End Of Quarter Brings Similar Fear

The end of the 1st quarter of 2012 is upon us and the difference in mood between now and 3 months ago is not vast, despite all the banging and crashing of world markets. Equities are higher as a result of the ECB’s liquidity operations that have pumped billions into the European economy while oil is up on the continual supply concerns from Libya and Syria plus the fears that we’ll see conflict in the Middle-East as a result of the Iranian nuclear program. Other than that, we are very much in the same position.

Certainly in the currency markets we have seen very few large moves with GBPEUR remaining soporific and GBPUSD kept in place by the 1.60 level.

One thing that has changed is the focus of where the next pain point for the Eurozone will be. 3 months ago everyone was focused on Italy and now the smart money is on Spain. Yesterday saw a general strike in the country with protests against the new austerity budget due from the Spanish government that is set to cut EUR35bn. The combination of this and the unemployment statistics in the country and the continual overhang of the housing market will bring further pain for Spain in the coming years, the crucial thing will be whether markets will give them enough time. Yields rose on the Spanish 10yr to 5.5% yesterday.

The OECD gave a general warning yesterday to the UK and Europe as part of their semi-annual review of the world economy. They calculate that the German, French and Italian economies have entered a technical recession and a similar fate has befallen the UK following our further slip in output in Q4.

Earlier today we have seen a dramatic slash lower in German retail sales. After inflation, sales fell by 1.1% in February although the reaction has been muted as this was largely telegraphed by the various confidence measures we’ve seen in the past month. Even so, it spells out that even the strongest members of the Eurozone have a long road to travel.

US data was a non-event yesterday with GDP being confirmed at 3% on an annualised basis. Unfortunately, there is a very real chance that the 1st quarter may represent the strongest growth of the US economy through 2012.Dollar has weakened overnight however, as European leaders are said to be close to a deal to combine the European bailout funds after discussion at the Copenhagen meeting of European finance ministers. The meeting continues today.

As it’s the end of the month and the quarter there will be a lot of corporate buying in the wider market and shifts, this afternoon in particular, are likely to be fairly unpredictable.

Latest exchange rates at time of writing