Will they, won’t they?
That is the question on investors’ lips at the moment regarding the US debt ceiling. As the days tick down and we near the deadline, markets still expect something will give and crisis will be averted. But there’s always that niggling doubt and until we have action and a lifting of the ceiling, gains for riskier assets will remain meagre.
Yesterday’s GDP data was encouraging only in the respect that growth for the UK wasn’t negative. The number was well below the OBR’s estimate for the year and so they will have to come in line much to George Osborne’s dislike. Over the last few months estimates for GDP have gradually been revised downwards but as yet there’s no sign of the dreaded negative growth we saw back in Q4 2010. The encouraging aspect of yesterday’s figure was the service sector contribution, which will need reaffirming in the subsequent releases because this first release only includes one month’s worth of service sector data. This means that following on from the Japanese earthquake, the late Easter and the extra bank holiday for the Royal Wedding services have rebounded well. So much so that even the ONS said GDP would have come in at around 0.7% if it hadn’t been for these one off circumstances. Bottom line is though, the UK is finding it hard to grow after seeing tax increases from not only the Coalition, but the previous Labour government too.
As uncertainty continues to reign across the markets the FTSE is a little worse off this morning trading just above the 5900 level. The tight trading ranges of the past few days could continue into today and one thing for certain is that until US politicians come to some sort of agreement on the debt ceiling, we are unlikely to see any big gains for equity markets.
The major economic data comes in the form of durable goods orders from the US, which are due to drop and then later on there’s the Federal Reserve’s Beige Book. This will be closely watched to see whether any regions are seeing any affect from the slowing US economy which has clearly started to take a turn for the worse judging by the softer economic data releases in recent weeks.
The dollar seems to be holding up just about OK this morning but has been subject to quite a bit of weakness in the past few days. In the FX markets it’s been the real safe haven currencies that have benefited the most throughout this extra ordinary time for financial markets, with the Swiss Franc being one of the most popular amongst them. Against the US dollar it has hit a new high this morning and the same can be said for the euro and sterling. When you think that the Japanese and many other emerging markets have been complaining about the weakness of the US dollar against their currencies, the Swissy is making new all time highs against just about every other currency out there. It must be crippling their exports and not only that, driving tourists away from holidaying there.
In other FX markets it’s a bit of a mixed bag with sterling just having the edge on the euro, adding to the small gain it made yesterday following the UK GDP data. GBP/EUR is at 1.1320 meanwhile cable is at 1.6400 and EUR/USD is at 1.4480.
Can you believe it? Gold has hit another all time high this morning. The yellow metal is now at 1624 and it would seem the sky is the limit. It continues to be propped up by the US debt issue, so if we see an resolution there could possibly be a little snap back and even a move back towards 1600.
Oil inventories today might give crude markets a bit of kick which over the last few days have been rather boring to say the least. Brent has oscillated around the $118 mark and we’ve not seen any great volatility like we have seen in other markets.
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