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Home Opinion Opinion Sterlings redemption
Sterlings redemption PDF Print E-mail
Written by Gary Howes   
Friday, 04 September 2009 10:52
UK services PMI redeems the pound: But does not take it far, random outcome for Non-farm Payrolls today.


Good morning. After he parodied Damien Hirst's diamond-studded skull last year a teenage artist found himself on the wrong side of the millionaire's legal team and had his work confiscated. In an attempt to get it back he held to ransom a box of pencils which he had "borrowed" from a Hirst sculpture in Tate Britain. So far so quixotically Bohemian, but here's the rub: Scotland Yard has arrested the 17-year-old Cartrain (for that is his name) on a charge of stealing goods worth £500,000.

Considering that the Tate paid £30,000 for the installation in 1994, half a million quid for (a small) one of its (hundreds of) components sounds a bit rich. UK house prices have gone up by roughly 200% since 1994, from £52k to £154k. The Tate's £30k investment has gone up by 33,200% if the gallery's £10 million estimate of its value is correct. Now what were we saying about asset price bubbles?

Aside from the recent nervousness of the Shanghai market, equity investors did not seem unduly concerned about price bubbles yesterday. Share prices were all but unchanged in Europe and North America, as are prices in most of the Far East this morning. A continued relaxation among investors meant slight improvements for the high-yield and commodity currencies and a marginally softer yen. As with equities, the movements were relatively small. Sterling was able to claw back a little of its losses from earlier in the week, adding almost half a euro cent and three quarters of a cent. In the great scheme of things though, these upticks amounted to no more than consolidation with an upward bias.

Pound Sterling's inertia meant it failed to reap maximum advantage from a strong services sector purchasing managers' index. Britain's 54.1 reading for August was at the head of the field. Germany was a close second at 53.8, the Euro zone managed 49.9, France logged a 49.3 and the United States brought up the rear with 48.4.

The pound did gain some short-term benefit from the data but it was not enough to carry through the day. An unexpected -0.2% fall in Euro zone retail sales might have contributed to an easier tone to the euro but there was no obvious reaction at the time. Nor did the European Central Bank's predictable decision to keep its refinancing rate steady at 1% have any bearing on the price of cod. ECB President Jean-Claude Trichet said the current level of interest rates was "appropriate", which presumably explained the Governing Council's decision not to change it.

US weekly jobless numbers were broadly in line with forecast so did little to influence expectations for today's important Non-farm Payrolls figure. A loss of around -230,000 jobs is the consensus among analysts, slightly less nasty than last month's -247k. Four weeks ago the dollar acted out of character when it responded positively to a better-than-expected payrolls figure. Since then it has reverted to type, fading when the economic data show strength and rallying on any pronounced weakness. Apart from Canadian employment and Swiss inflation, the Non-farm Payrolls figure is the only game in town today so expect the market to pay close attention to it, both before and after the event. A positive reaction to a better-than-expected number cannot be predicted but nor could it a month ago. Today's outcome must therefore fall into Mr Rumsfeld's category of "known unknowns". Good luck and have a good weekend.
Last Updated ( Friday, 04 September 2009 10:56 )
 

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