In Brief
Concerns that Portugal could soon seek an ECB-IMF bailout have sent the euro tumbling.
Retail sales in December fell 0.3% compared to 12 months ago according to figures from the British Retail Consortium.
The British Chamber of Commerce has raised concerns that poor Services sector performance could inhibit the recovery.
The UK has announced a £2.6 billion energy deal with China that secures the future of an essential oil refinery.
In Depth
EU
Good morning! Today rumours are rife that Portugal will soon have to accept an €80 billion bailout package from the ECB-IMF to support its ailing economy.
In recent days the cost of insuring Portuguese debt has risen to record highs at more than 7.0% – meaning the government must pay huge amounts to assure markets their investments are safe. This rate has the markets spooked that Portugal will soon be unable to raise funding without external aid.
On the back of these reports, the euro has fallen to four month lows against the US dollar and sterling.
The crucial test for Portugal will come on Wednesday at a forthcoming bond auction to raise public funds. If the markets refuse to buy Portuguese funds on concerns that the nation is about to become insolvent then Portugal will have no choice but to request an ECB-IMF bailout. This could easily send the euro tumbling even further against the major currencies.
UK
In the UK meanwhile the British Chamber of Commerce has raised concerns that poor performance in the Services sector could slow the recovery. GDP estimates for the fourth quarter 2010 have been revised downward to 0.4% from 0.7% following a poor December for Services. Businesses in that sector cut costs and reduced the number of people on their payrolls.
Furthermore retail sales in December fell 0.3% compared to December 2009 according to new figures released by the British Retail Consortium. This is chiefly due to the Arctic conditions experienced in the UK last month. However the drop could impact heavily on high street retailers: they’re highly dependent on strong December revenues.
On the flipside this morning the UK government has announced a £2.6 billion energy deal with China. This secures the long-term future of Grangemouth – one of Britain’s key oil refineries. It also opens the window to other agreements between China and the UK in the future.
For the most part though sterling has stable against most major currencies this morning.
Coming Up
Today is another relatively quiet day for economic data. The big events remain the forthcoming interest rates decisions from the Bank of England and ECB (European Central Bank) on Thursday.
by Peter Lavelle with specialist currency broker Pure FX.
