A quiet day’s trading yesterday ahead of key interest rate announcements later on in the week from the Bank of England and European Central Bank.
The British Chambers of Commerce (BCC) reported that the UK faces a fragile economic recovery and the Markit/CIPS Construction Purchasing Managers’ Index (PMI) for the UK came in at a stronger than expected 56.4, fractionally weaker than February’s eight month high of 56.5 but higher than the consensus forecast of 54.8.
Crude oil prices hit their highest levels since September 2008 on the back of supply fears with Brent crude rising to over $119 a barrel as unrest in the Middle East and North Africa triggered concern that supplies could be dented while economic growth bolsters demand. This dented demand for the dollar’s ‘safe haven’ status.
The euro continues to trade close to 5 month high’s against both the pound and US dollar as the markets focus on the ECB announcement on Thursday. If the ECB do raise rates by 0.25% to 1.25% as anticipated, it will be the first interest rate rise in the G3 in nearly 3 years.
German news magazine Der Spiegel reported that the International Monetary Fund (IMF) is “privately pushing” Greece to quickly restructure its debts. The magazine said that high-level representatives from the IMF have pushed for a restructuring in recent talks with Greek delegates as its debt burden is now equal to around 150% of the nation’s gross domestic product and Credit ratings firm Mood’s has cut Portugal’s credit rating again. It downgraded Portugal’s long-term government bond ratings by one level to Baa1 from A3, keeping the rating under review for another possible downgrade and suggested the odds on Portugal requiring a bailout have risen to 40%. The gap between Portuguese and German borrowing costs surged to 522 basis points, the highest closing level since the start of the euro.
The Australian dollar hit a new 29 year high yesterday as commodity and equity markets remain buoyant. Meanwhile, the Australian Treasury reported on February’s twin natural disasters anticipating that it will cost its economy $9 billion, a substantial increase on the earlier estimate of $5.6 billion. Treasurer Wayne Swan said the biggest impact will be felt by the country’s resources and agriculture sectors.
Increasing demand for its resources from emerging economies has sustained an expansion of the Australian economy in recent years. As the floods and cyclone hit Australia’s resource rich states, the impact on the overall economy is likely to be significant. Mr Swan said the disasters will cut Australia’s GDP by 0.5% in the financial year ending 30 June. The Royal Bank of Australia left its key lending rate unchanged at 4.75% in response.
Commentary by Tony Redondo
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