Daily Market Report 28/01/2013

GDP figures released on Friday showed that the UK economy contracted more than expected in the fourth quarter of 2012.

Manufacturing and industrial output contributed to the overall bearish GDP figure, with the respective sectors contracting by 1.5% and 1.8% respectively. The impact on the pound was unsurprisingly detrimental, with the currency falling to a 13 month and 5 month low against its two major trading counterparties, the euro and the US dollar.

The European Central Bank announced on Friday that 278 banks planned to repay €137.2bn of the money it lent as part of the LTRO (long term refinancing operation). With other central banks, the US Fed, Bank of England and Bank of Japan still looking to bolster their balance sheets to boost their economies; the news that the ECB was taking back some of the excess liquidity provided confidence in the euro. Support also came for the euro with the German IFO business confidence index coming in higher than anticipated, indicating signs of recovery in Germany.

We saw further weakness in the Japanese yen on Friday, following comments made by Japan's Deputy Economy Minister Yasutoshi Nishimura that an exchange rate of 100 yen to the dollar would not be a concern to the government.

The Canadian dollar also added to its recent losses following unexpected weak inflation data indicating that the Bank of Canada would hold back from hiking interest rates.

Italian consumer confidence figures released this morning have fallen below expectations.

Key Announcements:

9.30am – EUR – ECB’s Asmussen gives press conference.

13.30pm – US – US Durable Goods: Expected to rise to 1.8%.

15.00pm – US – Pending Home Sales: Expected to fall to 0.3%.

16.00pm – CAD – Bank of Canada Governer Mark Carney Speech.