Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Apr 28 09 07:03 GMT |

Overview & economic commentary The UK CBI distributive trades survey for April will provide the first anecdote of turnover on the high street as we approach the end of the month. In contrast to the less pessimistic consensus forecast of -40 for reported sales, we expect the index to have dropped to -50, a 4-month low. Retailers reported last month that they did foresee no improvement. The first of two gilt auctions this week is planned this morning and will see the DMO issue £3bn worth of 4% 2022 gilts. This will be the second auction of this particular gilt. The previous sale was held in February and was covered just 1.36 times and tailed 2bp, not a great show of support. More evidence of reluctant participation could weigh on sterling. The US treasury will hold its second auction of the week today when it will sell $35bn worth of 5yr notes. The $40bn 2yr auction drew solid demand yesterday despite the late spike in prices on the back off a flight-to-quality. Early clues about Q2 prospects for US consumer spending and employment may emerge from the release of April consumer confidence. It is probably too early for confidence to be impacted by reports of the outbreak of the swine flu virus, but markets will keep close track of the story as it unfolds, aware of the damage SARS caused to Eastern Asian economies in 2003. US house prices data for February are also due. Preliminary German CPI data is forecast to show annual CPI accelerated to 0.8% in April from 0.5% in March. This is a blip in the downtrend in place since the second half of last year. ECB member Bini-Smaghi speaks later in the day and could share his thoughts on interest rates and the economy ahead of the governing council meeting next week Currency commentary Asian equity markets are struggling to find a stable footing this morning in the wake of the 0.6% decline in the US and the WSJ report that BoA and Citi may need to raise more capital based on the stress tests. S&P futures are down 11, with better Q1 results of Deutsche Bank early this morning failing to stabilise sentiment. €/$ threatens to break 1.30 support and $/Y has slipped below 96.0. The FTSE is set to open a touch lower and may break below 4,100 if US indices extend their slide. The Mexican peso is still being shunned in fx markets and this led £/mxn to spike above 20.6 overnight. The CBI distributive trades survey and the 2022 gilt auction will be under scrutiny and could impact the direction of sterling in the event of a surprise outcome or bidder participation. €/sek extended its decline for a 5th successive session yesterday, heading back below 10.70 for a 2nd time this month. Swedish March PPI and retail sales data are due this morning and could decide whether the bearish trend stays in place. Major data and events today UK Nationwide house prices (07:00) (Apr) (28-30) Mar +0.9% Y-O-Y -15.7% UK CBI distributive trades survey (11:00) Mar -44 Apr (f'cast) -50 Median -40 -50:-30 German CPI (07:00) (prel) Mar -0.1% Y-O-Y +0.5% Apr (f'cast) +0.1% Y-O-Y +0.8% Median +0.1% Range -0.2%:+0.7% US House prices (S&P/CaseShiller)(Feb)(14:00) Jan Y-O-Y -18.9% US Consumer confidence (15:00) Mar 26.0 Apr (f'cast) 28.0 Median 29.0 Range 23.0:35.0 Japan Retail sales (prel) (00:50) Feb Y-O-Y -5.7% Mar (f'cast) Y-O-Y -3.9% Median -4.9% Range -6.8%:-2.3% UK DMO auction of £3bn bonds at 4% due 2022 ECB member Smaghi speaks (17:30) US Treasury auctions $35bn 5yr notes (18:00) Chart of the day: Will the UK CBI survey follow the BRC index and report an improvement in retail sales? 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