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Wednesday, 30 June 2010

Strong Sterling 20 Month Highs Against Euro

Need Euros to buy that Canarian Dream Home? Halo Financials latest on the Currency Markets: Sterling continued on its path of strength early yesterday but is still buffeting very substantial resistance levels in most currency pairs. The Pound’s new found strength is partly due to fairly universal approval of the new government’s aggressive action to reduce Britain’s indebtedness and partly down to the slightly hawkish view espoused by Bank of England committee member, Andrew Sentence when he offered a more detailed explanation of his decision to vote for an interest rate rise at their last monetary policy committee meeting.

The gist of Mr Sentence’s report is that he is concerned that with UK inflation remaining stubbornly above the bank’s target, with the global recession unwinding, with the Pound being oversold and with reasonable domestic growth within the UK, the case for small incremental interest rate hikes was a solid one. He may well be right but whether the rest of the MPC is bold enough to risk the fragile recovery in the pursuit of lower inflation is an entirely different matter. Nevertheless, Euro buyers are seeing the best levels in 19 months, US Dollar buyers are getting their best levels in over two months and the Sterling - NZ Dollar and Sterling - Aussie Dollar exchange rates are back at the top of their ranges. This morning’s release of mortgage and lending data from the Bank of England may directly impact on these levels.

For its part, the Euro remains in the spotlight as the Bank of International Settlements has warned that European banks and some on the other side of the Atlantic are still on life support and have a long way to go before they are stable again. Banks in Europe and the UK are under huge pressure to bolster their balance sheets to ensure they won’t have to call on taxpayers again but that pressure is making it hard for them to set aside enough cash for loans which are essential is the economies of these countries are to grow out of recession. It does seem that taxpayers are guaranteeing the survival of banks which could and perhaps should have failed but the banks are not guaranteeing anyone else’s survival.

The queen is in Canada just days after the visit by the G20 heads and several thousand members of their entourages. All of that ought to bring some overseas earnings into Canada but Canada does really need it. Canada is one of the real success stories of the last two years of economic turmoil but the Canadian Dollar is a tad weaker than it has been of late; a tad more affordable to those who need to buy it and the Sterling - Canadian Dollar exchange rate has only been higher than the current level once since 1st March.

The British and German delagates walked away from the G20 meeting with a fair amount of pleasure that their views had been largely applauded by the rest of the delegates. That is no mean feat but it leaves the Pound in a bit of a quandary against the Euro. The UK government is actively cutting its budget to get a handle on excessive debt levels but the German government has more constraints imposed by Brussels which make it hard for Angela Merkel to cut back much more than she already has. The positive view of the UK plans are being reflected in the Pound’s new found strength but we cannot get too carried away just yet. Sterling is at the strongest level against the Euro since November 2008 but it is banging its head on several technical levels which are capping the move for now. Failure to get above €1.2320 would leave the Pound vulnerable to another downward leg which could take us all the way to roughly €1.17 without disturbing the upward trend. However, if €1.2320 breaks, then a stuttering push towards €1.25 is on the cards. There are a lot of 'Ifs' here but it is that kind of a nervous market right now.

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Wednesday, 23 June 2010

Canary Islands Jazz Festival

Canary Islands Jazz Festival

Five of the Canary Islands including Gran Canaria & Fuerteventura will stage both free and ticketed concerts this July thanks to the ‘Festival Canarias Jazz & Mas Heineken’. This is the 19th event which originated in Gran Canaria and has now expanded to include other islands. The billing is headed by Marcus Miller featuring a number of pieces from the Miles Davis album ‘Tutu’ and Dee Dee Bridgewater presenting a tribute to the Philadelphia born artist Billie Holiday. Other artists include Angelike Kidjo, Miguel Zenon, Gonzalo Rubalcaba, Frank Gambale G-Force Band and others. The festival takes place from the 9th to 18th July featuring over 38 events across five islands including Gran Canaria, La Palma, Tenerife, Lanzarote and Fuerteventura. As usual, one night will be dedicated to African Jazz, plus there will be appearances from numerous Canarian groups throughout the event. Each island has its own auditoriums and theaters plus numerous open plazas used for musical events throughout the year so expect a multitude of venues being used. ‘Sharrie Williams and the Wiseguys’ will be performing in Puerto del Rosario, and Dee Dee Bridgewater in Gran Canaria’s Teatro Cuvas. Fuerteventura’s Cabildo is also hosting a free weekend musical event on the beaches of El Cotillo on the 2nd and 3rd of July, so whatever your musical fancy this July promises to be a busy one!

