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Tuesday, 29 January 2013

Eurozone Gaining Confidence

Eurozone Gaining Confidence as Spanish Banks Ease Dependancy
Is there confusion again over Spain's banks? If so its not really new.   On one hand, the Bank of Spain said in mid-January that non-performing loans were on the increase and that more than one in nine would probably not be repaid.  On the other, the central bank said at the same time that Spanish banks were less dependent on emergency funding from the European Central Bank.  In December they borrowed €357bn, appreciably less than the €411bn they took last August. Prime Minister Mariano Rajoy is relaxed.  He is "absolutely convinced that Spanish financial institutions will not require any more funds than they were given already" because they have been subject to a "complete striptease" laying bare their financial circumstances.

The prime minister's optimism is shared, though perhaps with more caution, by investors. Since the beginning of the year they have been buying bank shares, lifting the value of Bankinter by a third and Banco Popular Espanol by a quarter. Investors are also much readier to hold Spanish bonds. Six months ago they were demanding a return of over 7% on their five-year loans to the government. Today they are content with less than 4%.

The change is symptomatic of a warmer attitude among investors towards the euro. A month ago it looked as if 2013 would turn out to be a better year for the single currency and halfway through January that is proving to be true.

Since the turn of the year the euro has strengthened by about five and a half  cents against the pound and by about four  cents against the US dollar. It has done so mostly as a result of improved sentiment.  Strange to think it was about twelve months ago when  most of the world were questioning the very survival of the single currency  with a full complement of member states. Today it feels reasonable to expect that singleness to continue, as a result of the determination of EU leaders and central bankers to do "whatever it takes" to save the euro.

Okay  so what else is happening?  

Interestingly instead, it is the pound that must face the tough questions. Even though the UK economy appears to be in better shape than Euroland, investors are not satisfied. They fear a third dip into recession. They fear the downgrade of Britain's AAA credit rating that might follow that dip. They fear the anti-Europe rhetoric in Westminster and the media. And because of those fears their appetite for sterling has faded.  Add to this the fear of further job losses in the Financial Services sector and the high street disappearing unemployment may still have  a further negative impact upon the  UK's timetable for recovery

So half the euro's performance against sterling this year is down to improved demand for the single currency; the other half is the result of investors' disenchantment with the pound. Both attitudes could change. It would be unusual if there were not some new panic in Euroland before too many months have gone by. The UK economy might pick up speed once the cold weather has passed and people are allowed to go back to work and school.

Stateside the new holiday destination of " The Fiscal Cliff" seems to have disappeared and the republicans have provided Mr Obama a little bit longer to sort out the economy and the debt ceiling which is standing around $17trillion.  Not sure how many zeros a in a trillion but its a lot. What the bet it could hit £20 trillion.  In fairness however housing, manufacturing and employment opportunities are all moving in the right way for the citizens of the USA.

The big decision if you are transferring money is timing so if you want to make more of your money and take expert guidance talk to our preferred  currency specialists. If you want to guard against rate fluctuations and get the best deal for your Sterling contact us and read our financial pages here: http://goldacreestates.com/Finance .

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