I am sitting in a Hotel in Central Birmingham ahead of tomorrow’s fantastic Trading Day and wanted to comment on the Chancellor’s statement in the UK and some thoughts ahead of tomorrow’s big payroll numbers in the US.
Chancellor George Osbourne delivered his Autumn Statement today off the back of some recent positive economic releases that have lead to some markedly increased growth forecasts going forward. He did the expected round the edges political stuff like increasing the threshold before an individual pays income tax and some help for business to take on younger employees and that is welcome but for me the real story lies in the forecasts of better growth and lower debt. The UK Gilt market will love the reduction in debt but of course be wary of increasing growth and potential for inflation. The initial reaction has been for Sterling to pullback against the Euro and a little against the Greenback.
I think this pullback will continue and give the levels I am looking for to go LONG Sterling at 0.8400 short Euro, 162.75 short Yen and 1.6175 short US$. The story looks good for the Pound in 2014 with the pressure on for a rate increase much sooner than previously reckoned. Keep a close eye on those crosses and wait for the pullbacks as some long £ positions get shaken out possibly next week.
The NFP numbers from the US are an interesting conundrum after last month’s unexpectedly strong showing especially after the Government shutdown. Todays remarkably strong Growth figures for the quarter has been put down to an increase in the inventories held by businesses in US like Cars and not had a huge impact but ask yourself why would companies be building their stocks up if they do not expect to sell those goods? To me the NFP numbers tomorrow could be another strong number after seeing this and anything above 200k would be sensational as 180k is expected.
So what to expect? I think that a strong number will lead to a sell off in the US stockmarket with expectations of QE3 being tapered very soon, maybe even this month back on. This will lead to a pullback in Yen weakness as seen a little in last few days with US/JPY back down to perhaps 100.50 from 101.80 having gotten to 103.30. A weak number will see the Stockmarket move higher and the opposite effect on US/JPY. The Euro is somehow defying logic and remaining strong and I have to believe that next year the ECB will try to weaken as this will help exports (great for Germany) and import some inflation which they are concerned about, as for now I am neutral on the Euro except against £ as stated earlier.
So I am waiting for the right levels and expect the market to pull back soon and grasp those opportunities when they occur.
I hope you all have a great Trading day tomorrow and look forward to seeing those who come to Birmingham and to those not here good luck too and maybe see you at the next one