• UK Retail Sales improve – reducing likelihood of more QE.
• ESM direct recapitalisation possible in 2013 – scheme aimed at supporting struggling EZ banks.
• Google shares shed 20% – Q3 figures down.
• Brexit fears impact the Pound – GBP lower as UK EU membership comes under scrutiny.
Sterling sentiment improved yesterday morning as UK Retail Sales came in stronger-than-expected, which dampened the prospect of further monetary easing from the Bank of England in November. UK Retail Sales improved by 0.6% in September and the Annualised figure printed at 2.9% compared to market predictions of 2.4%. A separate report which showed that Retail Sales minus Auto Fuels also grew by 0.6% added to the enthusiasm; Auto Fuels are notoriously volatile, which can sometimes lead to skewed results. Goods prices and clothing sales led the way for the UK’s retail sector.
However the Pound was let down in the evening as markets interpreted British Prime Minister David Cameron’s stance towards the European Union as overly aggressive and, with the UK’s EU membership thrown into question, Sterling found itself subject to significant downward pressures.
The Pound to Euro exchange rate fell to a fresh 4-month low last night of 1.2275 as fears of the UK leaving the European Union sent Sterling lower against the majority of its currency peers. British Prime Minister David Cameron was seen to be alienating the UK from the rest of the EU at yesterday’s summit, and his behaviour led some market-players to coin the term ‘Brexit’.
It was a busy day for German Chancellor Angela Merkel yesterday; she began at the Bundestag where she reiterated her desire for Greece to stay in the Eurozone, commented that competitiveness is improving in Portugal, Ireland, Greece, and Spain, and concluded that the Eurozone’s outlook is becoming more stable.
Next Up, she flew into Brussels to battle it out with French President Francois Hollande over the terms of the Eurozone Banking Union. Merkel wants the Banking Supervisor, when brought in, to prove its competence over a 12-month period before being allowed to dish out funds to struggling nations. Whereas Hollande believes that Germany should relinquish some of its control over other countries’ budgets, in order for the Banking Supervisor to be granted the power to pump much-needed cash into fragile Eurozone banks.
A late-night development from the summit suggested that troubled banks could in fact receive direct recapitalisation from the European Stability Mechanism as early as March 2013. This looks like a victory for Hollande, and will have pleased European Commission President Jose Manuel Barroso, who commented earlier in the day that he was “unhappy with progress so far” and urged leaders in the 17-nation bloc to speed up the implementation of growth-enhancing measures.
Data from America yielded little volatility yesterday however the ‘Greenback’ still managed to post a daily gain of 0.8 cents against Sterling, as GBP/USD declined to 1.6058 in the evening. The Pound’s descent appeared to track downward momentum in the Euro / US Dollar pair, but it was also provoked by negative sentiment towards the UK economy caused by UK PM David Cameron’s abrasive attitude towards the European Union.
In terms of US data, Initial Jobless Claims grew by more-than-expected to 388,000 (bearish), the Leading Indicators figure printed stronger-than-expected at 0.6% (bullish), and the Philadelphia Fed Index posted an optimistic score of 5.7% (also bullish), but to little market effect.
Sterling improved by around half a cent against the Canadian Dollar yesterday as strong UK Retail Sales reduced the chances of more asset purchasing from the Bank of England. The Pound was also supported against the ‘Loonie’ in response to Canadian Finance Minister Jim Flaherty comments on the deteriorating outlook of the Canadian economy. Flaherty said that: “We may have to revise downward somewhat” which unnerved investors, especially in light of Bank of Canada Governor Mark Carney’s dovish remarks on Monday.
The Australian Dollar picked up another cent against the Pound yesterday as hopes of a European Banking Supervisor heightened due to developments from the EU summit in Brussels. The ‘Aussie’ was also supported by news that Retail Sales in China – Australia’s largest trade partner, and most potent growth catalyst – improved by slightly more-than-expected, posting an annual gain of 14.2% in September. With Britain’s membership in the EU looking mildly fractured, the Pound to Australian Dollar exchange rate declined to 1.5484.
New Zealand Dollar
Sterling tumbled by around 0.4 cents against the New Zealand Dollar yesterday as growth prospects for riskier currencies were improved by positive developments in the Chinese economy. Third quarter GDP hit the mark at 7.7% growth, Industrial Production slightly exceeded analysts’ expectations at 9.2%, and Retail Sales impressed at 14.2%. However the rise in global sentiment was damaged, to a small extent, in response to Google’s third quarter earnings print, which fell 20% short of 2012′s figure.
Data Released Today
09:30 GBP Public Finances (PSNCR) (Pounds) (SEP)
13:30 CAD Consumer Price Index (YoY) (SEP)
15:00 USD Existing Home Sales (SEP)
- The Pound continued to trade lower against the U.S Dollar yesterday, retreating to a low just above 1.56
- Pound Sterling, the Euro and US Dollar exchange rate news flash – The Pound remained lower against the majority of the 16 most actively traded currencies
- Pound Sterling, the Euro and US Dollar exchange rate News – The Pound traded lower against the Euro exchange rate
- The Pound finished the day at just over 1.2400 against the Euro
- Pound to Euro, US Dollar exchange rate: The Pound continued to grow on renewed optimism in the UK economy