On Friday labour market statistics for the US in April were published: the level of unemployment fell by 0.1% to 5.4% and the NFP numbers grew to 223,000 from 85,000 in March. Both sets of data were a little worse than expected. The market practically didn’t flinch at release of this data and the euro/dollar pair finished the week at 1.12, having shown practically no real movement.
In the week just gone the People’s Bank of China dropped their base rate by 25 basis points: the third such reduction in the past 7 months. This became yet another measure of support for the economy which isn’t growing at a fast rate at the moment.
Today the Chinese State Administration of Foreign Exchange declared that they expect an intensification of international capital flows which will have a ripple effect on the movement of capital and on the financial state of the country. The reasons: the strengthening of the US dollar coupled with the slowing of the Chinese economy. In a report on 2014 the Administration promised to tighten control over the movement of capital with the purpose of minimalising risks for the economy.
The regulator also expects a positive balance of accounts for the country in 2015, whilst the figures for movement of capital and that of Chinese finances will show mixed movements. The Administration will strive to further diversify China’s currency reserves and to increase the profitability of investing in foreign currency. At the end of the first quarter, Chinese currency reserves stood at 3.73 trillion US dollars.
Today the European Commission is meeting and Greece and the question of the Grexit (Greek exit) is still top of the list. Athens is again trying to come to an agreement with the EU and IMF about the next tranche of financial aid which forms part of the 245 billion euro package. The German minister of finance, Wolfgang Schäuble, gave a warning about the possibility of an unexpected Greek default in an interview published on Sunday with German newspaper Frankfurter Allgemeine Sonntagszeitung. Schäuble made a statement about how the experience other countries shows that a country can unexpectedly become unable to pay its creditors.
Whilst a concrete agreement hasn’t been reached, participants admit that it’s just political bargaining. The euro is still under pressure, but the market will react to such little details.
The UK parliamentary elections have taken place and the Conservatives came out as unexpected majority holders of the House of Commons with David Cameron holding on to his position of Prime Minister. Of the 650 parliamentary seats available, the Conservatives managed to secure 330 and so avoided the need to form another coalition. Labour received only 232 seats, whilst the Liberal Democrats won only 8. The Scottish National Party had a big success, securing itself 56 seats in Westminster.
Cameron now needs to hold the referendum that he promised on the question of the UK staying in the EU. At the present time there’s no basis for speculation about the risks of the UK leaving the European Union. On the whole investors regarded the Conservatives’ victory as a positive. The pound jumped on news of the election’s outcome, reaching 1.5521 against the dollar (following which the dollar gained some of its position back).
The Bank of England convened and decided to leave the base rate unchanged at 0.5% and to keep asset purchases at 375 billion pounds. Their inflation report along with labour market data will be published on Wednesday. Other than this, the Bank of England’s Mark Carney will give a speech. Until then, don’t expect any big movements on the pound.