Greek coalition deal still possible

- Will it lead to Greece leaving the euro?
- Or could Berlin soften its stance?
Good morning. There were some extraordinary victories at the weekend. Manchester City stole the premier league title with a last-second goal. German Chancellor Angela Merkel suffered a drubbing at regional elections in Nordrhein-Westfalen in what was seen as a protest against austerity. Chillingly, in the annual contest to find Britain’s most talented individual, the TV audience voted for a dog.

In Greece the Syriza party is hoping Greek voters can be persuaded to do the same if, as expected, there is a general election re-run on 17 June. Alexis Tsipras, Syriza’s leader, has rejected every effort to form a government of national unity. If he could emerge with the largest number of seats next time around he would have the mandate he wants to renegotiate the terms of Greece’s bailout.

In the last week, market sentiment has been squarely aligned with an assumption that an anti-austerity government in Greece would lead inevitably to the cessation of bailout payments, a consequent sovereign default and either secession or expulsion from the single currency. But could the game be changing?

Popular appetite for austerity has never been strong and that unpopularity is now turning to antipathy. Thus far, Chancellor Merkel was able to force through her Fiscal Compact and the austerity that went with it. The collaboration of President Sarkozy was an important plank of her support. Now however, with François Hollande in the French driving seat and voters turning against her at home, the chancellor might perhaps soften her uncompromising insistence on balanced budgets.

Were she to do so, it would not be impossible to imagine a Syriza-led government in Greece doing the impossible; renegotiating the terms of the bailout and keeping the country in the single currency. Such an outcome would pull the euro back from the brink and further postpone the day of reckoning. It would be pointless in the long run of course. Greece would still be saddled with impossible debts and shrinking output. But the longer a breakup can be put off, the more chance there is of preventing it becoming a catastrophe.

Needless to say it was Athenian politics, not UK and US producer prices, that dominated financial markets on Friday. The only data to stand out were those for Canadian employment. The 58.2k net increase in payrolls was more than eight times as many as forecast and the Loonie reacted by jumping a cent higher against sterling.

Today began with a -1.5% quarterly fall in New Zealand retail sales and a 0.3% monthly increase in Australian home loans. German wholesale prices were up by 2.4% in the year to April. There is precious little left on the card, just Swiss producer and import prices and Euroland industrial production.

And of course the last-gasp efforts of the Greek president to whip his MPs into line and form a government. At this point it looks as though he will fail, so expect an announcement about the election re-run. That would leave a month for all the protagonists – and the electorate – to reassess their positions. Brussels will be banking on voters behaving more responsibly next time around. After all, most of them apparently want to stay in the euro. But Britons voted for a dog on Saturday night and Greeks might do the same on 17 June.

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Sterling remains at long-term highs

- Markets continue to ignore UK GDP news
- GBP nudging 22-month high against EUR

With rockets on London rooftops and nuclear submarines patrolling the Thames the government is certainly taking Olympic Games security seriously. It remains to be seen whether the expenditure will propel the UK economy back into growth (or indeed whether it will need to; the second quarter cannot yet be written off). But investors seem unconcerned with whatever happened in Q4 2011 and Q1 2012, at least if their appetite for the pound is anything to go by. Since last Wednesday’s announcement that the UK had returned to technical recession, sterling has strengthened against the US dollar, the euro and the Swiss franc.

There was more of that on Friday, with the pound moving a cent higher against the US dollar and creeping ahead against the euro, the franc and the Canadian dollar. It was steady against the Japanese yen and lost ground to the antipodean dollars.

As investors had all but ignored last week’s UK GDP data, so they paid little attention to the far better US figures on Friday. Output increased by an annualised – and preliminary – 2.2% in Q1, equivalent to quarterly growth of 0.5% and fractionally less than the 2.5%/0.6% predicted by analysts. Investors liked the increase in personal consumption but were less taken by the rise in inventories.

One worry is that the US economy is not growing strongly enough to compensate for the downturn in Europe. Bank of Canada Governor Mark Carney enunciated this concern on Friday. He said in an interview that “Europe is the biggest external risk… It takes the other half of my time that I don’t spend on Canada; if it’s not derivatives and financial reform, it’s on working on European issues.”

