Friday October 7, 2005 - 11:33:33 GMT
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Black Swan Capital - www.blackswantrading.com
British Pound vulnerable?
•Key reports due today (Global-View.com):
05:00 GMT- JPN Aug Leading Business Index
05:45 GMT- CH- Sep Unemployment
10:00 GMT- GER- Aug Ind Prod
11:00 GMT/8:00 EST- CDA- Aug employment
12:30/8:30 EST GMT- US- Sept Employment:
Non-Farm Payrolls: vs. +169,000 in Aug, see -170,000
Unemployment Rate: vs. 4.9% in Aug, see 5.0%
19:00 GMT- US- Aug Consumer Credit
“What deflation is, is falling prices precipitated by a credit contraction—by the inability or unwillingness of lenders to lend and borrowers to borrow…But, for now, a superabundance of money and credit is financing a leap in asset prices across markets and time zones.”
Jim Grant, Grant’s Interest Rate Observer
We noticed this comment about the British economy by Anatole Kaletsky, economics editor of The Times, in his piece, “Opposed by four powerful headwinds, the economy staggers towards trouble” [our emphasis]:
“The British economy today is struggling against four powerful headwinds: an oil shock, a downturn in the global business cycle, a decline of consumer confidence linked to high interest rates and weak housing, and a loss of control by the Treasury over Britain’s public finance. And these headwind forces are likely to intensify, rather than weaken, in the year ahead.”
Bingo! A great summary of where the US economy is likely to be very soon, if not already there. But because the UK is ahead of the curve, does it make the pound more vulnerable going forward? If Mr. Kaletsky’s suggestion the Bank of England may need to prune interest rates back to 3.5% next year proves prescient, one would expect the pound to react badly relative to the rest of the pack. Especially against growing economies such as Japan—which could likely hike interest rates sooner rather than later, we think.
Below is a chart of GBPJPY Weekly. The pair peaked in March ’04 just above a standard retracement level (62%) based on the high in ’98 and low in ’00. Not sure if this tells us anything, but it is probably worth monitoring from time to time.
Chart: GBPJPY Weekly
On another note, we see US payrolls for September today at 8:30 a.m. EST/GMT 12:30. Be careful out there and have a great weekend.
Black Swan Capital
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