IMF Seeks To Bolster The Firewall Fund: April 20, 2012

‘Please Sir, I want some more’. It didn’t work for Oliver Twist in the workhouse and as it stands it doesn’t seem to be working for Lagarde and the IMF. The firewall fund increased yesterday to EUR320bn with donations to the sum of EUR24bn from Poland and Switzerland. With the US ruled out and the UK and China tentative as whether or not they want to contribute, concern is growing as to where the funds will come from.

With further funding to Spain looking more likely to solve its housing crisis and increasing talk that Portugal will struggle to honour its 2012 debt repayments, now is not the time for the well to run dry. With meetings still scheduled for another 3 days, hopefully the right cord can be struck and we see the chequebooks come out.

More disappointing data from the US was released yesterday with jobless claims figures coming in at 386k vs 370k expected. Poor home sales figures saw the GBPUSD and EURUSD spike in the morning. Claims have increased above expectation for a consecutive week. A further increase next week will see the squeeze put on Bernanke to open QE3 talks once again. GBPUSD recovered somewhat healthy Q1 earnings from some of the Wall St. big hitters saw USD claw back during the afternoon.

European equities had another bad day on the back of pillow talk about a Portuguese bailout and potential a downgrade to French and Dutch credit ratings. The IBEX fell a further 2%, that’s over 6% in the last 2 days, with the CAC and Italian IBM all down more than 2%. GBPEUR reached a 22 month high of 1.2250.

The IMF called for Japan to ease monetary policy expressing the risks associated with Japan’s rapid deflation. As it stands Japan has the highest debt to GDP ratio of any nation, at well over 200%. The Bank of Japan has lowered interest rates to virtually nothing to facilitate short term injections into its own economy should the need arise. The concerns are that while the Japanese are keen to get inflation to under a single percent, the rapid deflation may hamper growth and devalue the JPY. The BoJ is holding a policy meeting next week to assess progress.

Data out today will see inflation figures for Canada and manufacturing data for Germany. Sales figures for the UK are out today which may go some way to giving us a taste for GDP figures next week.

The French elections get underway this weekend with voters going to the polls on Sunday. Sarkozy and Hollande are neck-and-neck according to polls, but Hollande is expected to win a run-off vote.

Have a great weekend.

Latest exchange rates at time of writing

Indicative Rates Sell Buy
GBPEUR 1.2208 1.2235
GBPUSD 1.6065 1.6087
EURUSD 1.3138 1.360
GBPJPY 131.05 131.30
GBPAUD 1.5537 1.5562
GBPNZD 1.9735 1.9765
GBPCAD 1.5960 1.5987
NZDUSD 0.8127 0.8146
GBPZAR 12.5284 12.5747
USDZAR 7.7950 7.8360
GBPPLN 5.0990 5.1253
EURJPY 107.18 107.45

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