The wait is finally over, and the markets have reacted in an optimistic fashion, although that may also have a little to do with decent economic news out of China and Japan, as well as the start of the world cup. Chinese trade figures were better than expected, confirming yesterday's rumours that exports had risen by 50%yoy, while Japan's GDP data for Q1 was revised up to an annualised growth of 5%, above the forecast of 4.2%, both of which have helped continue the general recovery in the global markets, helping commodity prices rise, bring the Australian Dollar up, and the US Dollar down. The Australian Dollar was also helped by some good domestic news from the employment data with a fall in unemployment to 5.15%, which has managed to give the AUD a boost up to 0.85 against the US Dollar, although it was at 0.92 in April so the recovery still has along way to go, and brought the Pound down below 1.74.
The Pound has also managed to make some gains against the US Dollar, pulling up to 1.47. Yesterday's BoE rate announcement brought little surprise with the rate staying at 0.5% and the QE amount also remaining the same. With the upcoming spending cuts likely to drag on economic growth in the coming quarters, and maybe even years, rates are unlikely to change any time soon, as long as the BoE's inflation predictions are broadly accurate, and the CPI measure does start to moderate.
The Pound has also made some headway against the Euro pushing back up above 1.21, even as the Euro itself made some gains breaking through 1.21 itself against the US Dollar. The Euro has been given a reprieve as the German courts dismissed a legal challenge to the funding of the recent EU bailout, while in yesterday's post ECB rate announcement press conference, in which everything was held steady, Trichet announced that they would continue to purchase bonds to support the market, as well as provide liquidity to the markets in 3 month borrowing. For now the immediate panic on the Eurozone debt seems to have abated, with the bailout package succeeding in stopping the rot, however the underlying problems are still there, and it would just take another rating downgrade or some ill advised comments from a Eurozone official to bring the fears back.
The papers may be full of jingoistic optimism about English prospects in the upcoming world cup, although thankfully they're a little more subdued than previous tournaments, but the economic news coming out of the UK this morning isn't great, and Industrial production figures have unexpectedly fell in April, after a strong rise in March, there was also some worrying news from the Producer Price Index which showed prices input prices coming down, but less than expected, which does cast some doubts over the BoE's inflation forecast. This afternoon we have the small event of the start of the world cup, although in the US, which has a sports culture mostly separate from the rest of the world, their traders will be focusing on retail sales and consumer confidence figures. There is some downside risks to the two reports, which may weigh on risk appetite, and therefore the Pound, which has already taken a small hit from the lacklustre data out this morning.
Posted in Daily Market News on May 30 2014