httpvh://www.youtube.com/watch?v=QIhzl9u-9Fk

·         Possible monetary tightening in China sees risky assets decline

·         Fed to keep rates ‘ultra low’ for ‘extended period’

·         Pound moves higher on Sentence comment

·         PIMCO still bearish on UK debt

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Risky assets sold off heavily yesterday as speculators took cautionary measures against the prospect of further monetary tightening in China. This has led to fears that the global recovery may stall if China’s ferocious consumption and production figures are forcibly curbed however.

This led to equity markets sliding across the world by anywhere between 0.2% and 3%, bond prices falling and haven currencies such as the dollar and the yen strengthening.

Shares on Wall St managed to finish in the black after a positive reaction to yesterday’s decision. The accompanying statement told us the Fed will keep its promise to keep rates ‘ultra-low’ for an ‘extended period’; the buffet table is still open if I may.

Once again one of the better performers on the currency markets yesterday was the pound. After the disappointment of Tuesday’s GDP figure sterling rebounded yesterday after hawkish comments from Andrew Sentance, a member of the MPC. In remarks to the British Property Federation Residential Conference Mr. Sentance commented that while the recovery for the UK is likely to be uncertain and rocky we would avoid a double dip recession. He went on to state that he believes inflation will prove to be stronger than expected, spare capacity is less than most people think and that the resilience of the labour market (2 consecutive drops in unemployment) means we are in a fairly good position. These bullish comments gave sterling a kick to a new 5 month high of 1.1581 against the euro whilst moving us back above the 1.62 level against the haven backed dollar.

In the interests of balance we must also report on the negative comments against sterling; as much as some people would like this to be full of chest-beating propaganda. Bill Gross, head of PIMCO, in a note to clients, believes that UK gilts are ‘resting on a bed of nitroglycerin’ and are not to be touched with a barge pole. He warns that given the UK has “High debt with the potential to devalue its currency present high risks for bond investors.” He described the UK “with the highest debt levels and a finance-oriented economy” as being “exposed like London to the cold dark winter nights of deleveraging”. Good to see someone’s not on the fence.

Once again there is no data from the UK today and sterling may benefit from being out of the limelight for another session. We do have German unemployment at 08.55 and European Industrial/Consumer confidences at 10.00. Data from the US comes in the form of the typical Thursday Initial Jobless Claims.

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