Daily Market Commentary [16/09/2011]

Daily Market Commentary [16/09/2011]

Good morning. Yesterday’s biggest news was the announcement of a future coordinated intervention by the European Central Bank, the US Federal Reserve, BoE, the Bank of Japan and the Swiss National Bank to open US dollar credit lines to facilitate the liquidity crisis facing the European banks. It seems the EU has grown tired of printing hundreds of billions of Euros and desperately needs a break! Another piece of news made headlines yesterday, for the wrong reasons. At a time when European banks are struggling with liquidity and trying hard to hide bad debts in their books, Kweku Adoboli, a trader with Swiss bank UBS, has reportedly caused the bank a loss of $2 billion in unauthorised trades. Nick Leeson and Jerome Kerviel have somebody for company at last!

The new USD liquidity facility announced by the central banks will be available for the next three months, till the end of 2011 and is expected to give the markets a breather after short-term funding became a major concern for the banks in the recent weeks. The Greek saga continues, though there was no major development yesterday that merits attention. Though investors still remain cautious about the single currency and Greece’s continuation in the EU, the focus will be on the proposed amendment of the European Financial Stability Facility (EFSF) in today’s Ecofin meeting.

The CPI data for US was released yesterday and the higher than expected inflation may give Fed chief Ben Bernanke a few more sleepless nights. Although I don’t think J-LO and co will be affected, this will certainly put a squeeze on Main Street’s wallet. The logic behind the introduction of further monetary stimulus packages may also come in for further debate. Manufacturing data was not encouraging either with the Philly Fed and Empire State Manufacturing both recording negative growths in August.

UK data continued to disappoint as retail sales showed a 0.2% decline. The figure can be debated since the Office of National Statistics (ONS) said it’s difficult to quantify the exact figures due to the rioting and looting spree in London and some other cities in August. Nonetheless, a robust economic growth remains a pipedream as both inflation and unemployment rates refuse to come down, making the case for a third round of Quantitative Easing stronger.


GBP/ EURO – 1.1409 
GBP/ US$ – 1.5786
GBP/ CHF – 1.3764
GBP/ CAN$ – 1.5534
GBP/ AUS$ – 1.5278
GBP/ZAR – 11.659
GBP/JPY – 121.23
GBP/HKD – 12.295
GBP/NZD – 1.9131
GBP/SEK – 10.423
GBP/AED – 5.793

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Euro: The market witnessed large Euro short covering yesterday after the news of USD liquidity by the central banks came in and the single currency rallied against both the Sterling and USD. GBP/Euro  hit 1.1378 and opens at 1.1420 this morning.

USD: GBP/USD rallied briefly late afternoon yesterday, but gains were pared by the end of the day as market kept on selling in rallies. Apparently the market is viewing another round of quantitative easing in the UK as a real possibility.

Elsewhere both the GBP/AUD and GBP/NZD lost ground and had hit 1.5311 and 1.9119 respectively yesterday.

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