Chicago

At Gerard Associates Ltd we continue our daily look at factors affecting markets and currencies allowing some insight into conditions affecting exchange rates.

Cash and income timing from a UK Pension income drawdown, flexible pensions or QROPS (Qualifying Recognised Overseas Pension Scheme) should be considered to maximise the Pension drawdown, QROPS and investment income taken.

Investment market volatility and currency exchange remains a challenge. The global economics are volatile and unprecedented in history. Currency exchange continues to concern expats with UK Pensions, income drawdown now including flexible pensions, a QROPS and QNUPS (Qualifying non UK Pension schemes).

IN THE UK 

·         The outstanding event of the day was a unanimous move by the central banks of the US, the UK, Switzerland, Japan, Canada and the ECB agreeing to reduce the interest rate on dollar liquidity swap lines by 50 basis points, immediately after the announcement, sterling moved higher towards a fresh weekly high of $1.5775 against the US dollar.

·         UK policy makers are becoming increasingly cautious regarding the economy as Chancellor George Osbourne insisted that current austerity measured kept the UK ahead of the curve compared to others facing threats from the Eurozone crisis.

·         Speculation mounted that the BoE will resort to a £100-150Bn extension of its asset purchase plan as Quantitative Easing is still the weapon of choice in the face of increasing likelihood of undershooting the 2% target for inflation. 

ELSEWHERE

·         The risks posed by the Eurozone crisis were epitomised by the first ever negative yield for German one year bonds, reaching a low of -0.07% as invested settled for the lesser of innumerable evils.

·         Rumours also surfaced suggesting that the ECB monetary policy meeting on December 8 could see a cut in the current 1.25% interest rates.

·         The Fed claimed the move to reduce rates on dollar swaps would “Ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.”

·         The MSCI All-Country World Index climbed 3.1% by mid afternoon and of the 24 major commodities, only natural gas suffered a decline as markets reacted to the announcement on liquidity. All 16 currencies most traded against the Dollar also posted gains. The indication that central banks are willing to working together may bring some longevity to the resulting risk rally even if the effects were sudden.

·         After initially weakening as Eurofin conceded their bailout fund had been wide of the mark, the euro strengthened 1.1% against the US dollar to close the European session at $1.3465, having peaked at $1.3533 which marked the biggest intraday jump since lenders agreed a 50% write-down of Greek debt.

·         The biggest winners against the US Dollar were the Australian Dollar, which grew 2.7% to $1.0272 and the Brazilian Real, which grew 2.2% to B$1.8078. Canada’s dollar extended gains after data showed the nation’s economy grew at an annualized 3.5% in the third quarter beating the forecasted 3% and overall, the Loonie strengthened to a high of c$1.0187.

·         Early in the day S&P had cut debt ratings on lenders from BoA to Goldman Sachs to UBS but data on US business activity and employment and housing markets topped estimates.

·         The ADP Employer Services report showed companies added 206k, expected at 130k, workers in November bolstering optimism in the labour market.

·         The Chicago Purchasing Managers Index, business activity expanded at fastest pace for 7 months signalling a continuation of the factory-led expansion.

·         Pending home sales were also up, 10.4% in October, recording their biggest gain for 12 months and 5 times the forecast.

·         China contributed to risk appetite as the People’s Bank cut the reserve requirement ratio for banks by 0.5% in order to spur growth. The move shows a reversal in policy which will augment the capital by some Rmb400bn ($63bn). 

DATA TO LOOK OUT FOR (all times GMT)

·         11:30 The BoE Financial Stability Report will indicate how confident the central bank is regarding the stability of the  financial system as it stands and assess the risks it faces.

·         13:30 US Unemployment Claims are expected to number 390k. This indicator of newly unemployed is highly correlated to consumer spending and is therefore of great interest to many market participants.

·         15:00 After the Chicago index read positively yesterday, the ISM Purchase Manager’s Index, also from the States, is expected to follow suit with 

Gerard Associates Ltd advises UK residents, expats and people considering living abroad on the technical and currency options available for Pensions, pension income drawdown, flexible pensions, QROPS, QNUPS and investments in a clear format allowing all customers to make an informed choice. Our service encompasses Pension including QROPS and QNUPS and investments in a clear format allowing all customers to make an informed choice.

This with the reassurance and security of UK FSA authorised and regulated advice - essential for your security.

At Gerard Associates Ltd we continue our daily look at factors affecting markets and currencies allowing some insight into conditions affecting exchange rates.

Cash and income timing from a UK Pension or QROPS (Qualifying Recognised Overseas Pension Scheme) should be considered to maximise the Pension, QROPS and investment income taken.

Investment market volatility and currency exchange remains a challenge. The global economics are volatile and unprecedented in history. Currency exchange continues to concern expats with UK Pensions, QROPS and now QNUPS (Qualifying non UK Pension schemes).

