– Estonia to join the single currency tonight
– Greece offers Estonia its place
Good morning. Nobody was particularly surprised to see that for a second successive year the new year honours list included no knighthoods for bankers. And few will be amazed that a lot of people are clueless about using a web browser. The word “facebook” accounted for 3.5% of all searches on Google during 2010. That’s a huge number of folks who cannot type “facebook” in the title bar and press Ctrl+Enter.
Another of the year-end non-surprises is Estonia’s determination to climb aboard the waterlogged ship that is the euro. Having pegged its currency, the kroon, to the Deutsche Mark in 1992 at a rate of eight-for-one Estonia has spent 18 years working up to this moment. Trifling matters such the risk of a euro breakup are not going to deter them now. Residents anticipate that tomorrow’s changeover will result in higher prices as retailers round up their offerings. But at least the adoption of the euro will not result in the asset inflation that has killed Ireland’s pig. Interest rates in Estonia are already very close to those in Euroland. The outgoing one-month TALIBOR (Tallinn interbank offered rate) ended yesterday at 0.92% with the one-year rate at 1.76%. The equivalent Euribor (Euro zone interbank offered rates*) were 0.79% and 1.514% for those periods. The minor adjustment implicit in convergence is hardly going to spark a property bubble, especially as the country has already had one; it started in 2001 and burst in 2007. So no worries there.
But there are still worries about Britain’s property bubble and its protracted deflation. News that the UK Land Registry logged a -0.6% fall for the average house price in November provided yet another reminder that house price inflation is not what it used to be. Bank of England figures showing a net repayment of £6.1 billion of mortgage debt during the third quarter just rubbed salt into the wounds. People are not borrowing against their real estate, partly because the banks are reluctant to lend and partly because they no longer see it as the easy option. Sterling had another rocky day, to some extent because of the housing market news but also as a result of what was probably a big selling order in a thin market. Against almost everything the pound’s opening price in London turned out to be the high of the day. Its cent and a half loss against the euro was typical.
And now for the surprise. Nationwide announced this morning, deus ex machina, that its index went up by 0.4% between November and December, leaving house prices “essentially unchanged for the full year 2010” (actually they were up by 0.4%). Nationwide admits “it would be premature to suggest that the recent downward trend has been broken on the basis of one month’s figures”. However, “the December figures do underscore the fact the current downtrend is only very modest, particularly when seen in comparison to the second half of 2008. During this period, the three month rate of change dropped to as low as -5.5%. “Today’s equivalent figure for the three-month on three-month rate of change, which smoothes out the volatility of the monthly numbers, was -1.0%, up from -1.3% in November.
It would be an exaggeration to describe investors as euphoric about the news but sterling has reacted positively, adding quarter of a cent against the euro and the US dollar in the hour following the announcement. Sterling faces no further scheduled statistical challenges between now and the end of the year and it is possible that yesterday’s negativity will correct itself today.
The relative steadiness wishfully predicted yesterday morning clearly failed to materialise because some clot decided to rattle sterling’s cage. He or she may fancy another crack at it today so don’t get too carried away with the Nationwide’s glad tidings. In the dog days between Christmas and the new year it is important not to get sucked into random moves. The pound might or might not get a kicking in January but the dips on Tuesday and Thursday are not proof that it will.
Make sure any payment instructions go off in good time this morning. Have an enjoyable evening and remember to stand well clear after lighting the blue touch paper – especially when accommodating a strong drink or three. And from all of us at Moneycorp, our best wishes to you for a happy, prosperous and recession-free new year.
* “Euribor® is the rate at which Euro interbank term deposits are offered by one prime bank to another prime bank within the EMU zone, and is published at 11:00 a.m. (CET) for spot value (T+2)”