Daily Market Report 16/04/2013

As suspected in yesterday’s report, appetite for safe havens were the order of the day as data from China showed that the economy grew slower than forecasted in the first quarter of 2013.

As a result higher yielding currencies suffered as sterling gained 1.93% against the South African rand, 1.11% against the New Zealand dollar, 0.92% against the Australian dollar and 0.55% against the Canadian dollar by the close of European trade. The US dollar and yen also managed to regain some of last week’s losses as investors seemed concerned over the outlook for global economic growth.

The only data to report about came from the euro zone and the US. Eurostat figures revealed the euro zone posted a trade surplus of €12bn in February up from a revised surplus of €8.7bn in January. Data from the US revealed that Empire State manufacturing index fell to 3.1 in April from 9.2 in March, which added to global growth concerns.
Last night we had the latest minutes released from the Reserve Bank of Australia’s latest policy meeting, which revealed that the current inflation outlook provides scope for further interest rate cuts. The news caused the Australian dollar to weaken to a month low against the pound.

Looking ahead to today we have inflation figures due for release at 9.30pm, with the figure expected to stay high at 2.8% in March. Whilst higher prices may give less scope for an expansion of quantitative easing (the next vote on this will be tomorrow) and thus be sterling positive; a higher reading may actually put pressure on the pound due to the negative impact of higher prices on the ailing economy.

Euro zone inflation figures are also on the agenda today with the reading set to show a drop of 1.7% from 1.8%. A lower reading could raise the prospect of a possible rate cut by the European Central Bank in the near future, especially as it was hinted in Mario Draghi’s latest monetary policy speech that a rate cut could not be ruled out. In fact Mario Draghi is set to make a speech at 2pm today, so his words will no doubt be dissected for any indication that he hints at further rate cuts.

The unfortunate bombings in Boston saw safe haven flows into the US dollar last night, with the US dollar strengthening by approximately half a cent against the pound and the euro. Brent Crude oil has fallen to nine month lows as investors still appear to be spooked by the disappointing growth figures from China yesterday and to complete the picture, rating agency Moody’s has lowered its outlook on China from positive to stable.
Given the current economic climate and sentiment, we could well see a continuation of yesterday moves and thus there is scope for the US dollar to strengthen, given the current selling pressure on the yen and gold.

Key Announcements:

9.30am – GBP – Consumer Price Index (Mar): Expected to remain at 2.8%.

9.30am – GBP – Producer Price Index (Mar): Expected to reduce to 2%.

10.00am – EUR - Consumer Price Index (Mar): Expected to reduce to 1.7%.

10.00am – EUR – German ZEW Survey Economic Sentiment: Expected to reduce to 42.

13.30pm – USD – Consumer Price Index (Mar): Expected to reduce to 1.6%.

13.30pm – USD – Housing Starts (Mar): Expected to improve to 930,000.

14.00pm – EUR – ECB President Draghi’s Speech.

14.15pm – USD – Industrial Production (Mar): Expected to fall to 0.2%.