– CBI sees Bank Rate at 2.75% next year
– China promises support for Euroland
Good morning. The age of austerity is apparently turning us into thieves. For years supermarkets have protected their merchandise with security tags, especially the attractive items that can be stuffed into a pocket or under a jacket. DVDs and expensive drinks have been typical items for treatment. That is about to change. A survey by security firm G4S (Group4/Securicor) has found that 14% of Britons are tempted steal from shops because they are feeling the economic pinch. The response of supermarket chains has been to attach security tags to a wider variety of stock. To be on the safe side, some are even tagging the very largest of food items, turkeys. They don’t want to see them flying off the shelves.
But many retailers have the opposite concern. They are worried that the winter weather will seriously damage their pre-Christmas trade. Some clothes retailers have already reduced the prices of slow-moving items by half in an attempt to attract trade. The Independent reports that analysts at HSBC reckon that “based on the experience of previous bad weather episodes in recent decades, £3 billion could be lost in output. Other estimates range as high as £13bn – £500 per family”. That’s a lot of turkeys.
Even before the bad weather hit, the Confederation of British Industry had made a downward revision to its economic forecasts for next year. It now sees growth of just 0.2% in the first quarter, speeding up to 0.4% in Q2. On the plus side for sterling, the CBI also thinks interest rates will begin to move higher in the middle of 2011. It believes the Bank Rate will be up to 2.75% by this time next year. The CBI’s forecast is at odds with Bloomberg’s survey; the consensus of 43 economists was that rates would be steady at 0.5% until October and the Bank Rate would be 0.75% at year end.
Few economists are brave enough to stick their necks out with a prediction of where euro interest rates will end 2011. The last thing Greece and Ireland need at the moment is a hike in their borrowing costs. If the European Central Bank is tempted to up the interest rate ante it will increase the pressure on them – and maybe others – to consider their continued attachment to the euro. Pimco, a big American bond fund manager, believes the weaker brethren will be unable to bring their economies back to life as long as they are constrained by the straitjacket of Euroland discipline. Andrew Bosomworth, head of Pimco portfolio management in Europe, told Die Welt that “Greece, Ireland and Portugal cannot get back on their feet without either their own currency or large transfer payments”. He recommends they step outside the euro temporarily and rejoin “after an appropriate debt restructuring”.
It was all interesting stuff but investors were largely unmoved, as were many of the major currencies. The pound, the euro, the yen and the US dollar start in London within less than half a cent of Monday’s opening levels. The antipodean dollars are a cent stronger, helped by strong commodity prices and by investor risk-appetite that continues to push equity markets higher. The Loonie is down by a cent because Canadian wholesale sales stalled in October and as a result of nervousness about today’s retail sales figures. The Swiss franc has continued to delight in Euroland misery, touching an all-time high against the single European currency.
Early this morning the euro did receive a bit of a leg up when Chinese vice premier Wang Qishan said his country was taking “concrete action” to help the EU with its debt problems. Whether this means China filling her boots with downgraded Irish and Greek government bonds is open to doubt but the psychological boost was welcome. At the least it is likely to mean a heavier weighting for Euroland debt in China’s sovereign wealth funds.
Scheduled events today began with the Bank of Japan’s announcement that it would stick with its 0.1% policy interest rate for another month and Gfk’s UK consumer confidence index which was unchanged at -21. Gfk was also in the frame with the German consumer confidence index; it inched down from 5.5 to 5.4, failing to match predictions of a rise to 5.7. Switzerland’s trade surplus was fractionally narrower in November at SFr1.9 billion after SFr2.0 billion in October.
Next on the list is UK public sector net borrowing. The forecast is for a £16.8 billion shortfall, bigger than October’s £9.8 billion as a result of seasonal factors. The Canadian inflation data at lunchtime will be of less importance than the retail sales numbers an hour and a half later. Analysts predict a 0.5% sales increase for October; investors seem to be bracing themselves for a lower number.
The two live possibilities are therefore UK PSNBR and Canadian retail sales. Both could have an impact on their respective currencies if they are unexpectedly off-target. There is also likely to be further debate about the euro after the statements from China and Pimco. Whether that will turn into action is less certain. With the FX market doing no more than tick over in preparation for the Christmas break investors will need serious provocation if they are to roll up their sleeves and get things moving.
