by Josh Ferry Woodard
Yesterday the Pound pushed through one-year highs against the Euro reaching 1.209. The Pound is benefitting from safe haven flows as investors flee the treacherous Eurozone in favour of ‘safer assets’. The SP 500 stock index futures traded significantly lower in the Asian session as a result of a change in market sentiment away from stocks-correlated currencies towards the safe haven US Dollar. Consequently Sterling retraced gains made earlier this week against the strengthening Dollar back down from 1.570 to 1.555.
Germany kicked off its 2012 bond sales with a successful auction of its benchmark 10-year bund yesterday. Germany sold €4.057 billion of the 2% January 2022 bund with an average yield of 1.93%, down from 1.98% on November 23rd when German paper was heavily undersubscribed. Investors kept a close watch on the auction for the signs of weakness that were present in November, but considering the low yield of the bunds they performed relatively well.
Portugal’s funding costs also fell as they sold €1 billion in 3-month Treasury bills. The yield on the bonds dropped from 4.873% in December to 4.346% at yesterday’s auction. Despite positive bond auctions in the Eurozone the Euro has performed badly this week, largely due to growing fears relating to the sovereign debt crisis.
German Retail Sales fell by -0.9% from October to November, but the year on year figure for November improved by 0.8%, The European Monetary Union’s Producer Price Index showed a marked improvement for the Eurozone with domestic producers of commodities receiving 5.3% more for their products than last year.
Statistics released this morning showed some good news for the UK economy, with the Services PMI remaining in expansion rising from 52.1 to 54.0 in December. Later on today US Initial Jobless claims are expected to fall slightly and Non-Manufacturing Business conditions are expected to improve slightly; both are encouraging for the Dollar.
The Pound is currently trading at 1.210 against the Euro and could grow further dependant on the success of France’s bond auction this morning. France aims to sell a whopping €8 billion of debt today, in the country’s first test of investor appetite in 2012. If the auction goes badly it could trigger more talk of the French AAA credit rating being cut, but if the auction is successful it could alleviate some pressure from under fire President Nicolas Sarkozy (in the short-term at least, with the French Presidential election looming large).
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