STERLING STAGES A RECOVERY
Inflation and retail sales numbers improved the appeal of sterling. Canadian inflation has fallen below 2%. Canadian manufacturers are finding it harder to shift product.
Sterling made back most of the previous week’s losses, rallying from $1.7650 to $1.8050. Last Monday’s starting point was to be the low of the week and it peaked above $1.81 late on Friday and again in the Far East this morning.
Sterling has done well against most currencies. Less than helpful news stories were offset by economic data which, though far from marvellous, were sometimes better than investors had hoped. Two statistics deserve particular credit. Consumer prices fell by a less than expected 0.7% in January, taking CPI inflation down from 3.1% to 3.0%. The modest decline made investors less sure of further aggressive rate cuts by the Bank of England. Friday’s retail sales figures had a similar implication. Up by 0.7% in January sales receipts were a surprising 3.6% higher on the year. These “official” retail sales data have developed a reputation for being erratic. Even the Monetary Policy Committee is wary of attaching too much importance to what it sees as potentially misleading figures. Yet the market could not ignore what looked like a decent performance by shoppers.
On Wednesday morning a rumour did the rounds alleging that Britain would lose its triple-A credit rating. That may or may not be the case but the UK is a long way back in the queue behind Italy, Ireland, Austria and goodness knows who else.
The Confederation of British Industry moaned that sterling weakness has done little to improve the export performance of British companies. How ironic that it made the complaint on the very day the minutes of February’s Monetary Policy Committee meeting came out. According to the minutes; “it appeared that UK exporters had, on average, responded to the lower level of sterling by boosting margins, rather than by cutting foreign currency prices and gaining market share.”
Inflation has not yet fallen as far in Canada as it has in Japan and the United States, where CPI has not risen at all in the year to January. Figures last week showed, however, that it is down to 1.9% and heading south faster than expected. Lower energy prices are the main influence, with petrol down to 43p a gallon, accompanied by aggressive discounting by retailers.
Also going down are manufacturing shipments, which fell in December at their fastest rate in 17 years. The slump in global demand for durable goods pulled shipments down by 8% in January after falling 6% the previous month. Transportation manufacturers shipped a sixth less in 2008 than they did in 2007. Except for a microscopic 0.1% increase in printing and related activities all of the other 20 sectors suffered a decline. It was a similar story for wholesale trade, which registered a 3.4% monthly decline. Again it was durable goods that dragged activity lower; Canadians are still buying cigarettes and food & beverage items.
Sterling/Canada continues to behave erratically. Although it has gone nowhere in the last three months its frequent ten-cent excursions make people nervous. Buyers of the Canadian dollar should hedge half of their requirement, leaving the remainder uncovered in anticipation of better levels in the future. Use a stop order to protect the downside in case of unexpected alarms.
This article is courtesy of Moneycorp : http://tinyurl.com/moneycorp