Daily Market Report - 12/02/2016


Yesterday saw GBP fall to 15 month lows against a basket of currencies amid global fears of slowing forth prospects on the UK economy and a lack of movement on the interest rate hike notion. British 10 year gilt yield slid to a record low of 1.2250 percent in the morning session before recovering to at 1.305 percent in afternoon trade. At its low the 10 year gilt lost nearly 75 basis points so far this year and more than 35 basis points this week along which naturally highlights the lack in confidence surrounding the UK economy and the stance the BOE are taking on the monetary policy.
Interest rate markets are not pricing in a BOE rate hike until 2020 with Sterling overnight interbank average rates pricing in the chance of a rate hike in five years’ time. In addition, there is sentiment within the money market arena that some are factoring in a good chance of a rate cut in the coming months which would naturally push GBP even lower with the BOE leaving rates unchanged at 0.5% since March 2009.
Furthermore, the ever-looming notion of a Brexit is not helping sterling as should the UK leave the Eurozone, GBP will tumble even further. With the current economic stress, it is common to see countries with current account surpluses such as Japan, Switzerland and the Euro Zone be considered as a safer investments compared to those with deficits such as Britain and thus shedding some light on the current EUR strength against GBP.. 


Yesterday Federal Reserve chair Janet Yellen said she's looking into whether negative interest rates would be an applicable policy for the US at her testimony to congress.
"In light of the experience of European countries and others that have gone to negative rates, we're taking a look at them again, because we would want to be prepared in the event that we needed to add accommodation."
Concerns over US growth have risen in response to increased financial market volatility, although most economic data, such as the number of jobs being created, is holding up. 


The Euro had another strong session despite Portuguese government borrowing costs shooting up to their highest level since 2014 yesterday. Portugal’s government debt is currently stuck at around 130 per cent of GDP. The interest rate on the government’s 10-year bonds rose above 4.4 per cent. The new left-wing government which took over last year has promised to roll back on Brussels-imposed austerity measures. However, in a Portuguese budget approved last week by the European Commission, austerity will be harsher this year than in 2015.
Despite the budget receiving approval, German finance Wolfgang Schauble said today that loosing the purse strings “would be very dangerous for Portugal”.  

Key Announcements

13.30 – USD, Core retail sales MoM forecasted at 0.% with previous of -0.1%
13.30 – USD, Retail sales MoM forecasted at 0.1% with previous of -0.1%