Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Jan 22 09 08:24 GMT |

Overview & economic commentary Overnight, the Bank of Japan voted unanimously to keep interest rates on hold at 0.1%, as expected, but also outlined its principles regarding outright purchases of corporate financing instruments in order to boost liquidity directly into the corporate sector. Also in Asia, China reported Q4 GDP showing a slowdown in year-on-year growth to 6.8% from 9% in Q3, with full-year growth in 2008 of 9% compared with 13% in 2007. Ahead today, the UK CBI industrial trends survey (including the more detailed quarterly breakdown) is due and is expected to show another decline in the monthly total orders index, supporting calls for further policy easing by the Bank of England. Euro zone industrial orders are expected to have fallen sharply in November, confirming that the downturn in the economy accelerated in the back end of 2008 and that the ECB is likely to have to reduce interest rates further. In the US, housing starts and initial jobless claims are due. The latter jumped to 524,000 last week and a further rise would point to another big fall in non-farm payrolls in January. The Bank of Canada monetary policy report is likely to confirm further easing bias, after interest rates were reduced by 50bps to 1% earlier this week. In terms of supply, the UK DMO will offer £3.5bn of 4.5% 2013 gilts, while France sells up to €7.5bn of BTANs and up to €1bn of OATi/OATeis. ECB Council member Tumpel-Gugerell speaks at 13:30 GMT in Brussels. Currency commentary Sterling sentiment remains weak, with concerns centring on banking losses, necessitating further government bailouts. £/$ dropped to a low of 1.3621 yesterday, the lowest level since 1985. The Aussie and Kiwi were also underperformers, with NZ$/US$ hitting a 7-year low of 0.5169. The Japanese yen strengthened on increased risk aversion among market participants, with $/Y testing 87 yesterday and £/Y falling to another all-time low of 119.42. A weak UK CBI survey this morning could augment current negative sentiment regarding the pound. In the euro zone, the ECB still appears reluctant to reduce interest rates (currently 2%) to very low levels, but may be forced to do so by confirmation of a severe economic contraction and increased credit risks among some euro countries (Portugal was the latest to be downgraded). €/$ is trading slightly below 1.30, recovering from a low of 1.2825 yesterday Major data and events today UK CBI industrial trends survey (11:00) Dec -35 Jan (f'cast) -50 US Initial claims (w/e 17/1) (13:30) Previous 524K Forecast 500K Median 553K Range 520K:594K US Housing starts (sa) (13:30) Nov 0.625mn Dec (f'cast) 0.625mn Median 0.610mn Range 0.570mn:0.679mn US Building permits (13:30) Nov 0.615mn Dec (f'cast) 0.615mn Median 0.610mn Range 0.59mn:0.65mn French consumer spending (07:45) Nov +0.3% Y-O-Y +1.0% Dec (f'cast) -0.2% Y-O-Y -0.6% Median -0.2% Range -0.8%:+0.2% EU-16 industrial orders (10:00) Oct -4.7% Y-O-Y -15.1% Nov (f'cast) -4.0% Y-O-Y -19.1% Median -5.0% Range -7.0%:-2.0% Japan interest rate decision (03:00) Current: 0.10% Forecast: 0.10% Canada retail sales (13:30) Oct -0.9% Nov (f'cast) -1.5% ECB publishes monthly economic bulletin (09:00) French auction of BTAN medium-term treasury notes (10:00) UK DMO auctions £3.5bn treasury gilts at 4.5% due 2013 (10:30) French auction of OATi index linked treasury notes (10:50) ECB member Tumpel-Gugerell speaks (13:30) BoC publishes monetary policy report (15:30) Chart of the day: Sterling was the weakest performer among G-10 currencies in the last 3 months Lloyds TSB Bank http://www.lloydstsbfinancialmarkets.com Disclaimer: Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. 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