Pound sterling breached the psychologically important 2.00 level today, building on last week?s gains amidst firmer UK monetary tightening expectations and carry-trade inflows.
[B][U]UK Headlines:[/U][/B]
Tony Blair?s appointment as an international envoy for the Middle East looks set to be formally agreed upon on Tuesday.
- “[I]Blair set for Mideast envoy role”
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[I]-Source: Financial Times[/I]
In anticipation of potential monetary policy tightening by the Bank of England, the British pound popped above the psychologically important $2 level versus the dollar on Monday for the first time since May 1. - [I]“Sterling hits $2 as investors expect rate hike”
[/I]Sterling hits $2 as investors expect rate hike | Reuters
[I]-Source: Reuters UK[/I]
As part of their merger with Borsa Italiana SpA, the London Stock Exchange Group intends to keep the electronic European government bond trading system in place. - [I]“LSE, Borsa Italiana to Keep MTS as ICAP Considers Bid”[/I]
http://www.bloomberg.com/apps/news?pid=20601009&sid=aZ8HhO8GvKJY&refer=bond[I]-Source: Bloomberg[/I]
[B][U]UK Market Activity:[/U][/B]
[U][I]Currency Markets:[/I][/U] [B]GBP/USD[/B]
Pound sterling breached the psychologically important 2.00 level today, building on last week?s gains amidst firmer UK monetary tightening expectations and carry-trade inflows. Due to testify before Parliament on June 28th, analysts expect Bank of England Governor Mervyn King to reiterate similar hawkish rhetoric as exhibited in the June MPC minutes. Recently at a 15-year high against the ultra-weak Japanese yen, traders are looking for a brief unwind in carry trades citing weak global equity markets. This could fundamentally hurt the up-trending Cable, as carry-trades help draw investment and bolster currency value.
[U][I]Equity Markets:[/I][/U] [B]FTSE 100
[/B] Leading UK equities fell for a sixth consecutive session, shedding 0.3 percent before reaching the bell at 6547.20. The benchmark FTSE 100 has declined 2.8 percent since June 15th and is in its longest successive descent since November. Portfolio managers that monitor the index contend that inflationary pressures coupled with the real possibility of higher rates next month are weighing heavily on equity markets. Anglo American (AAUK) was the session?s biggest laggard (-2.73 percent) as the mining component took 9 points from the FTSE 100. Brokerage house Cazenove saw an over-valuation in shares of the world?s second largest mining company and decided to lower its recommendation from “in-line” to “underperform”.
[U][I]Fixed-Income Markets:[/I][/U] [B]10-year Long Gilt[/B]
Yields on 10-year Gilts fell 4 basis points to 5.48 percent, easing off the nine-year high scaled in prior sessions. After a week characterized by mounting global bond yields, Gilt prices were buoyed by a “flight to quality” environment as investors fret over the US subprime debacle and demand safer assets. Various notable analysts support this theory, contending that the subprime mortgage problem in the United States is very conducive for government debt markets. Looking forward, interest-rate futures maintain their confidence of a looming increase in borrowing costs as the implied yield on the December contract was 6.25 percent, up from 6.19 percent this time last week.