Saving The Euro - Part 20

Rob's 20th guest post on Saving the Euro.

Market Indicates...


Well irrespective of what Merkozy or Nick Clegg says about Cameron's decision the markets have stirred a little and are beginning to express their views – foreign exchange wise at least.

Euro/$ is finally going down – trading at 1.3175.

GBP/Euro – possible a better indicator of what they think – is slowly creeping up to 1.1825 – the strongest it has been for about the last 9 months.

In the polls, Joe Public has expressed support for his actions – always a good sign, and something that the markets do take in to consideration.

However, we have a long way to go before we see whether or not it was indeed the right decision.

I personally think that he was right to use the veto as the "Tobin" tax for example would have been incredibly unfair – the UK would have ended up paying around 35% of the total amount forecast. Also, unless it was a "global" tax it simply wouldn't have worked in the long run – even if only one country had opted out, the markets are highly mobile and would have simply re-located to that country to avoid paying the tax.

The UK may now actually be in a stronger position from being on the "outside" of the Euro Zone Plus group, especially if they want to use institutions formed in the EU, so the terms isolated and marginalised may be a little too dramatic, but that is the press for you.

I think that we are now in "wait and see" mode – being December, many operations have scaled down their trading volumes, and if a head of steam does build up, it won't take much to really move the markets.

The key level for Euro/$ is 1.30, and for GBP/Euro 1.20 – if they are broken we could be off to the races in a big way.


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The author, Rob (not his real name), works in one of UK's largest charities.

Saving The Euro - Part 19

Rob's 19th guest post on Saving the Euro.

Was Cameron Right?


Firstly, I must say that I think that he did the only thing that he could to protect the UK's unique position in the financial markets.

Nothing different to the French attitude about agriculture, which they have protected from day 1 as it is a massive money spinner for them.

Will the "Euro zone plus" concept work, well "the proof of the pudding is in the eating" as they say?

The UK is not as isolated or vulnerable as some may think – still a couple of other countries not on the Merkozy train yet – and also it puts them in an interestingly strong bargaining position.

To push a number of directives through, the "Euro zone plus" group wants to use a number of EU organisations to monitor and enforce the dictates that will come out of the discussions in the coming days/weeks, but these organisations are financed by all 27 EU members including the UK and the other hold outs, and they have the right to veto their being used.

If the "Euro zone plus" group decide to introduce the "Tobin" tax within their countries, that may well convince more banks etc. to relocate their HQ's to London where the tax will not be introduced, thereby further strengthening London's position as the key financial centre.

What did the market think of this?

Bizarrely, once again we have a key summit which didn't go to plan and nothing whatsoever happened in the markets – stocks and currencies all ticking over as if it was a normal Xmas market – very quiet, very low turnover and volatility.

Having been a currency trader for more years than I care to remember, this is starting to freak me out a bit – I have never seen the FX markets in particular so relaxed about things.

I keep having to ask myself is it really this quiet, or have I missed something – is there pressure building up under the surface that I cannot see, and is it suddenly going to erupt in to a chaotic frenzy of trading?

Perhaps it is all a dream and I will suddenly wake up to the sound of frantic dealing, and markets spiralling out of control……..or perhaps not.

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The author, Rob (not his real name), works in one of UK's largest charities.

Saving The Euro - Part 18

Rob's 18th guest post on Saving the Euro.

Missed Messages

The last week in the markets has been very interesting from a spectators view point.

Stock markets have rallied strongly – led by the banks – with Merkozy (that mutant being that has been created from the merging of Merkel and Sarkozy to become the voice of Europe) deciding for all the other nations in the Euro zone that they will become a more integrated fiscal, and by extension, political body. To do this they want to re-write the "Treaty" – a treaty is defined as "a formal agreement between two or more states in reference to peace, alliance, commerce".

Lovely sound bite, but how will they accomplish this – they effectively want to take away certain sovereign rights to manage a country's own economy, finances etc. and have them monitored and controlled by one central body?

I am not sure if that is covered by the term treaty, as if there is a substantial transfer of powers to Brussels, a number of EU members, including the UK, may have recourse to a referendum, and in the current climate of austerity, I think that there could be a chance that it won't get ratified at national levels.

In the UK, Cameron is definitely running scared, and is desperately sending out the message that any adjustments to the treaty will not be substantial and no more powers will be surrendered to Brussels, but that seems at odds with the comments from Merkozy outlining plans to re-write the whole thing, even if only for the core 17 members of the Euro zone itself.

As the old saying goes, "the devil is in the detail", and there is very little of that to be seen so far.

The stock market rally has eased off this morning – I admit that it could be short term profit taking, but FTSE really struggled yesterday to break 5,600, and is now slightly down on yesterday's high at 5.560.

My big concern is that the currency markets are singularly unimpressed.

Euro/$ is down at 1.3350 from last week's high of 1.3520.

GBP/$ is trading at 1.5600 from last week's highs of around 1.5750.

A small market fact that may bring this in to perspective – if you add up the total turnover in the global stock markets for one whole year, what does that equate to in global foreign exchange turnover?

1. 17 days
2. 34 days
3. 68 days
4. 136 days
5. 272 days
6. 544 days

The correct answer is just 17 days (a slightly old statistic, but it has not changed much in the interim).

So am I overly worried about what the stock market thinks?

A little perhaps, but not as much as I am worried about the Forex market – if you cannot get the currency traders on board, and they don't like what they see, read or hear, you are going to have one massive uphill struggle to make this plan succeed before they decide to tear the Euro apart.

As an example of the uncertainty within the market at the moment, ICAP – possibly the largest Forex broker in the world – has already been discussing with its clients (banks mainly) how to reintroduce the Greek Drachma in to the trading loop, and major Irish institutions have been told to come up with a contingency plan to cover themselves in the event that the Euro implodes.

S&P announced yesterday that 15 of the 17 Euro zone members were at risk of losing their top credit rating, especially if the Merkozy plan went through, as further integration would dilute their individual capital ratios.

Merkozy has come up with a plan, but there is a mountain to be climbed before it can be agreed, plus it needs more time to see if it then actually works.

I have said this before, traders hate uncertainty, and the longer they have to wait for results etc. the greater the chance is that they will simply get bored, fed up, whatever and choose the easy option.

The easy option is to sell every Euro they can lay their hands on – buy hard currencies like US$, Yen, Swiss Francs and even GBP, and keep selling until the Euro buckles and implodes – governments have very short memories, and forget that the Forex markets have an impressive track record of ignoring what governments might like or want, and simply forcing through change by sheer pressure.

Will be fun to see what the Year End brings.


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The author, Rob (not his real name), works in one of UK's largest charities.

Saving The Euro - Part 17

Rob's 17th guest post on Saving the Euro.

Last Point Answered

There has obviously been a lot of behind the scenes discussion between non-Euro governments resulting in the announcement today that their Central Banks will facilitate access to non-Euro funding.

The Federal Reserve in the USA has also made it a lot cheaper for other Central banks to "buy" US$.

Result:

Stock markets have jumped between 3 and 4% - FTSE back over 5,500.

On the FX markets the US$ has weakened in line with the announcement and Euro/$ has risen to 1.35, and GBP/$ has jumped to 1.5750.

Is this the start of a global co-ordinated plan to rescue Europe, and by extension the global economy?

As I said below, I couldn't understand the "markets" reaction to recent events, but this would explain a lot – the markets are pretty incestuous and such negotiations between governments don't stay secret for long.

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The author, Rob (not his real name), works in one of UK's largest charities.

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