Rational FX: China reports further inflation pressures [13/12/2010]

Friday’s Market Movers

• Over the weekend the world’s factory, China has reported further inflation pressures from increasing industrial production and as a result food and diesel prices rising. By flooding the economy with money, and banks lending they have caused more money to be circulated into the economy and hence prices to rise, however they are rising much more than the authorities would want and the only way to reduce this will be to increase production and supplies and raising interest rates. They have also increased the requirement for banks to hold 18.5% of their money, and not lend it.

• In the Euro Zone we had French industrial output falling unexpectedly to -0.8%. However, the poor figure was as a result of the protests over President Sarkozy’s increase of the retirement age in October. Analysts’ expect the figure to be higher next month as factories had time to retool and restock after the protests ended in October.

• According to UK PPI Output, prices at the factory gate have increased albeit at a slower pace than last month, this will no doubt give some members at the BoE an argument to raise interest rates.

• After a relatively quiet morning The big figure this Friday was the US Trade Balance which fell slightly more than expected off the back of weaker demand for industrial and petroleum products.

• University of Michigan consumer confidence data which smashed analysts hopes of a smaller improvement and came in at 74.2, which prompted the big 3 investment  banks, JP Morgan, Goldman’s and Barclays to expect up to 20% growth on the US stock markets next year . The dollar firmed up half a cent against the Pound in the aftermath of trading.

• However, later in the day, data signalled that the US government had spent more money than they earned, they overspent by $150 Billion, which allowed sterling to reign back some of the gains that were lost earlier

Today’s Market Movers

• House prices pose a tricky question, there are more than several different measures, and the Rightmove HPI showed a 3.2% decline last month and is expecting prices to rise in the latest release.

• PPI input, a key figure as it gives those in the BoE to talk about raising interest rates and is bullish for sterling is released at 9.30am, this will also be the precursor to the Deputy Governor speech at 11.30am who will indicate what the thoughts are on monetary policy at the BoE.

• Later on while New Work trading was in full swing, the ECB president, Trichet will come out and make a statement and no doubt will be giving clues on monetary policy and support for the Euro Zone bonds

• Finally, traders will be looking at the Treasury Currency Report for clues on any changes to exchange rate policies or any more threats from China’s Yuan on the US economy, and other currency manipulators.

We wish you a very nice day.

The RationalFX Team