The Pound makes a bright start to the month

The Pound Sterling has made an encouraging start to the new trading month after getting a lift from comments by the deputy governor of the Bank of England Charles Bean who apparently believes that the high levels of uncertainty are reducing the effectiveness of the bank´s quantitative easing (QE) measures.

Whilst Mr. Bean did not specifically comment on next week´s meeting of the Monetary Policy Committee (MPC), he did argue against the idea that the Bank should monetize some of the UK government´s debt, either by buying state bonds to finance tax cuts or by cancelling some of the gilts which it now holds. In addition, he sided with Governor Mervyn King in warning that it will take longer for the economy to recover following the financial crisis and that the UK needs to continue to rebalance the economy towards a larger proportion of exports.

In an echo of Mr Bean’s comments, John Cridland, the Director-General of the Confederation of British Industry (CBI) said yesterday that the UK needs to get used to a “new normal” of slower growth with annual expansion of just 2% needs to be seen as an excellent rate of expansion. Mr Cridland went on to state that the CBI believe that UK GDP will be flat this year before picking up to 1.4% next year and 2% in 2014. Whilst that would be well below the 3% average annual growth recorded between 2000 and 2008 it would still be “a good trajectory” under the circumstances according to the CBI

Trading volumes recovered yesterday after New York reopened after Hurricane Sandy but October ended in a subdued mood after fresh uncertainty about whether Spain will ask for a bailout and the uncertain outlook for Greece.

Overnight, the HSBC Chinese manufacturing sector purchasing managers´ index was published for October and this showed a rise from 47.9 in September to 49.5. Whilst a figure below 50 indicates contraction, the 49.5 reported overnight represents a 8 month high and with new orders also showing an increase, the data pointed towards the idea that the slowdown in China may be coming to an end.

Commenting on the survey data, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said “October’s final PMI rose to an eight-month high, implying that China’s industrial activity continues to bottom out following a modest pickup last month. This is mainly driven by the increase of new orders, thanks to the filtering through of the earlier easing measures, while exports outlook remains challenging. We expect a continuation of policy easing to further boost domestic demand and counterbalance the external weakness, leading to a gradual growth recovery in the coming quarters.”

This follows a Bank of America forecast earlier on this week that raised their forecast for Chinese economic growth in the last quarter of 2012 from 7.5% to 7.8%.

Money transfers to New Zealand:-

With sentiment improving in China, the outlook for the New Zealand economy could improve towards year end and with the UK’s prized AAA credit rating under review, we could see the exchange rate go against anyone looking to buy New Zealand dollars. Whilst the current exchange rate can hardly be considered ‘exciting’ it is running currently close to the average exchange rate for the year to date.