Today began with a week’s worth of Australian and New Zealand data. The NZ trade surplus shrank in March, building permits leapt by a fifth and business confidence improved. In Australia new home sales were down by -9.4 and private sector credit went up by 0.4%. Lurking amongst those numbers was a -0.9% annual fall for Hometrack’s UK house price index.

Germany opened the batting for Euroland with a 0.8% monthly rise in retail sales. Next in the pipeline is money supply and eurozone inflation. After lunch Canada reports on industrial product and raw material prices (PPI output/input) and GDP for February. The United States rounds off the London session with personal income and spending figures. Tonight the Reserve Bank of Australia is confidently expected to lower its Cash Rate benchmark from 4.25% to 4%, a move that ought to have been fully discounted by now.

Sterling began in the Far East this morning looking buoyant. Against the euro it touched its highest level since June 2010. Since then the sellers have moved in to take advantage of a 22-month high, just in case. Although the pound is still pointing higher, would-be buyers of the euro should at least consider getting some on board at these levels, just in case.

April Newsletter

MONEYCORP UPDATE

How high can oil go?

Not too much change in the rates over the past month. Sterling did push above 1.60, we saw the Loonie pushed above parity and the Euro continues to suffer as concerns turn from Greece to Spain. The only real mover was, in fact, the Real; losing almost 10 cents against the US Dollar. Economic sentiment in the UK is downbeat after the lowest UK spending figure since 1977; maybe everyone is holding their cash to try and buy those coveted tickets for the Olympics which start in less than 100 days. The major concern felt in every nation centers around oil prices. Why are prices continually soaring – surely OPEC can increase output? Well, not for the moment and until they do, it looks like the main mover, upwards, will indeed be oil.

For more click here to listen to the ‘Monthly Kernel’
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MONEYCORP NEWS
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Meet the Florida Team

We have had a number of new people join the Florida team recently! Check out the Florida Team on our You Tube channel

MONEYCORP TESTIMONIALS
Did you know we now open client accounts from our office in Florida? Sarah Wilkinson, who is originally from the UK, now manages the entire account opening process from our US Headquarters in Orlando. Read what our clients have to say about Sarah…

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MONEYCORP EVENTS
Moneycorp named the first ever Royal Sponsor of the British-American Business Council in Miami, Florida

It is with great pleasure that I am able to announce that Moneycorp is now the official Royal Sponsor of the British-American Business Council (BABC) in Miami.

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Sterling/euro at a crux

- ECB could buy more bonds
- SNB floor likely to be tested

Good morning. The Ernst & Young ITEM Club (Independent Treasury Economic Model) has announced its assessment for the UK economy this year. It reckons gross domestic product will grow by a “dismal” 0.4% in 2012, half the 0.8% forecast by the Office for Budget Responsibility. But never fear: UK house prices are buoyant. Following its monthly visit to La-La Land, estate agents’ website Rightmove declared an all-time high for house prices. The average in May was £243,737, up by 0.5% from the previous record set in May 2008. Rightmove defends the relevance of its index by pointing out an 11.5% increase in consumer prices since then, “meaning that national average asking prices are still down in real terms by 9.9% over the period.” So buy now; you know it makes sense.

If only sterling had fared so well. The Bank of England’s trade-weighted index is 12.5% down from its position in May 2008. The pound is 19.8% lower against the US dollar and 27.4% weaker against the Australian one. Sterling is up by 16.2% against the benighted Polish Zloty but against every major currency it has fallen in the last four years.

Viewed through Rightmove’s spectacles the pound’s situation looks less bleak. It is only 5% down from its May 2008 level against the euro and 20% up from its low at the end of that year. If it can hold onto its current position and end the week above €1.2127, the pound will have broken above its five-year moving average. Should it have the legs to make it above €1.24, sterling/euro will be at its highest level since November 2008 (though still three cents short of its position at the beginning of May that year).

However, to repeat the caveat discussed here last week, upward progress will not come easily for the pound. Buyers of the euro – especially regular buyers – will be aware that only in half a dozen of the last 175 weeks were they able to sell sterling above current levels. Whether or not it might go higher in the future, they would be gutted if sterling were to fall back and they had wasted today’s opportunity. Until that overhang of supply has been exhausted it will be tough going for sterling.

