- Deal on nuclear project lessens sanctions on gold, oil
- German IFO moves higher following strong surveys
- UK GDP and Japanese inflation keys this week
News from Switzerland over the weekend around an accord to limit and monitor Iran’s nuclear programme has put markets in a good mood this Monday morning with haven currencies the eventual losers. The deal allows sanctions on Iran around the import and trade of oil, gold, and other precious metals as well as car parts to be lessened – a freeing up of trade that should allow inflows of USD and gold in exchange for the country’s vast oil potential.
It will be interesting to see how Israeli shekel performs today following the Israeli government criticising the deal as ‘unacceptable’. For now, most crosses are largely quiet.
Friday was also a rather slow day with a quiet data calendar not helping matters. Germany’s IFO business sentiment survey hit 109.3 in November, beating expectations of 107.7 and reaching an 18-month high. October’s figure had seen the first decline in 6 months but both the assessments of the current situation and the future were both higher in November.
Divergence between the IFO and ZEW is not rare, but certainly not common, but we are moved to agree with the more positive IFO figure following recent industrial figures and PMI surveys. Euro was given a little backbone on Friday by the number but no rallies were seen in the thin trading conditions.
The weakness of the Japanese yen in recent sessions, helped by the goodwill spurred by the Iran deal, has seen Japanese stocks hit close to year-to-date records overnight. Japanese exporters were the main beneficiaries, as they have been since the Abe government’s plan to weaken the yen was launched just over 12 months ago.
This Friday’s inflation data from Japan could show a level of CPI that has not been seen in Japan since November 2008; the market is looking for an increase of 0.9% on the month. The 2% target has still got 17 months to be fulfilled but we remain sceptical without further easing from the Bank of Japan – something that may take place in the aftermath of any Federal Reserve stimulus reductions.
Sterling’s strength has continued in the aftermath of last week’s Inflation Report. Most indicators point to a continued and strong recovery in the UK but we still believe that the markets are too aggressive on when the first rate hike is coming; the 7% threshold on unemployment is a nice line in the sand but we can’t see a rate rise until unemployment comes to down to somewhere near 6.7%.
UK data comes in the form of tomorrow’s 2nd assessment of GDP – within which we will be able to see the first breakdown of the component parts. Exports are set to fall following the recent increase in sterling and the flaring up of European issues once again.