Canadian money
Monetary policy continues to relax. UK purchasing managers are more upbeat than most. US banks are not going bust just yet. Upbeat Canadian employments figures helped the Loonie even before they were officially released.Sterling edged lower against the Canadian dollar, falling two cents from $1.77 over the shortened week. The high on Wednesday came at $1.78 and Friday’s low was $1.74. When London opened this morning the pound was trading just short of $1.75.
For financial markets in general the week was typified by a further relaxation of monetary policy and an improvement in investor sentiment. Although it was not a matter of cause and effect the two did go hand in hand. Central banks in Norway, Iceland, the Czech republic, Britain and Euroland were among those who either lowered policy interest rates or extended the scope of their quantitative easing. Equity markets were mostly upbeat, a mood underwritten by the results of the “stress tests” that the US Treasury had insisted be undertaken by America’s biggest banks.
Hard economic data were relatively few and far between, even from those economies that usually churn them out by the dozen. In Britain’s case the two that mattered were came from the Nationwide building society and the Chartered Institute of Purchasing and Supply. Nationwide reported a rise in its index of consumer confidence. The April reading went up from 42 to 50, the largest monthly rise in nearly two years. It did not exactly represent an outburst of exuberance among consumers: The index would have to almost double from its present level before the nation could be labelled “optimistic” but it was a worthwhile improvement nevertheless.
The CIPS’s services sector Purchasing Managers’ Index, similarly, was not good enough to be described as positive but it was better than most of the opposition. The headline figure went up three points to 48.7, eclipsing comparable measures from the United States (43.7), Germany (43.8), France (46.5), Italy (42.0) and the Euro zone as a whole (43.8). One should not get carried away with a figure that is still negative – below the 50.0 breakeven level – but it is clear that things are getting worse much more slowly.
The Bank of England’s decision to dip into its kitty to buy more gilts was not helpful to the pound. The government initially approved a pot of £150 billion for the Bank to spend on supporting the gilt market. The first £75 billion will be exhausted next month. When the Bank let it be known that it would spend a further £50 billion on buying gilts the market did not like the idea. The background suspicion is that the gilts bought by the Old Lady will never again see the light of day; in other words, that the government is printing money to lend to itself.
For all sorts of reasons the highlight among the week’s Canadian data was Friday’s employment numbers. Instead of falling by 50,000, employment went up by 36,000 in April. Instead of rising to 8.3% as predicted by analysts the unemployment rate remained steady at 8.0%. The excitement lay not entirely in the numbers themselves but in the market’s reaction, which came more than half an hour before the data were officially published. As with many other important statistics around the world, Statistics Canada gives selected journalists an hour or so ahead of the announcement to put together their commentaries. The suspicion on Friday was that one of them, or one of the staff in Ottawa, managed to leak the news before it was due for release.
The Canadian dollar is one of three “commodity dollars” that tend to move higher when investors are optimistic. It does not have the pulling power of the Aussie dollar’s 3% yield or the Kiwi’s 2.5% but it follows the same general track as its antipodean cousins. Last week’s optimism helped it along but the mood can change at the drop of a hat. Buyers of the Canadian dollar can therefore stick with the tried and tested strategy of hedging half their exposure. Those requiring absolute price certainty should, as usual, cover the whole amount.
Posting courtesy of TTT Moneycorp
