In Brief
Sentiment toward the euro has improved following successful bond auctions by Spain and Italy.
ECB President Trichet has raised the possibility of increasing EU interest rates – further boosting optimism.
In the UK the December PPI figures (measuring the price of goods produced by manufacturers) have jumped – boosting sterling.
Chinese President Hu Jintao is scheduled to meet Barack Obama in Washington next week.
EU
Good morning! The euro has spiked to 0.8439 against sterling in the last 24 hours following a series of positive events in Europe.
First off: Spain and Italy sold €9 billion in debt to the markets on Thursday during some important bond auctions. Both nations faced higher borrowing costs – Spain paid 4.5% on its bonds compared to 3.6% last time for instance, meaning the markets required added assurance from Spain to buy the bonds. But the auctions have nonetheless been received well, and sparked hopes that neither Spain nor Italy will request ECB (European Central Bank) bailouts in 2011.
Furthermore the President of the ECB Jean-Claude Trichet told journalists on Thursday that he might raise euro zone interest rates above 1.0% (the present rate) to combat rising inflation. This has been received well because higher interest rates spark higher returns for investors in EU bonds, meaning the markets could flock to the euro zone. President Trichet’s announcement caused the euro to jump against the US dollar especially – rising to 1.3456 – owing to low interest rates in the States.
Finally in the euro zone today, the German CPI (Consumer Price Index) increased to 1.7% in December 2010 compared to 1.5% twelve months earlier. The CPI measures the price of German goods and services, and a higher rating is thought positive for the German economy. Hence the news has also been received well on the markets.
GB
In the UK meanwhile, the chances of a double dip recession have hit 20% according to a new report from the CEBR (Centre for Economics and Business Research.) This is owing both to the increase in VAT to 20% from 17.5% and the subsequent rise in inflation this causes. Inflation is predicted to increase 1.2% on the back of the VAT increase alone.
It’s not all bad news for Britain this morning though. The PPI (Producer Price Index) numbers for December have jumped 4.2% meaning good news for sterling. The PPI measures the price change in the goods produced by manufacturers, and thereby the price charged to consumers in the shops. Hence higher numbers tend to be bad for shoppers – but good for the pound.
US
This morning the upcoming meeting between US President Barack Obama and Chinese President Hu Jintao is dominating the US landscape. The US feels that China is playing dirty on the financial markets at the moment – for instance intentionally devaluing the yuan (the Chinese currency) to increase Chinese exports and steal business from the US. Hence the meeting (starting next week) could have a strong impact on the US dollar.
Today meanwhile the US retail sales figures for December are released. If these increase it means that shoppers are spending more in the US, and indicates strong consumer confidence.
Coming Up
The US retail sales numbers will occupy the attention of the markets this afternoon. In addition US industrial production figures for December are released later on too.
By Peter Lavelle with specialist money transfer service Pure FX.