24 Feb

Market unease continues

Pound Sterling - UK Markets

Sterling has continued to strengthen over the Euro and Yen reflecting concern over the macro-economic situation in Europe and the rapid deterioration of the Japanese economy. The Pound is currently trading at 1.13 and 138 respectively. Against the Dollar the Pound is broadly unchanged, having found support at the 1.45 level as market unease is favouring the lower risk currencies.

Alistair Darling is under fire this morning over the issue of bonuses at Northern Rock as it has emerged the state owned bank is to pay out bonuses despite losing £1.4 billion last year. Taxpayers may also become liable for up to £500 billion worth of toxic debts and bad investments after the government shouldered debts from RBS and Lloyds late last year. Although bail out conditions state banks are liable for the first 10% of their losses, the government risks weakening banks further if it is to enforce these conditions. Today is light for UK data with BBA mortgage approval figures due and markets will be interested in GDP figures out tomorrow.

US Dollar - US Markets

The US Dollar has declined against the Pound and Euro overnight as unease continues over the state of the US banking sector. The Dollar has also declined against the Australian and New Zealand Dollars as well as the South African Rand.

Wall Street shares hit a 12 year low overnight amid speculation that the US government will increase its stake in Citigroup and Bank of America. This comes after the rapid deterioration of the US economy in the last 6 months and the news triggered a wave of panic selling that drove the Dow Jones to its lowest level in 12 years. Citigroup lost 20% of its share value while Bank of America lost 50% and panic spread to Asian and European equities yesterday. The enforced nationalisation has sparked fears that further banks may fail and worried investors that the Obama administration is ill equipped to handle the financial crisis. Later this week the government will begin ‘stress testing' banks as part of the recently passed $787 billion rescue package. Head of the Federal Reserve Ben Bernanke is to testify later in the day and the Washington Post consumer confidence survey is due. 

Euro - European Markets

The Euro has rallied this morning, gaining 1.5% on the Yen and has found support at 0.88 and 1.27 against the Pound and Dollar respectively. The Euro is also stronger against most of its Asian and European currency partners.

Despite exchange rate rallies this morning, the Euro continues to be plagued by macro-economic factors which are threatening the concept of a single currency. Global recession requires a diverse range of policy responses and yesterday ECB President Trichet noted the difficulties the Eurozone is facing amid the global downturn. European stocks opened lower this morning, shadowing losses throughout US and Asian equities. The EMU current account deficit fell to -€7.3 billion reflecting falling demand for imports in the Eurozone. The German IFO survey has shown business confidence has plunged to a record low of 82.6 in February. This is the lowest level since records began in 1991 and marks a 0.7 point decline from January. The IFO survey is regarded as significant as it takes into account 7000 businesses in the Eurozone's largest economy and is seen as a crucial indicator of Eurozone economic sentiment. Swiss unemployment figures this morning are unchanged for February, showing unemployment sitting at 3.96 million. This led the Swiss Franc to strengthen over the Euro. Industrial orders are released today. 

Other Currencies - Highlights

Asian equities have fallen sharply following declines in Wall Street, driving  Japan's Nikkei Index down 1.46%. The Japanese stock market has reached 26 year lows recently and Japan's finance minister has revealed the government would consider buying shares to support stocks. The Yen is facing threats to its safe haven status as it continues to weaken and with interest rates are currently at 0.1%, officials have a limited capacity for policy response.

Mining giant Anglo-American is to cut 9,000 jobs across South Africa, South America and Australia. This is in addition to 10,000 jobs already cut in South Africa after global downturn has reduced commodity demand from developing nations. The South African economy is heavily commodity based and declining prices have affected the value of the Rand. Canadian retail sales released yesterday were down 5.4% on the month, illustrating the steepest decline in 15 years largely on the back of lower automobile sales.