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Good afternoon, it seems that every day this week has been either building up to important results or the results themselves. Yesterday was surrounded with rumour and conjecture that the European Bank stress tests were coming out early, not so. So all eyes are on this afternoon when the results will officially come out. There has been a lot speculation on what the results might be and whether the tests will actually produce meaningful data. Travalex, Moneycorp, TorFX, and Currencies Direct provide the market highlights today.
Market introduction by Stuart May
Travalex
The pound and the euro were the main victors in yesterday’s trading, clawing back some of the losses suffered against the dollar. The pound was boosted by stronger than expected retail sales data, chiefly attributed to the strong sales of electrical goods after the World Cup.
Similarly the euro was supported by strong PMI data and Euro Zone confidence data which revealed that an index of Euro Zone consumer sentiment rose to minus 14.1in July, from minus 17.3 in June. This represented a far better figure than the forecast of minus 17.
A wave of safe haven buying on Wednesday evening after a low key assessment of the US economy by the Federal Reserve saw the dollar initially strengthen. However this subsided as the positive date from the UK and Europe enticed investors back into riskier appetites, ultimately costing the dollar the majority of its previous night’s gains.
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Moneycorp
EU bank stress test results due out
- But will they explain the criteria?
Two days ago there was a story that German mortgage lender Hypo Real Estate would need new capital. Now it seems that some of the 27 Spanish banks - small, local-government-
But there is another bone of contention. In principle, when the CEBS publishes the results at teatime today it will include details of the tests' criteria. Some investors worry that those details will be too sketchy. In particular, they worry that there will be no test of banks' exposure to sovereign debt. But let's look on the bright side as well: When the US authorities ran similar tests last year they published the metrics they had used. During the following six months US bank stocks went up by a third. If the EU results are just as comprehensively reported they might have equally as positive an effect.
In the meantime there is the whole of Friday to get through. The picture yesterday was generally positive for risk and negative for the US dollar and yen. Provisional euro zone and German purchasing managers' indices all came in better than expected, as did the 3.8% monthly rise in Euroland industrial orders and the three-point improvement in consumer confidence. UK retail sales beat the forecast with 0.7% increase in June.
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TorFX
The Pound rallied by the most in a week against the U.S Dollar, while the UK currency also traded back towards 1.19 versus the Euro, amid reports from the Office of National Statistics, which showed that UK retail sales rose more than expected in June. Sales rose 0.7% on the month, reducing concern that the economy might suffer a "double-dip"
The rise in sales may be exaggerated due to the World Cup in June and good weather but nonetheless the report shows that the UK economic recovery is still gathering momentum. The preliminary estimates of UK gross domestic product in the second quarter will be released this morning and economists are predicting growth of 0.6%, double the final estimate for the first three months of the year.
The Pound has rallied 0.8% versus the U.S Dollar, as UK stocks continued to advance following reports in Europe that services and manufacturing growth unexpectedly accelerated in July. The Euro has rallied 8% against the Dollar from the lowest level in four years last month, as investors became more optimistic that the struggling peripheral nations in the Euro-zone will be in a position to finance their own debt, after the ECB embarked on a policy to buy bonds.
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Currencies Direct
Strong GDP Lends Support To The Pound
Sterling advanced yesterday as stronger than expected retail sales data helped ease fears over a double dip recession in the UK. The headline number came in at 0.7% month on month against expectations for a 0.5% increase. These figures provided some good news about the state of the UK economy, following recent disappointing housing and public finances data. Q2 GDP data was released moments ago and provided another boost for Sterling with a 1.1% QoQ rise, the highest figure since Q1 2006.
The markets appear to be getting Very Stressed over this afternoon's publication of the financial resilience of the 91 largest Eurozone banks. The Committee of European Banking Supervisors (CEBS) will release the results of the testing ‘on an aggregated basis' at 5.00pm this afternoon. Immediately afterwards, the banks and/or their national supervisory authorities will release the individual results and at 5.30pm, the CEBS will release a summary of results, bank-by-bank, sorted by country. Basically, all the data will be released after close of business in Europe and the UK leaving just the US Friday afternoon market to deal with any surprises.
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