Daily Market Report 08/02/2013

European Central Bank president Mario Draghi dovish tone on the euro zone surprised markets yesterday, causing the euro to decline against all but two of its 16 major peers.

Despite suggesting that the euro zone could return to growth later this year, investors took their cue to sell the euro following Draghi’s comments that the recent strength in the currency puts a downside risk to inflation as well recovery prospects for the region. The ECB also left the interest rate unchanged.

Earlier on in the day, incoming Bank of England governor surprised markets by stating that the UK’s current monetary policy may be enough to support the economy, damping speculation that he would expand stimulus immediately upon his tenure. The BoE also left the interest rate at 0.5% and kept the asset purchasing program at £375bln.

Economic data yesterday from the UK showed that industrial and manufacturing production and total trade balance beat market expectations and the NIESR GDP estimate for January showed that the UK had stopped contracting. However the impact of the figures on sterling was fairly muted.

A string of good figures came in from China last night with trade balance and inflation figures coming in better than expected. The Reserve Bank of Australia cut their growth and inflation forecasts last night citing potential further cuts in the interest rate.

Yesterday’s euro weakness could well be short lived, as better than expected trade balance figures released from Germany and better than expected industrial figures from Italy this morning seem to be providing support for the euro. Today’s focus will be on the EU budget, where officials will be looking to reduce the budget by €30bln to €960bln over the next seven years.

Key Announcements:

13.30pm – USD – Trade Balance: Expected to reduce to -U$45.80bln.

13.30pm – CAD – Net Change in Employment: Expected to reduce to 5000.