Daily Market Report 25/01/2013

Sterling started yesterday range bound before falling heavily against most of its 16 peers after an industry report showed retail sales growth slowed in January adding to macroeconomic data in the past 6 weeks suggesting the economy is struggling to recover.

On the eve of the UK GDP figures being released, the International Monetary Fund also cut the UK’s growth forecast by 0.1% as well as stating that George Osborne’s austerity plan seems to be failing and that there should be a reassessment of fiscal policy. With sterling dropping to an eleven month low against the euro and to almost a five month low against the US dollar, investors will be setting their eyes on today’s GDP figures to get a better gauge of the flailing economy.

The euro gained support from better than expected manufacturing figures from Germany and the euro zone as well as comments made by emblematic investor George Soros, who once broke the Bank of England, telling eager ears at the World Economic Forum in Davos that “the euro is now here to stay”. As above the euro reached an 11 month high against the pound as well as approaching an eleven month high against the US dollar.

In other news, the South African rand fell again as the central bank left its benchmark interest rate unchanged and stated that a weak rand should benefits exports. Adding to the political uncertainty, falling growth rates and rising inflation, the outlook for the rand still remains uncertain.

Aside from the UK GDP figures being released at 9.30am, investors will be keeping an eye on the European Central Banks announcement at 11am, where they will give their first indication how much of the €1 trillion three year loans it lent out to banks is being repaid early.  The more that is paid back, the better the indication of improving economic conditions in the euro zone, as the banks would be less reliant on the central bank.

Thoughts for the day...

 The GBP figures are expected to show a contraction of 0.1%. A figure that is worse than this could potentially put further pressure on the pound. However if we see a better than expected figure we could potentially see a bounce for the pound, given that a contraction may already be priced in to sterling cross rates.

Key Announcements:

9.00am – EUR – IFO Business Climate in Germany: Expected to rise to 103.

9.30am – GBP – GDP (QoQ) (Q4): Expectations of a 0.1% contraction.

11.00am – EUR – Long Term Repayment Operations Announcement.

13.30pm – CAD – Consumer Price Index: Expected to increase to 1.2%.