MARCH is going to be a defining month for the eurozone yet it’s still unclear whether the region will emerge on the other side with a spring in its step.
Since I was last in touch, there have been encouraging signs that politicians are moving closer to sealing a second bailout for Greece ahead of its crucial March 21 debt repayment deadline.
The European Central Bank has ploughed additional funds into the banks to stave off the threat of another credit crunch and Portugal has successfully passed its third financial health check by the so-called “troika” of officials from the EU, ECB, and the International Monetary Fund.
Despite this, currency experts warn we shouldn’t rest on our laurels just yet. Talk about how the mechanics of a Greek exit from the euro would work has increased – not diminished.
March will also be a key month for George Osborne, as he prepares to deliver the Budget, his toughest yet as Chancellor.
As business groups busy themselves with their annual Budget wish lists, they tell me that tweaks to policy could make a difference. They recognise that the public coffers are empty but are hopeful George will do something to reduce the regulatory burden and encourage investment in jobs, which could both boost growth.
On the monetary front, economists tell me they are slightly perplexed by the mixed messages coming out of the Bank of England. They are unsure whether it is likely to pump more stimulus into the economy through quantitative easing, following its £50bn injection last month.
As far as the immediate future is concerned, the Bank’s Monetary Policy Committee is not expected to announce more QE at its meeting this week, although some of my economist friends believe another round could come at its May meeting. I will have more to say on this in the coming weeks.
When it comes to commodities, it’s important to remember that it’s not only supply and demand that drives commodity prices – the dollar is a major factor too. That’s because commodities are priced in dollars and when the dollar falls, the price of copper, gold and even soybeans falls in other currencies.
Ben Bernanke’s comments last week that the inflation outlook was “subdued” was taken by traders as confirmation that there will be no more money printing. Gold and silver both slumped – although it looked like silver was getting ahead of itself anyway. Still, the long term trend is up and the way to play precious metals is to buy on dips.
Interestingly for gold bugs, Iran has said it will accept gold as payments for its oil (as well as other currencies).
India is in talks to take Iranian oil meaning the EU embargo after July 1 should not have too much of an effect. However, it will keep oil prices high, although the US is likely to dip into its strategic reserves to try and stop this happening.
In agriculturals, all the talk is about soybeans, the price of which has hit a 5 month high. Speculation is that the upcoming harvest could fall more than 7pc because of a drought in Brazil. Analysts tell me this would be the most dramatic yearly fall ever seen and is certainly bullish for the price.
The next few weeks are going to be interesting.
Until next time…
To give our clients a different and uniquely informed perspective on the financial markets, Capital Spreads introduces “The City Insider”, a fortnightly view from a City expert, with a senior network of influential bankers, investors, economists and analysts. The identity of the Insider is anonymous – and a closely guarded secret – in order to allow our expert to express forthright, personal views and to protect the identity of the City figures upon whose opinions the Insider draws.
by City Insider
Eurozone springs into action – but is it enough?
Mar 5, 2012 at 9:40 pm in Market Commentary by City Insider
MARCH is going to be a defining month for the eurozone yet it’s still unclear whether the region will emerge on the other side with a spring in its step.
Since I was last in touch, there have been encouraging signs that politicians are moving closer to sealing a second bailout for Greece ahead of its crucial March 21 debt repayment deadline.
The European Central Bank has ploughed additional funds into the banks to stave off the threat of another credit crunch and Portugal has successfully passed its third financial health check by the so-called “troika” of officials from the EU, ECB, and the International Monetary Fund.
Despite this, currency experts warn we shouldn’t rest on our laurels just yet. Talk about how the mechanics of a Greek exit from the euro would work has increased – not diminished.
March will also be a key month for George Osborne, as he prepares to deliver the Budget, his toughest yet as Chancellor.
As business groups busy themselves with their annual Budget wish lists, they tell me that tweaks to policy could make a difference. They recognise that the public coffers are empty but are hopeful George will do something to reduce the regulatory burden and encourage investment in jobs, which could both boost growth.
On the monetary front, economists tell me they are slightly perplexed by the mixed messages coming out of the Bank of England. They are unsure whether it is likely to pump more stimulus into the economy through quantitative easing, following its £50bn injection last month.
As far as the immediate future is concerned, the Bank’s Monetary Policy Committee is not expected to announce more QE at its meeting this week, although some of my economist friends believe another round could come at its May meeting. I will have more to say on this in the coming weeks.
When it comes to commodities, it’s important to remember that it’s not only supply and demand that drives commodity prices – the dollar is a major factor too. That’s because commodities are priced in dollars and when the dollar falls, the price of copper, gold and even soybeans falls in other currencies.
Ben Bernanke’s comments last week that the inflation outlook was “subdued” was taken by traders as confirmation that there will be no more money printing. Gold and silver both slumped – although it looked like silver was getting ahead of itself anyway. Still, the long term trend is up and the way to play precious metals is to buy on dips.
Interestingly for gold bugs, Iran has said it will accept gold as payments for its oil (as well as other currencies).
India is in talks to take Iranian oil meaning the EU embargo after July 1 should not have too much of an effect. However, it will keep oil prices high, although the US is likely to dip into its strategic reserves to try and stop this happening.
In agriculturals, all the talk is about soybeans, the price of which has hit a 5 month high. Speculation is that the upcoming harvest could fall more than 7pc because of a drought in Brazil. Analysts tell me this would be the most dramatic yearly fall ever seen and is certainly bullish for the price.
The next few weeks are going to be interesting.
Until next time…
To give our clients a different and uniquely informed perspective on the financial markets, Capital Spreads introduces “The City Insider”, a fortnightly view from a City expert, with a senior network of influential bankers, investors, economists and analysts. The identity of the Insider is anonymous – and a closely guarded secret – in order to allow our expert to express forthright, personal views and to protect the identity of the City figures upon whose opinions the Insider draws.