EURO fever has finally gripped Portugal, my friends in Lisbon told me as I holidayed in the capital last week.
“Everyone is talking about it,” said one with a smile on his face. “We have Cristiano Ronaldo … what can possibly go wrong?”
He was talking about the European Championship football finals of course – a sure sign that the Portuguese have not lost their sense of humour. They’re going to need it over the next few weeks as fears over Greece and Spain spread to Lisbon and Rome.
Portugal is always going to be vulnerable because it has already been bailed out. My economist friends tell me they expect Portugal to return for a second helping.
A break-up of the single currency remains a real possibility these days with the constant stream of downbeat economic data setting the agenda.
Barring Greece – where exit from the euro and a return to the drachma could ultimately be decided at a second election on June 17 – much of the unwanted attention in recent weeks has focused on Spain and its crisis-ridden banking system.
I am told that speculation about a Spanish bailout and imminent action from the European Central Bank to prop up the eurozone’s banks is growing by the day. One point of note is that despite all the chaos and economic destruction in the eurozone, the region as a whole narrowly avoided a return to recession in the first quarter, against expectation (and only because of German growth). Much will become clearer after the Greek election.
In contrast, Britain is even deeper in recession than initially thought, with the economy shrinking 0.3pc in the first quarter. Economists tell me they expect the economy to remain in recession in the second quarter, making the prospect of more quantitative easing from the Bank of England more likely. But while Britain is in a double-dip where the eurozone is not, the Government here is benefiting from record low borrowing costs. As my economist chums tell me, this is partly because Britain is considered a safe haven during the current chaos, despite zero growth.
Amid escalating fears about the prospects for the global economy, the way to make money in commodities this year has been to go short. The question now is whether prices have found a floor.
There are two main reasons for the fall – the rising dollar as investors flee to safety form the euro crisis, and waning demand in China. Chinese imports of refined copper fell for the second consecutive month in April, hitting an eight-month low. Copper is regarded as the most economically sensitive commodity because of its wide range of uses in construction and manufacturing. Iron ore imports also fell last month, but imports of bauxite, used to make aluminium, and nickel oxide, increased.
In order for this to be reversed, we need to see an improvement in demand in China, (which may be some time off) or a decision by the US to engage in more asset purchases – or QE3. The jury is still out on whether QE3 will happen.
However, should a “Grexit” happen, it is likely that central banks over the world would inject liquidity into the system to prevent a collapse. This is why many of my trader pals in the City think that equities and commodities will rally – possibly briefly – if Greece returns to a devalued drachma.
The oil price has been weak because of a slow outlook for demand, and ample supplies. The price is not likely to rise much, but a plunge in prices won’t happen either while brinkmanship over Iran’s nuclear programme is taking place.
That’s all for now, I’m off on the Jubilee Flotilla this weekend so keep an eye out for me. I’ll be sure to give you a wave.
Until next time.
To give our clients a different and uniquely informed perspective on the financial markets, Capital Spreads introduces “The City Insider”, a fortnightly view from a City expert, with a senior network of influential bankers, investors, economists and analysts. The identity of the Insider is anonymous – and a closely guarded secret – in order to allow our expert to express forthright, personal views and to protect the identity of the City figures upon whose opinions the Insider draws.
by City Insider
Can football save Portugal’s summer?
Jun 1, 2012 at 6:35 pm in Market Commentary by City Insider
EURO fever has finally gripped Portugal, my friends in Lisbon told me as I holidayed in the capital last week.
“Everyone is talking about it,” said one with a smile on his face. “We have Cristiano Ronaldo … what can possibly go wrong?”
He was talking about the European Championship football finals of course – a sure sign that the Portuguese have not lost their sense of humour. They’re going to need it over the next few weeks as fears over Greece and Spain spread to Lisbon and Rome.
Portugal is always going to be vulnerable because it has already been bailed out. My economist friends tell me they expect Portugal to return for a second helping.
A break-up of the single currency remains a real possibility these days with the constant stream of downbeat economic data setting the agenda.
Barring Greece – where exit from the euro and a return to the drachma could ultimately be decided at a second election on June 17 – much of the unwanted attention in recent weeks has focused on Spain and its crisis-ridden banking system.
I am told that speculation about a Spanish bailout and imminent action from the European Central Bank to prop up the eurozone’s banks is growing by the day. One point of note is that despite all the chaos and economic destruction in the eurozone, the region as a whole narrowly avoided a return to recession in the first quarter, against expectation (and only because of German growth). Much will become clearer after the Greek election.
In contrast, Britain is even deeper in recession than initially thought, with the economy shrinking 0.3pc in the first quarter. Economists tell me they expect the economy to remain in recession in the second quarter, making the prospect of more quantitative easing from the Bank of England more likely. But while Britain is in a double-dip where the eurozone is not, the Government here is benefiting from record low borrowing costs. As my economist chums tell me, this is partly because Britain is considered a safe haven during the current chaos, despite zero growth.
Amid escalating fears about the prospects for the global economy, the way to make money in commodities this year has been to go short. The question now is whether prices have found a floor.
There are two main reasons for the fall – the rising dollar as investors flee to safety form the euro crisis, and waning demand in China. Chinese imports of refined copper fell for the second consecutive month in April, hitting an eight-month low. Copper is regarded as the most economically sensitive commodity because of its wide range of uses in construction and manufacturing. Iron ore imports also fell last month, but imports of bauxite, used to make aluminium, and nickel oxide, increased.
In order for this to be reversed, we need to see an improvement in demand in China, (which may be some time off) or a decision by the US to engage in more asset purchases – or QE3. The jury is still out on whether QE3 will happen.
However, should a “Grexit” happen, it is likely that central banks over the world would inject liquidity into the system to prevent a collapse. This is why many of my trader pals in the City think that equities and commodities will rally – possibly briefly – if Greece returns to a devalued drachma.
The oil price has been weak because of a slow outlook for demand, and ample supplies. The price is not likely to rise much, but a plunge in prices won’t happen either while brinkmanship over Iran’s nuclear programme is taking place.
That’s all for now, I’m off on the Jubilee Flotilla this weekend so keep an eye out for me. I’ll be sure to give you a wave.
Until next time.
To give our clients a different and uniquely informed perspective on the financial markets, Capital Spreads introduces “The City Insider”, a fortnightly view from a City expert, with a senior network of influential bankers, investors, economists and analysts. The identity of the Insider is anonymous – and a closely guarded secret – in order to allow our expert to express forthright, personal views and to protect the identity of the City figures upon whose opinions the Insider draws.