Weekly Trading Update
01.03.13 Friday Afternoon
In recent times we have seen a number of economic phrases popularised by the media. Looking back briefly, we have had the “fiscal cliff” and more recently “currency wars”. This week’s hot word on everybody’s lips is “sequester”.
US lawmakers failed to pass two bills last night confirming the inevitability of spending cuts, (sequester) due to be officially introduced tonight (Friday) at 11:59 US time. This comes a day after weaker US 4Q GDP, raising worries about the US economy.
The cuts will be gradual unlike the fiscal cliff that was avoided at the start of 2013. That said, if US lawmakers fail to find ways to agree on certain measures, they risk shaving around 0.5% of GDP this year and possibly next year.
The aftermath of Italy's inconclusive election remains a major headwind, although some have noted that there are hopes politicians there are considering the idea of forming a broader coalition.
The worst case scenario, with a hung parliament in Italy, pushed investors to rush to the exits, favouring core government bonds and the safety of gold. Equities sold off rapidly in Europe, particularly the Italian markets and peripheral banks.
New elections are still on the table too but for now the situation remains fluid with talks between parties being eyed carefully by the market. The slip in peripheral bond yields in Thursday's session helped to soothe some of the earlier concerns that the elections will bring about an imminent bailout for Italy and Spain.
Markets reacted positively to news that central bankers Ben Bernanke, head of the Fed and Mario Draghi, head of the ECB, both defended their easing policies.
Bernanke at his second day on Capitol Hill again talked up the Fed's ultra-easing policy stance, quashing some of the fears sparked by the Fed's last meeting minutes that the central bank may look to slow down QE. Draghi meanwhile reiterated importance of conditionality for any nation that wants to tap into the ECB's bond-buying programme.
European markets did kick off the week on a positive note with stock traders brushing aside the UK rating downgrade by Moody’s late Friday, seeing it as largely symbolic and widely anticipated.
Traders also shrugged off a weaker HSBC China PMI manufacturing report and instead were comforted by comments from Japanese ministers that they would appoint a BOJ governor who would employ aggressive-monetary policies.
Sterling did feel the heat of the UK rating cut with gilts reacting too, but the FTSE100 - which is compromised by global giants with large international footprints - advanced, helped further by the weaker sterling.
Looking forward, Britain will be embroiled in a battle to avoid its third recession in four years after figures showed that manufacturing shrank unexpectedly last month and mortgage approvals for home buyers dropped in Europe.
Gross domestic product fell at the end of last year, bringing Britain within sight of another recession and the latest data suggested the central bank may need to do yet more to revive the economy.
Next Week’s Notable UK Earnings:
- Monday - Full Year 2012 HSBC Holdings plc Earnings Release
- Tuesday - Full Year 2012 Standard Chartered PLC Earnings Release
- Tuesday - Full Year 2012 Serco Group plc Earnings Release
- Tuesday - Preliminary 2012 Meggitt PLC Earnings Release
- Wednesday - Preliminary 2012 Legal and General Group PLC Earnings Release
- Thursday - Preliminary 2012 Standard Life PLC Earnings Release
- Thursday - Preliminary 2012 Aggreko PLC Earnings Release
Next Week’s Notable Economic Events:
- GBP – Construction PMP - Mon
- GBP - Services PMI - Tue
- USD - ISM Non-Manufacturing PMI - Tue
- GBP - BOE Gov King Speaks - Wed
- CAD - BOC Rate Statement – Wed
- AUD – Trade Balance - Thu
- JPY - Monetary Policy Statement - Thu
- JPY - BOJ Press Conference - Thu
- CHF - Foreign Currency Reserves – Thu
- GBP – Official Bank Rate - Thu
- GBP - MPC Rate Statement – Thu
- EUR - Minimum Bid Rate – Thu
- EUR – Press Conference – Thu
- USD – Trade Balance – Thu
- USD – Unemployment Claims – Thu
- JPY – Current Account – Thu
- CNY – Trade Balance – Fri
- CHF – CPI m/m – Fri
- CAD – Unemployment Change – Fri
- USD – Non-Farm Employment Change – Fri
- USD – Unemployment Rate – Fri
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