IMF predicts deep recession
Pound Sterling - UK Markets
Sterling is trading from a firmer platform this morning as the third consecutive day of stock market gains reflect the recovery of confidence in the banking sector. The Pound is slightly weaker than yesterday at 1.41 versus the US Dollar but has strengthened notably to 1.08 versus the Euro. The Pound is also trading at 2.74 versus the Kiwi Dollar after a drastic interest rate reduction from the RBNZ.
Following the Barclay's announcement earlier in the week, in which the bank claimed they would still make a post-write down profit for 2008, banking shares have bounced. The rally has allowed Sterling to stage a minor recovery and the pound has also benefited from the competitive export benefits of having a weaker currency. Sharp depreciation against the Euro, US Dollar and Yen at the close of 2008 has provided a degree of support for British exporters amid the downturn. The IMF announced yesterday they expect the UK economy to contract 2.8% in 2009. Germany is expected to contract by 2.5%, Japan by 2.6% and the US by 1.6%. The IMF also cited the ‘pernicious feedback loop' linking financial markets and the wider economy, reiterating that recovery in the financial sector is key to wider economic stability. House price figures have continued to slide in January and there is no further data in the UK today. Mortgage lending and consumer credit statistics are due tomorrow.
US Dollar - US Markets
The Dollar is gaining this morning on both the Euro and Pound and is up nearly 2% on the Kiwi Dollar. Renewed FOMC policy and the passing of an $820 billion rescue package in the House of Representatives have lent the Dollar support overnight.
The Federal Reserve left interest rates unchanged at 0.25% yesterday. This was largely expected by markets and the FOMC stated they would also look at purchasing assets in the interest of stimulating credit markets. The House of Representatives has passed President Obama's $820 billion rescue package and the bill is now subject to approval in the Senate. The package failed to achieve Republican support in the House and there are concerns over its viability in the Senate. Equity markets in the US have continued with their underlying upward trends despite the gloomy outlook at the World Economic Forum in Davos and from the IMF yesterday. Durable goods orders and new home sales are out in the US today while personal consumption and GDP figures are expected to be the market movers tomorrow.
Euro - European Markets
The Euro has weakened against the Pound and Dollar overnight, trading at 0.92 and 1.30 respectively. The Euro is also down against its Asian and European partners as negative economic data continues to flow from the Eurozone.
The German unemployment rate has risen to 7.8%, with 56 000 jobs being lost in December as Germany's export driven economy suffers from the downturn in global markets. However despite this, consumer confidence continues to rise in the Eurozone with Swedish figures joining France and Germany in showing an upturn in consumer sentiment. Royal Dutch Shell, Europe's largest oil company has posted its first quarterly loss in 10 years this morning on the back of lower oil prices and reduced demand due to the deteriorating economic situation. Consumer, economic and industrial confidence figures are due from the Eurozone today.
Other Currencies - Highlights
The RBNZ slashed rates by 1.5% yesterday to a record low of 3.5% and left the door open for further reductions. The export led Kiwi economy is suffering along with a downturn in trading partners. The New Zealand Dollar fell to its lowest level against the US Dollar since 2002 after the announcement. Rate cuts are expected to continue but at a slowing pace. Economic contraction is forecast at 0.9% this year for New Zealand.
Hong Kong voted to keep its base interest rate at 0.5% yesterday, shadowing the Federal Reserve as the Hong Kong Dollar is pegged to the Dollar rate. Trading stocks jumped in response to the approval of the US rescue package. Japanese equities have strengthened as market confidence in the ability of the Bank of Japan to unlock credit markets has returned. A series of Consumer price indices are released in Japan today.