Nevertheless, investors seem to have fallen for the spoof house price index and, unless there is something weird about tomorrow’s inflation numbers, there are no UK statistics to get in sterling’s way until Wednesday’s employment data. Nor is there anything on the immediate agenda guaranteed to improve sentiment towards the euro. Conceivably, an announcement this afternoon that the European Central Bank had bought more Spanish government bonds could reassure investors, but equally it could rub in the point that there are no other buyers around.

Today’s list of ecostats covers Euroland’s balance of trade, Canadian and US international investment flows, US retail sales, the New York Fed’s manufacturing index and the US NAHB housing market index. The US retail sales number might make a difference; the others probably won’t. The currencies to watch are the Chinese yuan, which now has a greater range of movement against the US dollar, and the euro – particularly against the Swiss franc and the British pound.

Plenty of noise; little action

- US payrolls disappoint
- Upward pressure on franc tests SNB resolve

Good morning. Britain’s chancellor is reported to have been “shocked” to hear that the country’s top earners minimise their tax obligations. It was Her Majesty’s Revenue and Customs that woke Mr Osborne up to the situation at the end of last week and, according to Whitehall insiders, the poor chap was visibly traumatised by the astonishing revelation.

There was slightly less agitation on Friday afternoon when the US Bureau of Labor published its monthly employment figures. Non-farm payrolls rose by only 120k in March, little more than half the expected number. A 13k upward revision to February’s number went some way to mitigating the damage but investors were still left to worry that the US recovery might be running out of steam.

Investors reacted by selling the US dollar and most of the commodity-related currencies. The New Zealand dollar somehow avoided taking that particular hit but was less fortunate this morning when both the antipodeans fell on news of an unexpected trade surplus for China in March. Chinese exports went up and imports were down. The figure confirmed anecdotal reports that fewer ships are leaving Australian ports en route for China these days.

The only other big event over the Easter weekend – and it was really more of a non-event – was upward pressure on the franc that threatened the Swiss National Bank’s self-imposed floor of 1.20 for EUR/CHF. The push began on Thursday, 24 hours after concern had begun to re-emerge about the viability of Spanish government bonds. The SNB appears to have had to step in at least twice to hold down its currency and the market does not seem to be unduly worried by its pledge to buy unlimited amounts of francs. The perception is that the Swiss currency has only one way to go against the euro: The SNB might be able to hold it back but there is no way it can send it lower.

With all that excitement it would have been reasonable to look for interesting moves over the weekend. Indeed there were some, but the net changes from eight o’clock on Thursday to this morning’s opening levels in London are relatively modest. Sterling has moved a couple of dozen ticks higher against the US, Australian and Canadian dollars and the Swiss franc. It has fallen by one yen and 25 New Zealand cents.

Most interesting is sterling’s position against the euro, where it came within a dozen ticks of the January high yesterday and went for another look early this morning. Back in mid-December the pound broke above its four-year (weekly) moving average; right now it is threatening the five-year moving average. As technical signals go, this is not one of the most compelling but an upward break could give sterling the momentum to test the high of June 2010, which is only two and a half cents distant. History teaches that the pound is more likely to retreat from here than to advance, if only because there will be a queue to sell pounds at a 19-month high. But that does not rule out the idea of a higher GBP/EUR. There are no UK ecostats to get in its way today or tomorrow.

A Place in the Sun overseas property exhibition in London – March 2012

We just returned from A Place in the Sun, overseas property exhibition at Earls Court in London and had a fabulous show, the market is really gaining some momentum now. If you would like to see the photo album of the show, the Florida Pavilion, and the Moneycorp champagne reception, please click here and like us on facebook while you are there please!

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The Sony Ericsson event with the British American Business Council Miami

Fabulous Friday evening at the Sony Ericsson in Miami with the British American Business Council

watching Rafael Nadal, Venus Williams, and enjoying great company! Thanks for having us!

Currency Updates, Expat Seminars, and the On-Going Greece Saga!

Friday saw the euro fall, Sterling scratch higher and the US dollar strengthen. Today should be somewhat quiet, enjoy your Monday!

Don’t forget our free British Expat seminar on March 14th at the Sarasota Yacht Club

Florida Brits- Join us for a free seminar on March 14th “Maximizing Your Financial Future”