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The money markets update

It is a more long term political view today.

GBP £

No important data for the UK yesterday and with no data today the preliminary Quarter 1 GDP figure out tomorrow will be the first piece of significant data this week. This data is expected to the UK economy contracted by 0.3 percent, which follows a poor growth figure for the `last quarter of just 0.1 percent.

Should this figure show a flat or positive return we could see a real run on Sterling, this isn’t expected though, and the potential for a worse than predicted figure remains. Lending to small businesses remains weak, according to the Bank of England, which is a key threat to growth. Sterling has managed to remain in a position of relative strength, it seems that this mainly comes from a lack of interest in European investment and it remains to be seen if the UK can maintain this in flow of investment.

USD $

In the US there is data showing new home sales released at 15:00 which is expected to show a weaker figure at 313,000 against the previous 322,000. Consumer confidence is expected to remain particularly strong at 70.2, a 0.1 percent rise. However, most of this data will be overlooked as markets wait for the Fed rate release at 17:30.

With commodity currencies losing investment and a slight deterioration in risk appetite the US currency managed to pull back some of the losses suffered, however, this hasn’t lasted and it looks as the Dollar is set to test recent levels of support.

EUR €

Eurozone figures released yesterday were much weaker than anticipated. PMI figures release showed French manufacturing data was down 0.1 percent from forecast at 47.3, Eurozone PMI down 3.6 percent on forecast at 46.4 and more worryingly, German PMI was flat at 46.0, 3.1 percent lower than expected. The German figure is particularly bad as the faltering nations and, in a small part, the rest of the world is relying on German performance to drag the Eurozone into a position of growth. Politics and economics have never made for a harmonious relationship and this is now being tested in a way that could be potentially damaging to the recovery.

The most worrying aspect of the current political environment is not the potential attrition rate of the current incumbents but the choice of alternatives. We have seen the far left party in Greece gain a majority support to the lead way for the polls in France to show a huge amount of support for the National Front. The favourite in France, however, is the Socialist choice, Fancoise Hollande. He has built a whole campaign on nationalism, standing up to Germany and insisting that growth, not austerity, be the aim of any agreements made in the Eurozone. This has been such a popular opinion in France that Sarkozy, who up until now has been loyal to Chancellor Merkel, has pledged to do the same should he be voted back in at the second round of votes.

All this has built up to a collapse in the Dutch government and the powerful far right party making difficult for any further cooperation with the Eurozone. This shows a huge public shift toward Euro-scepticism and is a threat to the 25 man treaty signed to ensure tougher controls for Europe.

This is very important to the future of the Eurozone and news of the Dutch government resignation led to a selloff in UK, Eurozone and US stocks. A clearer picture will be painted following election results in the above mentioned nations, until then, there could be a high level of volatility in the markets.

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