Sterling Finds Its Footing, For Now
March 03, 2016
Credit Suisse have said that a fresh recession in Europe would be the straw that breaks the camel's back. A number of papers have picked up on a research note from the Swiss bank that says the continuity of the union is contingent on the current recover and, if it doesn't, they're not sure the fragile bloc could endure. They add to that the risks of an economic shift to the downside have increased, so all in all it's not too encouraging.
From the UK, staying or going is something that George Osborne wants UK business to drive. He's set to ask business leaders to drive the better together campaign. It's been announced that he'll go head to head with Boris Johnson in a debate just 48 hours before the vote takes place, which we think is a pretty brave move, especially if the Yes campaign hasn't got a firm majority ahead of the event.
Sterling saw a bit of interest in the markets yesterday, breaking above a couple of resistance levels in GBPEUR and GBPUSD, though it's still going to take an awful lot to bring it back up to levels we saw at the start of the year. Even if Sterling does make a recovery in coming weeks, there will be a point between now and the referendum that inward investment in the UK dries up as people await the outcome, so we do see any reprieve as temporary and limited until we know the outcome.
Brazil is taking some column inches this morning, after their central bank kept rates on hold at 14.25%. The central bank are pinning their hopes on declines in global growth, higher borrowing costs and the worst recession Brazil has seen in a lifetime to bring inflation back down. Currently inflation is running north of 10%. The central bank is really stuck between the most awful of rocks and hard places, with inflation that high and a recession that deep. Some commentators have said that it will be down to the IMF to intervene, supply US denominated loans at affordable rates and give the Brazilian government some breathing space to be able to implement policies and bring back some credibility.
In China; Moody's cut their sovereign credit outlook from stable to negative yesterday, the first of the major agencies to do ere was little reaction to the news, probably because it was widely expected, and stocks for the time being are higher.
Stocks in Europe aren't following suit, as the recovery rally has lost steam and we're going into today with a mixed bag of higher and lower European indexes. Data that might turn this around is Services PMI numbers from the UK and Europe, along with European retail sales. But they'll have to be good prints.
Have a great day.