Yesterday was a day of two halves for sterling, hitting a two month high against the Euro on

the back of Euro zone debt worries but falling further to a seven week low against the US

dollar as risk aversion returned to the market.

Euro zone debt concerns were again highlighted as continued concerns about restructuring

in Greece were prevalent again. On top of this the spotlight has turned to Italy, with the

ratings agency Standard & Poors changing its stance on the Mediterranean country to

"negative" from "stable."

Spencer Dale the Bank of England’s chief economist also gave sterling a lift over the

weekend helping to support it after better retail sales on Friday when he gave an interview

to the FT Dale said the central bank must start to raise interest rates to tackle inflation or

risk hurting the economy.

All these have increased the pressure on the euro since the end of last week, yesterday it fell

to .8664 (1.1542) although much later in the day it retraced some of these losses pushing

back to .8714 (1.1475).

The story could change again with volatility likely to continue and sterling likely to

experience some pressure of its own.

On the other side of the pond the story was totally different with risk aversion driving

investors to the safety of the dollar.

Sterling was driven down to very close to a seven week low of 1.6105, with the Euro also

driven down losing almost 1% hitting a new low of 1.3968 EUR/USD. With the US

economy still struggling and interest rate hikes still not appearing on the horizon, risk

appetite is likely to drive the price of the dollar in the short term.

By contrast the European Central Bank is expected to raise rates again after a hike in April,

particularly given solid growth in Germany, and analysts said this could help the euro hold

it’s strength despite the problems in the peripheral countries.

German GDP is released this morning came in on consensus showing a 0.9% increase

year on year. German IFO also produced a good reading this morning fighting off the

slowdown that was forewarned by German finance ministers a few weeks ago.

IN THE UK

• Sterling toppled from 1 month high vs. US Dollar to fall to $1.6432
• GBP sold off against EUR to meet month end requirements falling as low as €1.1388 overnight
• Further doubts over the UK economy hold GBP back against USD.
• Opinions grow within the market that interest rates will remain on hold in 2011, further restricting GBP’s rally against USD.
• Bank of England policy maker and eternal hawk Andrew Sentence has his last day on the committee today, where does this take the bank’s stance from here.
• Sentence says the Bank of England could lose creditability if inflation does not start to fall as forecasted.

ELSEWHERE

• US Consumer confidence figure comes in below expectation & encourages USD losses against a number of currencies.
• Chicago purchasing managers index also falls and helps push the Greenback lower across the market.
• Euro outperforms the pound, up as much as 0.9% vs GBP.
• The Single Currency boosted by an article that Germany may be more willing to help Greece than first believed.
• Greece have indicated they might sell of land assets worth up to $40bn to help pay off debt.
• Australia GDP falls a massive 1.7% down to -1.2%, but Treasurer Swan says the floods are to blame.
• Reports this morning send the euro down half a cent, German newspaper ‘Faz’ reports that the IMF will not pay its share of the next tranche of bailout money to Greece. It turns out it was a misprint and the payment was delayed from the end of May. The euro has responded and retraced losses to remain around where it started; this highlights how sensitive the markets are to news on Greece’s dilemma.  

DATA TO LOOK OUT FOR

• This morning UK Purchasing Manager Index Manufacturing could hurt the pound if it surpasses the expectation of a slight drop against April’s figure.
• European Purchasing Manager Index expected to disappoint a resurgent Euro.
• ECB Trichet’s Speech.
• ADP Employment change out in the US may push the Greenback lower as a slight drop is forecasted, the ADP figures pave the way for Non-Farm Payrolls released this Friday.

 Gerard Associates Ltd advises expats and people considering living abroad on the technical and currency options available for Pensions, QROPS, QNUPS and investments in a clear format allowing all customers to make an informed choice. Our service encompasses Pension including QROPS and QNUPS and investments in a clear format allowing all customers to make an informed choice.

This with the reassurance and security of UK FSA authorised and regulated advice - essential for your security.

IN THE UK

• Sterling hits 9 month low vs US dollar and 11 month low vs Yen
• Rick aversion causes sterling sell off.
• UK business investment falls 5.8% in 4^th quarter
• 4^th Quarter GDP figures revised up to 0.3% from earlier 0.1% first print.
• Nationwide house price survey show first drop in prices for 10 months.

IN THE US

• Investors flock to US dollar as safe haven
• 4^th Quarter GDP figures out at 1.30pm
• US Chicago PMI and US Consumer Sentiment released around 3.00pm

IN THE EU

• EU Consumer Price Index released at 10.00am
• GBP/EUR sees 6 week low at €1.1214
• Greece debt problem still causing investors to sell off euros
• Euro get sees further support as CPI figure on target at 1.0%y/y