| Lloyds Banking impacting the sterling |
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| Written by Gary Howes | |
| Thursday, 08 October 2009 10:29 | |
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By Mark Deans at MoneyCorp Good morning. Not everyone would enjoy the job of Italian prime minister but, for a certain sort of chap, the perks used to make it worth it. You could evade tax, bribe businessmen to boost your own media group and chortle about your appetite for teenage call girls, all without recrimination. That situation may be about to change if the Italian constitutional court has its way. It has ruled that Il Duce is not above the law, even though he changed it to make it so. The teenage call girls are still fair game but bribery and tax evasion are out. Tax evasion is less of an issue for Lloyds Banking Group (LON:LLOY) for all sorts of reasons. One of those is that the holding company of Taxman plc is Lloyds Banking Group's majority shareholder, with a 43.5% stake. It is interesting, then, to see that Lloyds Banking Group is going for a rights issue of between £15 billion and £25 billion (according to which newspaper you read). That means the government will have to fork out between £6.5 billion and £11 billion if its holding is not to be diluted. Reports have it that the government is going along with the proposal and one must assume the Bank of England is also relaxed about it. In a leap of faith let us therefore argue that a successful rights issue will be good for the sterling. If Lloyds Banking Group can whistle up that sort of cash it will not be short of a bob or two. Other - less rickety - banks will presumably also have access to fresh capital if they want it. The Bank of England will therefore not feel obliged to extend its quantitative easing programme once it has lobbed out the £12 billion that remains in the kitty. Investors will thus have one less reason to be hostile to the sterling. The Monetary Policy Committee finishes its monthly meeting today and it will issue a statement saying the Bank Rate is staying at 0.5% for another month. After the September meeting the press release said the Asset Purchase Facility would "take another two months to complete" and that "the scale of the programme will be kept under review". Will that go down to one month today and will the programme still be under review? The European Central Bank also concludes its monetary policy meeting at lunchtime. It too is confidently expected to leave its policy Refinancing Rate unchanged at 1%. The ECB does not just issue a statement when it makes no change to policy. Its president hosts a press conference at which journalists try to persuade him to come out with a market-moving sound bite. M Trichet normally manages to avoid falling into the trap and will probably do likewise today unless he has something important to communicate. Other than those two rate announcements the only significant European news will be Germany's industrial production figures for August. It is inconceivable that they will be as bad as the -2.5% reported by Britain on Tuesday; an increase of +1.5% or more is forecast. US weekly jobless claims and wholesale inventories and Canadian housing starts will be no more than mildly interesting. The only ecostat to move a currency today will probably turn out to have been the Australian employment data which came out overnight. With more than 40,000 new jobs and a fall in the unemployment rate from 5.8% to 5.7% that data prompted investors to look for the next rate increase to come sooner rather than later. The Aussie dollar jumped a cent higher on the news. So once again Sterling's safety lies in the hands of the Old Lady. Let's hope she doesn't fumble it this time. 
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| Last Updated ( Tuesday, 13 October 2009 07:58 ) |