12.04.13 Friday Morning

The week started out on a tentative note following last Fridays hugely disappointing US non-farm payrolls data. European markets posted mild gains shrugging off weakness in Asian markets overnight which suffered on the back of tensions in the Korean peninsula and outbreak of bird flu in China.
 

Rather than getting bogged down by the increasingly negative sentiment, traders used the recent declines in global markets as an excuse to hunt for some bargains, driving prices higher.
 

Alcoa got the U.S. earnings season underway in a positive fashion, showing a 59% rise in net profits. Investors will be hoping that this sets the tone going forward with some suggesting that the recent rally still has further upside potential.
 

Meanwhile, the FOMC Meeting Minutes released Wednesday proved as divisive as ever with certain policy makers wanting to end the programme that has seen $85 million a month spent on purchasing bonds end “relatively soon”.
 

Those members say the costs likely outweigh the benefits. A few others saw the risks as increasing quickly and said the purchases would likely need to be reduced “before long.” Many members said an improved job market could lead them to slow purchases within a few months, and a few said economic conditions would likely justify continuing the program until late this year.
 

The new $3.77 trillion budget that Obama proposed on Wednesday aims to cut deficits by $1.8 trillion over the next decade. Obama’s blueprint, that has drawn criticism from both the left and right, lays out plans for changes to Medicare and Social Security. It also includes tax increases that would primarily hit high-income households and corporations.
 

The main question posed to policy makers is whether reducing the deficit at all costs takes precedence over the need to make investments to improve the economy. Obama’s latest budget attempts to do both.
 

The Bank of Japan’s aggressive easing policy has been propping up global indices throughout the week, but governor Kuroda insisted that the banks policy isn’t aimed at weakening the yen. Since taking office a little less than a month ago, Mr Kuroda has wasted no time acting on his pledge to do "whatever it takes" to beat Japan's deflation and generate 2% inflation in two years.
 

Italy, a country engulfed in political turmoil, managed to sell bonds close to the top of its target range. The auction went smoothly with investors showing a respectable appetite for the government bonds. Whilst yields were slightly higher, investors have welcomed this robust demand for Italian government paper.
 

Whilst the majority of economic indicators point towards years of hardship for the Italian economy, this is not putting investors off their stride. Italian bond auctions have consistently been well received despite the on-going issues with many citing investors faith in policymakers such as the ECB and its rigorous bond buying programme.
 

Attention now turns to next week’s Chinese GDP numbers. After the significant sell-off seen in gold during recent months a disappointing figure could send its value spiralling. Indicators have suggested that we will see a solid figure with a pickup in exports sending the forecast up to 7.9%.

Next Week’s Notable Economic Events:

Monday –

• JPY – BOJ governor Kuroda speaks

Tuesday –

• GBP – CPI y/y
• GBP – PPI Input m/m
• EUR – German ZEW Economic Sentiment
• GBP – BOE Inflation Letter
• CAD – Manufacturing Sales
• USD – Building Permits
• USD – Core CPI m/m

Wednesday –

• GBP – Claimant Count Claim
• GBP – MPC Meeting Minute
• CAD – BOC Press Conference

Thursday –

• GBP – Retail Sales m/m
• USD – Unemployment Claims
• USD – Philly Fed Manufacturing Index

Friday –

• CAD – Core CPI m/m

Next Week’s Notable Earnings (UK):

Tuesday –

• Michael Page International PLC Q1 2013 Trading Update

Wednesday –

• Hochschild Mining Q1 2013 Production Results
• Bunzl PLC Interim Management Statement
• Moneysupermarket Com Group PLC Interim Management Statement

Thursday –

• African Barrick Gold PLC Earnings Release
• Debenhams Interim 2012/2013 PLC Earnings Release