- UK GDP misses, falls into technical recession
- Draghi inflation risks broadly balanced
- Nikkei up 0.98% Europe up 1.75%
- Oil at $104/bbl
- Gold at $1643/oz.
- GBP Gross Domestic Product (QoQ) (1Q A) -0.2% vs. 0.1%
- GBP CBI Trends Total Orders (APR) n/a
Event Risk on Tap
- USD MBA Mortgage Applications (APR 20)
- USD Durable Goods Orders (MAR) expected at -1.3%
- USD Durables Ex Transportation (MAR) expected at 0.0%
- USD/JPY sells off to 81.20 after early bump to 81.56
- AUD/USD trades to 1.0340 on better risk sentiment
- GBP/USD clipped by weaker GDP down to 1.6100
- EUR/USD rallies to 1.3225
Cable was hurt by weaker than expected GDP figures plunging below the 1.6100 level in early London trade while the rest of risk FX remained bid supported by strong equity flows in the wake of another blowout performance by Apple. UK however slipped into a technical recession as GDP contracted for the second quarter in a row printing at -0.2% versus 0.1% eyed with biggest losses coming from the volatile construction sector. In Q1 of 2012 services grew at a meager 0.1% Industrial Production expanded at 0.4% while construction fell at a whopping 3.0%.
The news put a dead stop to the rally in sterling as the pair slipped below the 1.6100 figure in immediate reaction to the report on speculation that BoE may have reconsider the idea of further QE in order to stimulate the economy. However, the first estimate of UK GDP is notoriously volatile and often subject to changes by the ONS leaving the possibility that the headline number may be revised higher in the near future.
Nevertheless, the UK GDP reading offered little solace to pound bulls showing that the country has now recorded three negative quarters of growth out of the last five. Comments from UK’s George Osborne signaled that the market should not expect and additional fiscal stimulus in the foreseeable future. Mr. Osborne stated that abandoning deficit reduction measures would only make UK situation worse. He admitted that conditions are very tough and recovery is taking longer than had been envisaged.
For the time being has found support at the 1.6100 level and the pair may rebound to the session opening levels as broader risk flows prove supportive, but is unlikely to make much progress beyond 1.6200 given tonight’s disappointing news.
In Germany, the thirty year bund auction saw its lowest issuance yield on record and was able to sell only 2.5 Billion out of 3 Billion offered leaving it technically uncovered. However there was no panicky reaction in the EUR/USD as the market understood the results to be a primarily a function of ultra low yield attracting few investors.
In North America today the US calendar carries Durable Goods but the focus will quickly turn to the FOMC statement due at 18:15 GMT. The market expects no material change in policy posture, but traders will listen carefully for any wording that acknowledges the recent slowdown in US economic activity and that may hint at further easing down the line. Risk assets have been bid in anticipation of somewhat dovish Fed statement and FX could rally higher into North American close if Chairman Bernanke and comply with those expectations.
|USD ||11:00||7:00||MBA Mortgage Applications (APR 20)|
|USD ||12:30||8:30||Durable Goods Orders (MAR)||-1.3%||2.2%|
|USD ||12:30||8:30||Durables Ex Transportation (MAR)||0.0%||1.6%|
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