analyst

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).

We saw Sterling dip against the dollar on Tuesday as investors took profit on the previous

session's rally in risk assets, and it looked vulnerable to further selling after mixed economic

data released failed to alleviate concerns about poor UK economic fundamentals.

Manufacturing Output data for August released on Tuesday presented a mixed picture of UK

growth, with industrial output unexpectedly rising 0.2% on the month while

manufacturing output dropped 0.3%. Sterling showed little reaction immediately after

the data, but did post a trading low of $1.5602.

"All in all the data was a mixed bag, there was a small discrepancy between industrial

production and manufacturing. But overall the trend is still for lower production and that

should really not benefit the pound," said an analyst at Danske Markets.

The pound has rallied since hitting a 14-month low last week on news the Bank of England

would restart its asset purchase scheme, known as quantitative easing (QE), sooner than

expected to try and kick-start Britain's ailing economy.

But analysts said lacklustre economic data and comments by Bank of England policymaker David Miles

defending QE added to the impression UK monetary policy could remain extremely loose for

some time.

The Euro fell from its highs against the USD as Slovakian lawmakers prepared to vote on a

proposal to revalue the regions bailout package, however the Vote was postponed due to a

coalition partner SaS held back from the vote. The 17-nation Euro slumped even as a

European Union, International Monetary Fund and European Central Bank team approved

the next tranche of aid to Greece.

“We are seeing a bit of correction in the Euro after yesterday’s move up,” said a currency strategist at UBS AG in London. “There are some concerns about the Slovakian

vote. While the bottom line is that they will eventually approve it, it might be delayed, and

that creates more uncertainty.”

Across the pond was very quiet, as no major or mid-level data was released as traders

returned to the office after yesterday being a national bank holiday in the form of Columbus

Day.

Looking forward to today the major pieces of data are being released from the UK and the

US. The first comes from the UK in the form of the Claimant count of which is being released

at 9.30am which is then followed by the release of FOMC meeting minutes at 7.00pm where

the market will be paying close attention to the tones of the language used.

IN THE UK

• The pound falls against the dollar over the course of trading session falling from a high of $1.5664 to post a low of $1.5581.
• A mixed bag of data released from the UK in the morning showed Manufacturing output for the month of August missed expectations but Industrial production beat expectations.
• NEISR Flash GDP estimate released at 0.5% against a previous posted 0.4%.
• The negative sentiment towards the BoE’s shock increase to QE last Thursday is wearing off and is now seen as a positive to the pound.
• UK Claimant Count rises by 17,500, slightly better than the forecasted 23,900. On a less positive note, the ILO Unemployment Rate rises to 8.1%, showing business conditions in the UK remain bleak
• EU member Barrosa has been urging the UK to help in the second Greek bailout, so far the UK have stood their ground apart from the obligations through its IMF membership.

ELSEWHERE

• Greece gets their 6th tranche of bailout package confirmed from the ECB even though they will miss their 2011 targets and be in recession for longer.
• The Euro fell from highs of €1.1510 to post a daily low of €1.1435.
• Trichet makes a statement that the Eurozone debt contagion has become systemic and is a real risk for the region.
• Slovakia fails to reach agreement on the revised plans for EFSF due to one of the coalition partners, Freedom and Solidarity (SaS) completely abstained from the vote.
• Canadian Housing Starts beats expectations to post a figure of 206k against an expected 176k originally forecast. 
• No economic data released from the US as they return to the office after Monday’s bank holiday. 

DATA TO LOOK OUT FOR (all times UK BST)

• Eurozone Industrial production to be released at 10am expected to post a figure of -0.8% against previous months reading of -0.9%.
• In the US they are due to release the FOMC minutes for the previous interest rate meeting 3 weeks ago, where the market will be paying attention to the tone of comments made.
• ECB’s Trichet address a conference at the AFME in London this evening at 7.30pm
• Minutes from Bank of Japan Monetary Policy Meeting are released overnight.

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 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).

