Thursday, 22 April 2010

Ken Clarke will be right next week

The big beast of Ken Clarke was unleashed yesterday on the media, warning of the dangers of a hung Parliament. he said quite rightly that history shows the weak Governments which the markets do not expect from the UK, can cause us difficulties in selling our gilts and maintaining our currency.

However of note is the two currency charts below,


These show that since the election started there has been a slight improvement in the Pound's position against the two major trading currencies. A slight blip is can be discerned around the Clegg debate boost, but that is disappearing. However, the charts also suggest that the Pound is nearing the top of its trading range for the Euro and has reached a plateau with the Dollar. The Euro rate is very likely to correct over the next two weeks; whereas the Dollar rate could break up or down. With the election in the UK my bet is the £/$ is going to go down. So Ken Clarke has been wrong up until now, but is about to be proved right for the rest of the election!

Next up is a quick look at Gilts. The price of gilts has been stable for a month, but the weekly trend is now starting to show rising yields - which is falling prices. So again, the mantra of Clarke is likely to be right, with Gilt prices falling into the election. Rising inflation will also continue to drive the prices of gilts down.
UK Benchmark Gilt Yields
Maturity         Yield      Today1 WeekAgo 1 MonthAgo
1 Month 0.53% 0.00 0.52% 0.53%
3 Month 0.54% 0.00 0.54% 0.54%
6 Month 0.57% 0.00 0.57% 0.57%
1 Year 0.70% -0.03 0.70% 0.70%
2 Year 1.14% +0.11 1.14% 1.10%
3 Year 1.81% +0.03 1.81% 1.81%
4 Year 2.30% +0.05 2.29% 2.29%
5 Year 2.73% +0.01 2.73% 2.73%
7 Year 3.36% -0.08 3.36% 3.36%
8 Year 3.66% +0.07 3.66% 3.68%
9 Year 3.92% +0.07 3.91% 3.95%
10 Year 4.01% +0.08 3.99% 4.03%
15 Year 4.48% +0.13 4.47% 4.51%
20 Year 4.56% +0.17 4.55% 4.58%
30 Year 4.57% +0.14 4.55% 4.60%

What all this shows is that the Tories were right to keep quiet for the first two weeks of the campaign, as the facts would not fit the narrative; from now on though it is likely that they will start to fit the narrative. Ken Clarke is very canny and well advised.

PS The Tories are of course right overall, check out the bond yields on that FT link - the UK is in deep trouble compared to the US and the bigger European countries. Even Italy is faring better than us!

12 comments:

Budgie said...

Isn't the Euro being hit by the Greek tragedy? Won't that continue?

Steven_L said...

I drew some trend lines on the GPB:EUR weekly chart and it's starting to look like a break up out of a triangle that started late 2008 after Lehnman to me.

The Euro isn't without it's problems either. I don't want to go long sterling short Euro with the election in the offing, but the charts and the PIGS debt thing is telling me to do it!

CityUnslicker said...

Budgie/SL,
The greek issue is a UK one too - out gilts are at risk as well. if they crisis really hits all countries will fundig issues will take the hit - though that would mean cable rate hit more than euro rate.

CityUnslicker said...

Budgie/SL,
The greek issue is a UK one too - out gilts are at risk as well. if they crisis really hits all countries will fundig issues will take the hit - though that would mean cable rate hit more than euro rate.

Hairy Arsed Bloke said...

Sterling / Gilts Mayhem - BRING IT ON !!!!!!!

I keep saying, it is what is required to shock the British people out of voting Labour ever again.

This is the markets doing God's work.

Steven_L said...

According to the Telegraph Goldmans agrees with my analysis - buy the £ against the Euro.

But are they just looking for some mugs to sell the other end of some kind of deal they've stiched up with Paulson to?

Jambo said...

I'd be surprised if the hung parliament wasn't largely priced in given the polls.

Steven_L said...

And it reminds me of the QE - everyone said 'short sterling' but sterling rose. Presumably people wanted to buy UK assets with it.

Now sterling is one of the lowest currencies, with which you can buy some of the highest yielding assets.

Yes everyone is saying 'sell sterling'.

CityUnslicker said...

SL - I am bullish on sterling on technicals like you...BUT Govt sterling crisis alert is on. IF we make it through May with no crisis then is the tiem sterling is de-risked - it might pop a few pence at some point then.

Blue Eyes said...

I am in the process of getting out of sterling and into consumer products. A new telly I think.

Bill Quango MP said...

Get a 3D one BE.
See if the Lib Dems are more than one dimensional.

Hairy Arsed Bloke said...

The exchange rate between money and stuff favours stuff.