Sterling Declined

April 25, 2012

Britain’s disappointing first-quarter GDP report depressed sterling.

Small business sentiment in Japan also underperformed expectations.  Speculation persists that the Bank of Japan will ease policy on Friday.

Investors await today’s FOMC statement at 16:30 GMT and Fed Chairman Bernanke’s press conference at 18:15 GMT.

New Zealand and Australia were closed to day for ANZAC Day, which commemorates soldiers from those countries who’ve sacrificed their lives.

The dollar advanced 0.3% against the pound but has slid otherwise by 0.3% against the Swiss franc and Aussie dollar, 0.2% versus the kiwi and euro and 0.1% relative to the loonie, yen and yuan.

The 10-year Japanese government bond yield (JGB) slipped another basis point to 0.92%.  The 10-year German bund rose two basis points.

Asian share prices rose 1.0% in Japan, 1.6% in Vietnam, 0.9% in Taiwan, 0.8% in China, but they fell by 0.3% in India and 0.2% in Hong Kong and Malaysia.  The Paris Cac (+1.7%) and German Dax (+1.2%) rebounded solidly, but the British Ftse is just 0.2% firmer.

Oil prices advanced 0.5% to $104.04 per barrel.  Gold prices, in comparison, slid 0.2% to $1640.00 per ounce.

British real GDP contracted 0.2% last quarter, which together with a 0.3% drop in the final quarter of 2011 constitutes a technical recession.  GDP was unchanged from a year earlier after climbing 1.6% in the year to 1Q11.  Between 4Q11 and 1Q12, output of production industries fell by 0.4%, and construction plunged 3.0%.  Services edged up 0.1%.  There hadn’t been a double-dip recession in Britain since the 1970s.  The economy isn’t sufficiently recovered to handle the tough austerity imposed by Prime Minister Cameron and Chancellor of the Exchequer Osborne.  In the four years between the first quarters of 2008 and 2012, real British GDP dropped 4.3% on net, a 1.1% per annum rate of contraction.

The U.K. monthly index of service sector activity was 0.2% stronger in the three months to February than in the prior three-month period.

The CBI monthly survey of industrial trends produced a better reading of +8% in April after minus 8% in March and minus 3% in February.  Although the best reading since March 2008, markets disregarded the news and instead focused on the unexpected contraction reported in GDP.

Japan’s Shoko Chukin index of small business sentiment fell by 1.1 points in April to 47.6.  Such was nonetheless higher than quarterly average readings of 46.6 in 1Q12 or 46.0 in 4Q11 as well as the 36.1 score in April 2011 right after the Sendai earthquake.  Still, figures below 50 connote pessimism.  Japanese machine tool orders were 1.6% greater in March than a year earlier.

South Korean consumer confidence improved three points to 104 in April and was six points above the January reading.

Mitt Romney won five more Republican primaries in Delaware, Pennsylvania, New York, Rhode Island, and Connecticut.  He benefited greatly from financial support that surpasses the other candidates and a very effective negative ad campaign.

Wednesday has been a very light day from a data release standpoint in Continental Europe.  Spanish producer prices edged 0.1% lower in March and were 0.7% higher than a year earlier.  Polish retail sales exceeded their year-earlier level by 10.7% in March, and Poland’s jobless rate ticked downward to 13.3% from 13.5% in February.  Greece posted a EUR 1.08 billion trade deficit in February. 

Scheduled U.S. data releases include monthly durable goods orders and weekly mortgage applications and oil inventories.  The main U.S. event, however, will be the FOMC statement and Chairman Bernanke’s press conference, which will unveil revised forecasts from individual members of the Federal Open Market Committee. Late today will bring news of the latest interest rate decision from the Reserve Bank of New Zealand.  Neither it, nor the Fed, is expected to change policy.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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