Sterling climbed to a near three week high against a broadly weaker dollar which was still

being hurt by Ben Bernanke’s comments in the recent press conferences. Sterling hit a three

week high of $1.6195 early in the day as investors continued to sell the dollar after Moody’s

warned it could cut U.S ratings as Federal Reserve Ben Bernanke hinted at further policy

easing.

Gains for sterling are expected to be limited, with many not ruling out the prospect of

further quantitative easing in the UK. “After getting hit hard earlier this week, sterling seems

to be very resilient and coming back bid” said a London based stock trader. “I must say this

has surprised me more than a little. But think it will trade in a range and would expect to see

sellers in earnest on any flirt with the 1.62 area”

Sterling’s increase against the dollar has primarily been off the back of a bearish outlook for

the U.S dollar and has had little do with any signs of improvement in the UK economy. Data

on Wednesday showed a sharp rise in the number of Britons claiming unemployment

benefit, adding to concerns that stale growth prospects may prompt more Bank of England

policymakers to call for additional policy easing.

The Italian bond auctions did little to reassure the Euro, despite the bid/cover ratio going

reasonably well. The EUR/USD had been supported in Asia gaining to $1.4280, the main

cause for this rise was as a result of Bernanke’s comments. The Italian Senate passed

through a tough austerity budget, including cuts of 48bn euros. Italy has one of the largest

debt mountains in the Eurozone and wants to avoid any need for a bail out. Italy raised

2.97bn euros through the sale of 15 year government bonds on Thursday, but had to offer a

5.9% rate return an all-time high for such bonds.

Across the pond an unexpected rise in auto buying helped US retail sales edge up in June,

but consumers remained cautious amid high unemployment, rising inflation and economic

uncertainty. Retail sales were up 0.1% in June beating the expectations of a 0.1 per

cent fall and beating revised a revised 0.1% decline in May.

IN THE UK

• GBP/USD hits a near three week high to 1.6194, but fails to break the $1.62 level
• Sterling gains are still being limited as analyst still speculate whether UK will need further Quantitative Easing
• The pound remains around its 100 day moving average 1.1372 against the euro, despite the recent Eurozone woes many analysts believe GBPEUR will remain low based solely on interest rate differential between the two central banks.  

ELSEWHERE

• EUR CPI year on year meets expectation posting a 2.7% year on year.
• More news this morning about US credit ratings, S&P have said they have put US on negative credit watch, suggesting a 50/50 chance of losing their AAA rating. This could happen as soon as in the next month if the debt talks don’t produce an adequate result soon.
• In contrast alternative agency Fitch leaves US as stable outlook.
• UK press have reported this morning that the Eurozone has only 48hrs to agree settlement on ongoing debt issue or could result in two tier euro, I would however take that comment with a pinch of salt given the background work involved in such a plan could take years.
• Italy prepare for a confidence vote on austerity measures ahead of stress tests this afternoon.
• US Retail sales month on month beats expectation posting a 0.1% against a forecast -0.1%
• Ben Bernanke testified to congress for the second day yesterday saying that QE3 is a card he will only play when he needs to, there are other tools available to spur growth and the Fed wants to see if the economy can rebound on its own.
• US core Retail Sales misses expectations posting a figure of flat (0%) against a forecast 0.1%

DATA TO LOOK OUT FOR

• Eurozone trade balance is released this morning, little change is expected and subsequently should not affect the markets too much.
• US CPI is released at 1.30pm and expected to remain at 3.6% for the year.
• US Empire State Manufacturing Index is published at 4.20, a substantial rise on last month’s -7.79
• Headline data today is the Eurozone bank stress test results, they are expected at around 5pm and have been organised to give reassurance to investors that EZ banks are performing adequately and some of the recent debt rumours of Spain and Italy in particular are unfounded. Expect volatility if the results show that too many banks have been hiding skeletons in their closets. 

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).

IN THE UK

• GBP/EUR falls to a one month low of €1.1138, but posted a high of €1.1231 as the

London session ended.

• Weak data from the UK continues to weigh on the expectation of interest rate hikes

in the future.

• Article in the FT suggests that we could see further Quantitative Easing on top of the

existing £200bn if the UK does not begin to show signs of improvements.

• BRC Shop Price Index year on year failed to beat last month’s figures showing further

strains on the UK economy.

