| Rob's 6th guest post on 'Saving The Euro'
Is reality returning?
UK inflation rates hit 5.2% - now even those lucky souls that have some cash to invest are losing money - annual bond prices now only yield about 3.5% max.
I actually think that inflation has been undervalued - look at the price rises in energy, petrol, food stuffs etc. - I would be ecstatic if they were only 5.2%.
Key forecasters - the ITEM club - have dropped their forecast for growth in the UK this year to just 0.9%.
German ministers finally brought some realism to the market yesterday when they issued a warning that the key meeting of Euroland finance ministers would be making some important announcements about debt management/rescue next week, but they wouldn't be a total panacea for the Euro zones debt problems.
China's sky rocket economic growth seems to be running out of steam - down to 9.1% from 9.5% as they try to deal with inflation.
France is under the cosh once again - Moody's warned that they may change their stable outlook on France's AAA rating to negative if the Euro zone debt problem did not improve in the near future - bearing in mind the comments made out of Germany, that doesn't look very likely as we speak.
So, once again, more negative news.
However, it is having relatively little impact on the markets as a whole.
Yes, stock indices are down, but not crumbling in panic e.g. FTSE down to 5,375 (about 1%), with other indices posting similar losses or more (especially in Europe), but that is after a week of strong gains across the board.
Euro/$ rate down to 1.3675 from a recent high of 1.39, and £/$ down to 1.5725 from 1.5850.
The question was "is reality returning"?
From a trading perspective I would have to say no - these movements are relatively tiny in the greater scheme of things.
The world and his dog are waiting for some apocryphal announcement out of Europe over the week-end which will wipe away all of Europe's debt problems in one clean sweep.
Don't hold your breath, it won't happen - the German's are already trying to manage the market's expectations and talking down the scale of announcements that will be made.
However, there is a school of thought amongst some traders that this is in fact a "double bluff" - talk the market down, and when they announce a better than expected package there will be a greater bounce in the market than if it was only what had been forecast by the analysts.
That is one risky gamble to make......
I am in the school that thinks that the package is being talked down in advance because it won't be considered strong enough, but that is just me........
The USA and UK have already made their position clear - they will not help bail out the Euro zone (the Euro currency) - it is something for Europe to resolve.
The USA has also said that it agrees that the IMF needs to be bolstered and will support that effort providing the funds are not immediately paid out the back door in additional bail outs to Europe.
From a global perspective, the Eurocrats in LaLaLand (sorry should read as Euroland) are on their own, they need to come up with something highly constructive over the week-end or they can kiss the Federal States of Europe goodbye.
As they say when you ride "Big Thunder" in Disney - "keep your arms and legs in the carriage at all times, hang on to small children and take off your hats and glasses - its going to be a bumpy ride ahead...."
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The author, Rob (not his real name), is a treasury manager at one of UK's largest charities.
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