Daily Forex Brief London: Monday 14th May 2012

A sea of red

Unfortunately, in financial markets at least, it is rarely the merry month of May. Last week was another sea of red, with equity markets on the slide, high-beta currencies heading south and core G4 bond yields declining. Spanish equities were singled out for the harshest treatment, falling another 3%, with the financials again hard hit. The Aussie is back at parity, the euro is under 1.29, and cable is near 1.6050. German 10yr bund yields fell below 1.5%, at the same time as the 10yr yield in Spain rose above 6.0%. Apart from the deteriorating political situation in Greece and the equally disturbing Spanish banking predicament, markets were rattled by the massive loss recorded by one of the units of J.P.Morgan. Overnight, the mood stabilised slightly after China decided to reduce the bank reserve requirement (RRR) by 50bp (see below). Worryingly, many of those forces which were so unsettling last week are still in play, including growing speculation that Greece may well leave the euro before too long

Daily Forex Brief London: Friday 11th May 2012

More dark clouds over Spain

The week is ending in a similar fashion to which it began, namely with markets broadly in retreat from risk. There's little reason to feel that today will be much different. The focus is on Spain and its expected announcement of just how bad the government believes the bad loans situation is for the banking sector there. Meanwhile, Greece is still trying to stitch together a government from the results of the weekend's election. But the verdict in markets for the week as a whole has been a distinct lack of belief in the course that is being taken in Europe, with regards to France and its intended push for growth, together with Greece and its appetite for continued austerity as well as Spain's banking situation. Overnight, we've also seen slightly softer than expected retail sales and production data in China, although inflation was broadly as expected at 3.4%.

Daily Forex Brief London: Thursday 10th May 2012

Reality bites

The euro's break below the 1.30 level has been sustained overnight and it's notable that the dollar has risen in all but two of the past nine sessions, looking at the dollar index chart. The political events in Europe, both in France and Greece, have served to enhance the more risk-averse trend that was already in place last week. Furthermore, in Europe we are seeing fresh signs of stress in the banking sector, such as widenings in cross-currency basis swaps and also Libor-OIS spreads. These both reflect greater concerns with regards to the fragility of the European banking sector, but at present there are few signs that the ECB is keen to get stuck in, already having undertaken two 3Y injections of liquidity. We've also seen disappointing trade data from China overnight (a bigger balance but also a slowdown in both exports and imports). Meanwhile, Asian equities are declining for a sixth consecutive session, the MSCI Asia (ex-Japan) index is now around 7% up on the year, having stood 16% higher at the end of February. Reality is biting hard and not only in Europe

Daily Forex Brief London: Tuesday 8th May 2012

Drawing the eurozone battle lines

After the initial weakening of the single currency on the back of the weekend's political developments in both France and Greece, the euro crawled back through most of Monday's session, although volumes were naturally muted by the London holiday. In France, there is a new President keen to rebalance the agenda in Europe towards growth and away from yet more austerity. In Greece, there is a mad scramble to try and form a government from the results of the latest election, which at present looks to be a tall order. Now, the task of forming a new government has fallen to the leader of the Syriza party, who is seeking to re-negotiate the bail-out terms. Meanwhile, writing in the FT today, the head of the German Bundesbank (Weidmann) has, in no uncertain terms, made clear that the ECB is not set to bow to pressure from anyone to do more to help. Not surprisingly, he is clear about the limits of what the ECB can achieve and shows no signs of giving ground to any fresh-faced European leaders. Politically at least, we are heading for a turbulent few weeks in Europ

Daily Forex Brief London: Friday 4th May 2012

Caution ahead of payrolls

Markets face up to the US jobs data today in tentative mood, Asian stocks having softened by the greatest degree in nearly two weeks overnight and the past two days having seen high-beta currencies, such as the Aussie and Korean won the weakest performers of the majors. The recent trend in jobless claims, together with the ADP data earlier in the week, have tempered expectations of a strong set of numbers, with the market looking for a 160k gain in headline payrolls following the softer 120k increase seen in March. Nevertheless, in the wider picture, expectations of further QE from the Fed have also been cut back, so it would take a pretty weak payrolls number to shift this expectation and knock the dollar from its relatively steady tone of the past month.