·         Cadbury’s agree to takeover by Kraft at 840p per share

·         Chancellor Darling promises massive spending cuts although health, education, police and overseas aid safe

·         CPI forecast to be strong in the UK, £ could continue higher.

All this and more is available on our blog. Click here  http://www.worldfirst.com/blog

An interview in the FT with Alistair Darling in which he promises swinging spending cuts has given sterling another prod higher.

The Chancellor states that having the budget deficit in 4 years in ‘non-negotiable’ and has dispatched the Chief Whip to find yards of spending cuts through the so-called ‘Public Value’ program. The market has taken this well so far although there is the risk that continued cutting may be seen as a risk to the recovery. It looks like the Budget, due late March, will be the time when he get across the details of where the most drastic of cuts will be. Labour have however promised to protect education, police, overseas aid and health however.

It was fairly quiet trade on FX markets with it being an US public holiday yesterday. Risk however was definitely ‘on’ in trade and this saw the dollar and yen weaken through the session whilst the pound and commodity currencies such as Aussie, Kiwi, Norwegian and Swedish moved higher.

The appetite for risk has been helped after it was rumoured that Kraft are due to increase their offer for Cadbury’s this morning. We have subsequently learnt that Cadbury’s have agreed to be taken over by Kraft at 840p per share. 500p is in cash while the remainder is made up of Kraft shares.

This, combined with a Rightmove survey showing that house prices rose in December, propelled sterling to a 2 month high on a trade weighted measure and a 5 month high against the euro. There is the prospect for further gains in the form of UK CPI which has been ’sticky’ throughout the downturn. Should we see it print at XYZ or above then the belief will increase that the Bank of England must end its quantitative easing program next month.

Other data on the sheet for today includes German ZEW Economic Sentiment, forecast to fall as fears over the stability of Greece increases (10.00), the Bank of Canada interest rate decision where no change is forecast (13.30) and US housing at (18.00)