• This morning UK Trade Balance showed the deficit between imports and exports

narrowed very slightly to £7.34bn, this had a limited effect sterling strength.

ELSEWHERE

• Canadian housing starts meet expectations at 184k.

• Euro Q1 GDP figure kept unrevised at 0.8% as expected, EURUSD moves to $1.4632

• Australia employment figures disappoint markets and the AUD is sold off as a July

rate hike is now almost completely ruled out

• In New Zealand interest remain on hold at 2.5% but the message released is there

will be a gradual increase over the next two years. This resulted in the NZD gaining

100 pips.

• Focus completely off Greek debt crisis and all eyes will be on ECB rate decision later

today

• US Beige Book released last nice posts a mixed message, some areas have shown an

improvement in economic activity whilst others have seen a slowdown, disruptions

from weather and natural disaster is said to be at blame.

• US Government debt limit talks continue and rating agency Fitch warns it could cut

their rating if any bond payments are missed.

• Article on CNBC suggests that the US could be heading towards a financial crisis

worse than 2008

DATA TO LOOK OUT FOR

• Bank of England Interest Rate decision meeting at 12.00pm, the markets are

expecting rates to be left at 0.5% and no change to £200bn quantitative easing.

• ECB Interest Rate decision meeting at 12.45pm, like the BoE, rates are expected to

stay on hold but more significance will be on the press conference afterwards and if

Trichet uses “strong vigilance” wording could signal a rise next month. It seems to

many that the markets have priced this in so there is risk to euro strength if he

doesn’t

• US Unemployment claims due out 13.30pm expected at 424k from last month’s 422k

posted

• US Trade balance expected to post -48.6Bn at 13.30pm against last months -46.2Bn

Current Spot Rates (9.30am)

9^th June 2011

              USD     EUR     AUD       CAD      CHF       DKK       NOK      SEK      ZAR       JPY

GBP     1.6455 1.1246  1.5527   1.6094   1.3771   8.3882   8.8409   10.16    11.04    131.821

USD                  1.4629 0.9436   0.9781   0.8369   5.0977   5.3728     6.17      6.71      80.110

EUR      0.6836             1.3807   1.4311   1.2245   7.4588   7.8614     9.03      9.81     117.216

Fears mounted over UK AAA credit rating, allowing Sterling to fall to a 1 month low against

the Euro and to fall against the US Dollar and Yen. Rating agency Moody’s warned

Wednesday morning that the UK could lose its credit rating if growth continued to falter and

if the government slowed its fiscal policies. This creates issues for George Osborne, who has

had comments released against him to slow the pace of deficit reduction for the UK.

The UK interest rate decision is due to be released today at 12.00pm and is expected to be

kept on hold with no change to our Quantitative easing program either.

“Credit risk is not positive for currencies, and as long as the threat of a downgrade remains

over the UK, the pound will find it difficult to rally,” said an analyst at

forex.com.

The market is anticipating that the ECB will turn decidedly more hawkish and Trichet will

signal a rate hike for the month of July by using the code word vigilance or strong vigilance in

his press conference at 13.30pm today.

This comes even though the Eurozone continues to be plagued by problems in the

periphery, the ECB’s monetary policy is geared mainly towards Germany and France as they

form 70% of the GDP figure for the Eurozone.

We saw the Euro fall slightly against the US Dollar and Sterling later in the trading session

due to investors profit taking before the risk event, or investors pricing in the comments

already to the market. If we were to see Trichet surprise the market by remaining stationary

with comments about interest rate hikes today, then we can expect to see a sell off across

the board, and Euro weakness.

The US dollar lost ground against the Euro during Wednesday’s trading session based on Ben

Bernanke’s comments regarding the economy. He acknowledged a slowdown in the economy

and that they face additional headwinds from the effects of the Japanese disaster to global

pressures in the commodity markets. On the release of these comments the S&P 500 quickly

changed course from a positive movement to turning negative.

The market will be paying close attention to data that is being released from across the pond

to see if the slowdown is still apparent, on Thursday we have the Trade balance and

Unemployment Claims due to be released.

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.