Daily Market Report 12/03/2013

On a day with very little data, markets were fairly subdued yesterday with the only notable move being sterling dipping to a fresh new 32 month low against the US dollar.

The positive US jobs numbers on Friday continue to stoke speculation that the Federal Reserve will, at some point, cut back on its substantial stimulus programme. With tomorrow’s retail sales report expected to show an improvement of 0.5%, the data could give further weight for such a case. A scaling back of the programme would give the US dollar more support and thus cause it to strengthen further.

In the euro-zone, negative GDP figures released from Portugal yesterday showed a drop to 1.8% in the fourth quarter signaling a rapid acceleration in the contraction of the economy, driven by a fall in exports. It is said that Portugal is weighed down by a stern austerity package, adding further pressure to the country's economic outlook.
The Greek economy meanwhile contracted by 5.7% in the fourth quarter, a slight improvement on initial estimates of a 6% decline.

Data released this morning have shown that inflation has reduced in Germany and Italy to 1.5% and 1.9% respectively.

A busy morning for the UK as investors will be keen to see the outcome of manufacturing and industrial production figures along with the latest trade balance data. A disappointment in these figures would give increasing evidence to suggest the economy is headed for its third recession in four years, which would likely drive the Bank of England to further expand its quantitative easing measures – a move that would cause the pound to weaken. The National Institute of Economic and Social Research will be publishing its gross domestic product estimate for February.

Key Announcements:

9.30am – GBP – Goods Trade Balance: Expected to worsen to -£9bn.

9.30am – GBP – Industrial Production: Expected to improve to -1.1%.

9.30am – GBP – Manufacturing Production: Expected to improve to -1.1%.

15.00pm – GBP – NIESR GDP Estimate: Last figures showed stagnation at 0%.