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Thursday, 10 June 2010

Get Your Sterling Highs For Euro Exchange and Canary Property

Sterling appreciates against the euro to levels last seen in December 2008 Sterling’s appreciation against the euro continued last week with a new 18-month high recorded at €1.2114, whilst a higher low was seen at €1.1715.

The main releases from the UK saw the publication of the Purchasing Managers Index (PMI) figures, which are leading indicators of economic health and seen as a good barometer of the sustainability of the current recovery in markets around the world. The UK’s Manufacturing PMI maintained a 15-year high reading of 58 (above 50 is expansionary, below is a sign of contraction in activity) despite a small fall being forecast. The construction sector also continued its recent resurgence with a reading of 58.5 (which was marginally above expectations), while the services number – the most important of the three – was slightly down on expectations, but still strong at 55.4. All of this lends further credibility to the UK recovery gathering pace.
Elsewhere, the pound also gained on news that UK house prices rose to the highest levels in more than two years. The Nationwide Building Society said the average cost of a home increased 0.5% in May to the highest level since July 2008. They maintain their view that the current supply and demand balance in the market is still consistent, with relatively stable to modestly increasing prices.

The other main news of the week was the collapse of the ambitious attempt by Prudential to buy AIG's Asian arm. This prompted the unwinding of currency hedges put in place in anticipation of a deal, when the initial bid was announced back in March. AIG’s outright rejection of a reduced offer from The Pru’ put an end to the deal once and for all, with the UK insurer confirming that the deal was off on Wednesday. Sterling rose broadly on Tuesday as anticipation grew that the deal was close to collapse. The currency was still benefitting when the deal was finally taken off the table.

The euro has continued to struggle, as risk aversion at one point waned, resulting in renewed buying of riskier assets, including sterling. The recent downgrade of Spanish sovereign debt by credit ratings agency Fitch left the euro on the back foot due to ongoing structural weaknesses, particularly in the southern Mediterranean area of the eurozone.

Despite assurances from China and Kuwait that the euro’s current troubles would not affect their purchases of the single currency, rumours surfaced that Iran planned to sell some of its euro holdings as a result of the volatility. A Chinese news agency report that the Iranian central bank would sell €45bn of its foreign exchange reserves to buy dollars and gold further dented investors’ desire to hold the single currency. This adjustment to their reserve holdings was expected to be conducted in three stages, with the first tranche already underway. It was also claimed that other Gulf states had started to cut their euro holdings.
Data flows have had limited impact on the single currency in recent weeks and the same was true this time around. German retail sales and employment figures were better than forecast, whereas the Europe-wide unemployment rate remained constant. European retail sales were down 1.2% against the forecast of a small rise and revised GDP was unchanged at 0.2%. As mentioned above, this had almost no effect on the euro, with investors preoccupied with more serious matters. However, the data is not supportive of a broad-based recovery in Europe, which will be of concern to those nations about to embark on significant spending cuts that will only hinder growth further.
A more specific indicator of future growth rates was the composite European version of the Purchasing Managers Index (PMI). This showed a fall to 56.4 from 57.3 in April – although this was still above an estimated 56.2. The service sector component rose to 56.2 from 55.6, whereas the manufacturing figure declined to 55.8 from 57.6. The outlook for the region’s economy has darkened in recent months, as the threat of contagion from Greece’s fiscal crisis raises investors’ concern about the future of the euro area. While the problem has pushed the euro lower this year, making exports more competitive, governments have had to respond with tougher austerity measures to cut budget deficits. This, in turn, has dampened consumer confidence. Further alarming news from the eurozone came from an eastern European member state. Last week saw Hungary’s new Prime Minister, Viktor Orban reveal that his nation’s finances were in a “very grave situation” and that his predecessor had falsified the true state of his country’s finances.
Whilst Hungary is not the biggest economic power in the world, this news will further undermine confidence in the eurozone due to the lengthening list of nations that may need to seek emergency funding from the European Central Bank (ECB) in the future. With worsening economic conditions gripping the southern Mediterranean countries, we are already seeing great levels for euro buyers to hedge all or part of their exposure. Whether for a one-off real estate purchase or ongoing living costs, they would be wise to fix a price for half the amount of currency they are going to need. Hedging does not guarantee buying euros at the best possible price; it guarantees not buying them at the worst.

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