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4 Mar 2013
Fundamental Afternoon Wrap: Europe and UK in focus as global flash points dim
A slow afternoon for institutional research shows that the Euro and the Pound have fallen in focus, with much attention being put on the pending central bank meetings this Friday. Opinion seems to be split on what action will be taken, if any, while Japanese and US issues look to have been swept under the carpet for the afternoon at least.
EUR/USD
Brown Brothers Harriman analysts note that for most countries the service sector PMI surveys will likely confirm what the market already knows, outside of Germany, Europe is struggling. Further they add that there doesn´t seem to be any sign that the contraction in most countries is stabilising. They also feel that the upcoming ECB meeting will attract attention following increased chatter of a rate cut, however they remain more sanguine. Geoffrey Yu and Gareth Barry of UBS comment that despite the difficult political situation in Italy, investors arereacting with more calm compared to post-elections in Greece last year. They write, “The ECB has stronger tools for markets to contend with, and the economic outlook has improved for now, albeit from very low levels and expectations. As such, we believe positioning is quite favourable.”
TD Securities analysts note that the Euro has been a middle of the pack performer since the start of the week, with consolidation the clearest theme without any significant catalysts over the weekend. They see that the broader trend remains bearish but for the week ahead they feel it may be prudent to wait for Thursdays ECB meeting before taking action.
GBP/USD
Brown Brothers Harriman analysts note that in the UK, BoE Governor King wanted to resume Gilt purchases last month and was outvoted, which puts this months vote in particular focus. Since the economic climate has deteriorated and with the impact of the Funding for Lending scheme appearing to wane, more MPC members seem sympathetic. Phillip Rush of Nomura notes that there is little evidence that the Funding for Lending scheme is imparting much stimulus and he doesn´t believe that it can do, while in the present of strict regulatory pressure to deleverage. Nor is it tying sufficient funding to Bank rate for a cut to be worthwhile. He writes, “Increasingly repressive policies are being brought up, but softer communication changes are likely to come first.” Geoffrey Yu and Gareth Barry of UBS note that GBP remains heavily short but not outsized by historical proportions. they suspect that some shorts are in play due to suspicion of a pending rate cut or an increase in asset purchases.
EUR/USD
Brown Brothers Harriman analysts note that for most countries the service sector PMI surveys will likely confirm what the market already knows, outside of Germany, Europe is struggling. Further they add that there doesn´t seem to be any sign that the contraction in most countries is stabilising. They also feel that the upcoming ECB meeting will attract attention following increased chatter of a rate cut, however they remain more sanguine. Geoffrey Yu and Gareth Barry of UBS comment that despite the difficult political situation in Italy, investors arereacting with more calm compared to post-elections in Greece last year. They write, “The ECB has stronger tools for markets to contend with, and the economic outlook has improved for now, albeit from very low levels and expectations. As such, we believe positioning is quite favourable.”
TD Securities analysts note that the Euro has been a middle of the pack performer since the start of the week, with consolidation the clearest theme without any significant catalysts over the weekend. They see that the broader trend remains bearish but for the week ahead they feel it may be prudent to wait for Thursdays ECB meeting before taking action.
GBP/USD
Brown Brothers Harriman analysts note that in the UK, BoE Governor King wanted to resume Gilt purchases last month and was outvoted, which puts this months vote in particular focus. Since the economic climate has deteriorated and with the impact of the Funding for Lending scheme appearing to wane, more MPC members seem sympathetic. Phillip Rush of Nomura notes that there is little evidence that the Funding for Lending scheme is imparting much stimulus and he doesn´t believe that it can do, while in the present of strict regulatory pressure to deleverage. Nor is it tying sufficient funding to Bank rate for a cut to be worthwhile. He writes, “Increasingly repressive policies are being brought up, but softer communication changes are likely to come first.” Geoffrey Yu and Gareth Barry of UBS note that GBP remains heavily short but not outsized by historical proportions. they suspect that some shorts are in play due to suspicion of a pending rate cut or an increase in asset purchases.