- UK house prices fall at slowest rate in 18 months. RICS house price balance -44 in May from -59 in April
- US Treasury to announce it will let 10 US banks buy back government shares
- German April trade surplus s.a. 9.0 bln euros vs 8.9 bln in March, lower than median forecast of 9.4 bln. Exports -4.8% m/m, imports -5.8% m/m
- Latvia FinMin says devaluing currency “absolutely out of the question”
- Bank of France survey sees Q-2 GDP -0.5% q/q (previous forecast -0.6%)
- Bank of France industry business sentiment index at 81 in May vs 75 in April, better than median forecast of 77
- French April trade deficit -3.79 bln euros, better than median forecast of -4.5 bln
- ECB’s Liikanen: Sees no rapid global economic recovery. Operability of global financial system still very limited. Risk that credit losses will erode financial institutions’ standing, ability to lend
- BOE’s Tucker: Business surveys have improved a bit, but medium-term outlook highly uncertain. Will take until late autumn at least to have any kind of handle on recovery outlook
- Swiss KOF institute cuts Swiss growth forecasts; 2009 to -3.3% from -2.4%, 2010 to -0.6% from -0.3%
- ECB’s Papademos: Economic activity in euro area to remain weak in remainder of year, high degree of uncertainty surrounding outlook
- German April industry output -1.9% m/m, much weaker than median forecast of small +0.1% rise
Busy morning. Game of two halves. First half saw heightened risk appetite, with likes of euro, sterling, aussie, canadian dollar posting decent gains. Sentiment was bolstered by reports the US Treasury is to announce it will let 10 US banks buy back government shares.
EUR/USD started out around 1.3860 and rallied to a session high 1.3963. A steadier backdrop in the Baltics and better than expected French business sentiment were among factors also supporting the euro. Sources reported decent sell orders lying in wait up at 1.3970/80.
Then came about a fairly marked reversal of fortunes. A source noted that long EUR calls/$ puts in 6m-1yr were reportedly being liquidated by a client of a US commercial bank. Indeed other sources did note a big US commercial bank selling from around the highs on downwards.
There was also a run of rather downbeat official coments from the likes of ECB’s Liikanen and Papademos, BOE’s Tucker (see above) and the KOF institute downgrading swiss growth forecasts, which wouldn’t have helped sentiment and would have supported the dollar.
The USD would also have garnered some marginal support from comments from the Chinese Vice Foreign Minister who opined “no one is talking about dumping the dollar.”
Finally the coup de grace came in the form of much worse than expected German industrial output data (see above) and we’re currently down at 1.3875, marginally firmer on the day.
Cable started around 1.6000 and rallied strongly all the way to a session high 1.6177. Sterling benefitted from the general improved risk appetite. Also the apparent survival of PM Brown and improved housing data (see RICS above) lent support.
There was also speculation that sterling was being boosted by positive M&A flows eminating from the proposed sale of Barclay’s fund business for $12-13 bln in cash and stock to Blackrock Inc of the US. Cable is off a little from the earlier high, presently at 1.6130.