Which way to turn next ?…
…is the question as investors appetite for risk was sharpened yesterday by some positive U.S. economic data while enthusiasm was tempered by raised concerns
over the effects of Swine Flu and worries that the U.S. banking sector will be required to raise substantial amounts of additional capital once the Federal Reserve publishes the results of its stress testing of 19 major U.S. banks early next week.
Bank stocks fell sharply triggering falls on global equity markets but better than expected U.S. consumer confidence data, evidence that the pace of decline in U.S. house prices is slowing and IBM’s announcement of a 10% increase in its dividend all helped U.S. stocks remain in positive territory for most of yesterday’s session but it was not enough to prevent the Dow and the S&P indexes closing lower.
The Conference Board’s U.S. consumer sentiment index for April rose to 39.2 from an upwardly revised figure of 26.9 in March and well above the market consensus forecast of 29.2. At the moment the USD is weakening– a signal that risk appetite is gaining the upper hand presently.
The Yen, Euro and Sterling all took advantage of the weakening Dollar. Sterling received a boost from better than expected UK Retail Sales data when the CBI’s distributed trades survey jumped to +3 in April from -44 in March, the first positive reading in a year, and much higher than the -40 forecast by economists.
Also positive for Sterling was the strong demand shown during the day for the £3billion sale of the March 2022 gilt at 4% which attracted bids worth 2.25 times the amount on offer, almost twice the cover achieved on the first sale of the issue in February.
German annual consumer price inflation (CPI) increased to 0.7% in April from 0.5% in March. This slight increase from April’s 10 year low must be taken in context, the main contributing factor was a 16.5% annual rise in package holidays linked to the fact that the Easter holiday fell in April as opposed to March last year – Bundesbank President Axel Weber is on record as saying that Germany’s CPI is expected to turn negative in the coming months before price pressures “firm markedly” and confirmed his preference for halting interest rate cuts at 1%. Trichet’s view is that Eurozone inflation expectations are around 1.9%.
He acknowledged that current inflation rates were very low but felt that prices will start to move higher by the end of this year. The ECB hold their next rate policy meeting next week my guess is they will cut rates by 50 basis points in an attempt to ward off the threat of deflation.
Data due out today includes EU climate, consumer, economic, industrial and service confidence indicators at 10:00 BST and US Q1 advanced GDP at 13:30 BST.Market expectations are that the US economy contracted 4.9% in the first three months of 2009 compared to a decline of 6.3% in the previous quarter.
Later this evening the FOMC convene their latest policy meeting, no change is expected in the Fed Funds target range 0% – 0.25% but any accompanying statement will studied closely for any comments about the economic outlook.
And finally today Alistair Darling will be facing questions from the Treasury Select Committee about his 2009 Budget proposals
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