Daily Market Report 22/02/2013

Public sector borrowing data released yesterday morning showed a bigger than expected surplus in January, causing the pound to make gains across the board.

However, whilst yesterday’s data should prove to be a short term positive for the pound, a level of cautiousness should be noted, as UK borrowing still remains 1.6% higher than this time last year. George Osborne will thus face a challenging task to bring full-year borrowing down to £108.5bln from around £120bln last year before he presents his budget in March.

Whilst manufacturing figures from the euro zone and Germany fell short of market expectations, it was the figures from France that caught investor’s eyes and put the country’s struggling economy into the spotlight. Both services and manufacturing PMI fell short of market expectations. The two together make up for approximately two thirds of the economic output in France and thus provides for a negative growth outlook for Europe’s second largest economy.

Yesterday’s data showed that US inflation remained the same, which should provide impetus for the Fed to maintain its current stimulus programme. Figures also revealed that jobless claims rose more than anticipated and Markit and Philadelphia manufacturing numbers were short of market expectations. The disappointing data gave investors a reason to sell out of riskier assets such as the euro and stocks and seek refuge in the safety of the dollar.

We have had mixed figures from Germany this morning as GDP figures show that Europe’s biggest economy contracted as anticipated, with exports declining by 2% in the fourth quarter. However IFO business climate numbers came in higher than expected providing support for the euro. Investors will have one eye on the outcome of the Italian general elections this weekend, where there is a possibility of a hung parliament, which could hinder strength in the euro.

Key Announcements:

10.00am – EUR – Italian Consumer Confidence: Expected to fall to 84.8.

10.00am – EUR – European Commission Economic Growth Forcasts.

11.00am – EUR – Italian Retail Sales: Novembers figures showed 0.4% contraction.

13.30pm – CAD – Consumer Price Index: Expected to fall to 0.7%.

13.30pm – CAD – Retail Sales: Expected to contract by 0.3%.