasingly problematic. Unsurprisingly, the IT/GER 10yr spread widened another 15bp to almost 400bp. Spain is in the doghouse as well, for similar reasons, with the 10yr yield not far short of 6.0% again. Also worth noting is the continued underperformance in France – the 10yr FR/GER yield spread was 15bp wider at 140bp at one point, compared with 100bp just a month back. Part of the explanation lies in the increasing likelihood that François Hollande will become France's next President. Hollande has been threatening to renegotiate the fiscal compact if elected (little wonder Merkel wanted to campaign for Sarkozy), and he has vowed to raise the minimum wage; he also wants the ECB to be more active in resolving Europe's sovereign debt crisis. Not to be outdone, New Democracy Party leader Samaras has pledged to push back implementation of the Greek bank recapitalisation plan until at least after the election. Just as well some of Europe's finance ministers are gathered together in Washington – they might as well start discussing how to deal with Europe's next financial tsunami. As the IMF's latest Global Financial Stability Report made clear, European faces a huge credit crunch over the next 18 months as banks shed USD 2.6trln of assets. Strap yourself in, there is worse to come!

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