Daily Market Report 25/06/2013

On another day with very limited economic data, we saw the US dollar strengthen to three week highs against most of its counterparts at the start of the day before swiftly losing grounds as the afternoon progressed.

The early gains in the US dollar can be explained by concerns over liquidity in China after their central bank appeared to suggest that they would not intervene should the rate at which banks borrow from each other rise. The news spooked markets as world stock markets continued to be sold off (a month after reaching record highs) and yields on 10 year government bonds from Europe, the UK and the US all rose substantially. As a result investors sought out safe haven assets.

With regards to the continued speculation of the Fed tapering their QE program, two Federal Reserve presidents commented that monetary policy will remain accommodative even after tapering of the program happens. Richard Fisher, president of the Federal Bank of Dallas and Narayana Kocherlakota, president of the Federal Bank of Minneapolis both agreed that a complete exit from QE would not be appropriate under current conditions. Both also played down the actions of investors following Bernanke’s comments last week, stating “the market reaction so far is not a cause for concern”.

Germany released some mixed data as business expectations improved from 101.6 to 102.5 in May but current assessment fell from 110 to 109.4. More worryingly for the euro zone however will be the seven year prison sentence given to Silvio Berlusconi. The decision will raise fresh concerns other Italy’s coalition government as Berlusconi’s party could well withdraw their support for Prime Minister Enrico Letta.

The Indian rupee continued to weaken against the pound as the threat of tapering of QE in the US has raised fears that it may signal the end of cheap money, critical to funding India’s current account deficit.

Looking ahead to today the US will come under strong focus as fundamental data is set to suggest that consumer confidence rose, house prices and durable goods orders all rose in May. Positive data is also due for release from the UK as a rise from 32,200 to 33,100 is expected with regards to BBA mortgage approvals.

Key Announcements:

9.30am – GBP – BBA Mortgage Approvals (May): Expected to improve to 33,100.

11.00am – GBP – CBI Distributive Trades Survey (Jun): Expected to improve to -1.

13.30pm – USD – Durable Goods Orders (May): Expected to come in at 3%.

14.00pm – USD – Housing Price Index (May): Expected to come in at 1.2%.

15.00pm – USD – Consumer Confidence (Jun): Expected to improve to 76.6.

15.00pm – USD – New Home Sales (May): Expected to increase to 460,000.