A Market State of Fear

Last week saw some of the most volatile markets we have seen since the market collapse of 2008. Many investors are preying that this week will be a little calmer. However, within the currency markets, this week will be busy with economic data pouring out of the various respective nations. The UK and US continue to scratch their heads over how to stimulate growth, whilst the eurozone is battling furiously with the continuous levels of contagion seeping through the continent. Overall I don’t think we are going to get the opportunity to relax this week and timing is everything.

Pound Sterling – UK Markets

An important week is upon us in the UK. CPI and RPI inflation figures will be released tomorrow and whilst the Bank of England has largely given up on its 2 percent target Mervyn King will be hoping that they are slightly improved. Last month the numbers came in at 4.2 percent and 5 percent respectively. A day later we will undoubtedly be reading a ‘dovish’ selection of minutes from the BoE meeting which was held two weeks ago. We are all aware of the results but the minutes themselves give a good account of the discussions that took place and the various viewpoints of individual committee members. However, with very little progress from the previous meeting don’t expect too many changes.

US Dollar – US Markets

With the US, like the UK intending to roll out a new round of quantitative easing, the pressure is on to release some fruitful data. Friday saw retail sales rise by the largest amount in four months, dampening existing fears that the US may be slipping back into recession. Figures came in at 0.5 percent in July, the best since March’s 0.8 percent increase. However, despite all this, the US remains on a tightrope with consumer confidence reportedly falling sharply. Consumers have been more careful in recent months over their spending, partly due to unemployment and rising energy and food prices. The focus remains on the Fed and going forward, the year may not be as dark as some first thought.

Euro – European Markets

After the volatility of the previous week, eurozone nations will be sweating over tomorrows second quarter GDP results. In the first quarter they came in at 0.8 percent quarter on quarter and 2.5 percent year on year. The signs are not promising either, with France reporting that economic growth was zero in the second quarter, compared with the previous three months. It appears as though the so called ‘core’ nations are being sucked in to the debt crisis which is now spreading at a rate of knots. Italy has announced a fresh round of austerity measures after Prime Minister Silvio Berlusconi called an emergency cabinet meeting. Whether the new plan is simply smoke and mirrors remains unknown. The 45 billion euro plan aims to balance Italy’s budget by 2013 by slashing public spending and jobs. Whereas the previous round of spending cuts aimed to balance the budget by 2014, this latest round of cuts are more severe and therefore the timeframe has been reduced.

Other Currencies – Highlights

The Swiss and Japanese governments have put measures in place in an attempt to stall the recent strengthening of their respective currencies. The Swiss Franc has notably fallen since Friday after it peaked against its major counterparts. Ongoing steps will be taken to help revive the export industries of the two countries. On the flip side, the South African Rand has advanced against the US Dollar for the fourth consecutive day as stocks and commodity prices rose on optimism the global recovery has shifted itself into gear. This consequently supports demand for higher-yielding assets.