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Although US GDP and jobless levels have again record record weak levels this was expected…therefore the market is taking the weak data with a pinch of salt and focusing on more forward looking data to asses the future health of the US economy and not assesments of previous quarters…this could be a signal that the market has factored in most of the negativity already….
Yesterday we saw CBI distributive trades forecast come in worse than expected at -44- this figure reflects the gloom in the retail sector. This was strongly reaffirmed this morning as UK retail sales came in worse than expected for February. As a result the pound has dipped against the USD, EUR and YEN, retail sales have generally held up well considering in the last few months, however the poor weather conditions would not have helped Februarys data.
In other news yesterday the UK gilt auction by the debt management office failed to sell the total £1.75bn on offer- this is the first time such an auction has failed since 2002 and identifies probable concern over the health of public finances. The failure in the auction will concern the government and follows a warning from Mervyn King on additional fiscal stimulus for the UK economy. Future such auctions will be watched closely to gauge if yesterday’s failure was a one off or more failures will follow.
US stocks rose yesterday and the US economy was helped with a glimmer of hope from new home sales and durable goods coming in better than expected. The dollar fell sharply for a brief spell yesterday as treasury secretary Tim Geithners comments were misconstrued by the market. The basis of the comments was the suggestion of the US exploring Chinese proposals to incorporate a global reserve currency and so reduce reliance on the USD as a reserve currency. Naturally the dollar was sold on this suggestion before clarification had filtered through to the media…this really shows how fragile and reactive the markets are in the present economic climate…
US durable goods rose by 3.4% against a consensus fall of -2%. The rise was a big surprise for the markets and the USD has initially slipped against the euro and the pound…
A bit of a break in the trend late yesterday as stocks retreated as investors digests the US plan for toxic assets: the retreat was led by bank stocks. This has led to the USD firming up against the pound and breaking back through 1.35 against the euro. Later today from the US we have durable goods orders for February, here we are set to see a further fall and the market will look to see the scale of the fall against the backdrop of Januarys -5.2% dip. We also see new home sales from the US which could actually come in better than the all time low in January.
Interesting data yesterday from the UK saw inflation levels fall in relation to RPI and rise in the context of CPI. The retail price index dropped to 0 from 0.1%, however CPI rose to 3.2%- this is very suprising and probably a shock to the Bank Of England as energy prices have been falling, interest rates cut dramatically and price cuts introduced in the retail sector. Bear in mind that we have just introduced Quantitative Easing as a concern to counter falling inflation. Yesterday Mervyn King sent a clear defining message to the government that there is no more room for added stimulus in the UK budget- this essentially means that we have to rely on the rate cuts and QE to weather the downturn.
Data released today from the German IFO survey showed that German business confidence slid further- the euro may come under pressure as the ECB look towards a potential rate cut in April.
The USD has firmed against the euro back below 1.35. with the German IFO survey out shortly and expected in weaker, could we see further USD strength?
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