week prompting thoughts that interest rate cuts in the UK will not be as vicious as

expected given inflationary fears. Other news included the Bank of England’s minutes

from February’s decision to cut details from the CBI on distributive trends.

UK retail sales jumped 0.8% against analysts’ expectations of a 0.2% increase allaying

fears of a severe and imminent slowdown and showing that the British High St. is

nowhere near the doldrums that some commentators and newspaper front pages

would have the average man in the street believe. The main boost was provided by

heavy discounting on electrical items and the seemingly endless expansion in internet

shopping.

The market was only slightly wrong-footed by the Bank of England Minutes published

on Wednesday with only one member, David Blanchflower, voting for a different policy.

Blanchflower is possibly the most dovish of all the MPC’s members and true to his

loosening ways instead voted for a 0.5% curtailment. Sterling stumbled in response

briefly but markets regained confidence within a few hours.

Bullish readings continued as the CBI’s distributive trends survey showed that the

industrial sector in the UK was upbeat over future conditions. 3% of firms polled told of

increasing order books compared with 2% on the previous reading; extending the 12

year run of increasing demand. Exports showed a fall off of 8% but confidence

readings for the next 3 months are all positive.

We will see whether the good sentiment in the manufacturing and retail sectors can

translate into the hearts and minds of Joe Public with the Gfk Consumer Confidence

figure due for release Friday morning. Given that the survey takes data from the past

year as well as for the future, predictions are still negative as the shock and turmoil of

recent market unease (Northern Rock et al) are still factored in.

This week’s data is predominantly US centric. Highlights include Existing and New

Home sales figures, Initial Jobless claims and the Chicago Purchasing Managers

index. All these however may pale into insignificance as Fed Chairman Ben Bernanke

once again testifies before the US Senate on Wednesday afternoon.

The EU moves back into focus this week after a fairly nondescript data cycle

previously. Releases of note will be Germany’s GDP and IFO data (both Tuesday) and

Consumer Confidence (Wednesday). The IFO release rose last month, moving away

from a 2 year low, predictions are of a fall and consequent euro weakness however.

The Euro enjoyed a strong week against all the majors but fell back against high

yielders on carry trade strength. The ECB downgraded its forecast on Eurozone growth

again on Thursday to 1.8% from 2.2% and raised its inflation forecast to 2.6% from

2.1%. Justification of this increase was shown in German inflation figures which jumped

0.8% alongside further allusions to a problem by voting members of the ECB. One

release which veered wildly from expectations was the current account figure which fell

by close to €10.5bln. This is widely credited to a lack of competitiveness because of

recent single currency strength and lack of investment due to credit crisis concerns.

Last week was tough for USD as recession fears continued to weigh and as such we

year. Heavy losses will probably not happen as USD will be backed up by global

recession fears because of the ‘flight to safety’ provided by US treasury notes. On the

data front recession was the buzzword as leading indicators fell along with the

Philadelphia Fed Index which dropped further below last month’s 7 year record low.

This was compounded by publication of the Fed’s minutes which warned of slowing

growth and rising inflation. The market continues to price in further cuts however the

Fed warns that once growth has stabilised we could see an equally strong tightening of

interest rates mirroring last month’s intra-meeting moves.

Minutes from the RBA’s last meeting helped AUD continue to strengthen against GBP

as thoughts of a 0.5% rise were widely discussed before settling on a 0.25% hike. This

is in keeping with the recent ‘tough talk’ on inflation that voting members seem to be

trotting out at speeches and on news programmes. Further support was also found due

to increasing gold and copper prices.

As seems the way recently NZD has been ably supported and to a certain extent is

being dragged around by its Australian counterpart. Increases in the carry trade due to

global stock market positivity also helped to underpin high returners; this will continue

on yield grounds. Towards the end of the week NZD rose above 0.8 USD a level which

has previously seen intervention from the New Zealand central bank; none is

forthcoming at the moment due to the movement being primarily down to US weakness

as supposed to Kiwi strength.

.Canadian dollar is the only commodity currency that did not enjoy a significant fillip

from rising commodity prices. Although some underpinning was evident due to the

elevated oil and gold prices, economic fundamentals dominated the agenda.

December’s wholesale sales data declined to 2.9% in December but more importantly

core prices fell to 1.4%, the lowest level seen in 30 months. This seems to support

thoughts of further cuts in coming months.

Wednesday saw the South African Budget announcement which to regular viewers

proved very interesting. The Treasury has taken the opportunity to announce a number

of headline-grabbing budget measures, including a cut in the corporate tax rate to 28%

(from 29%) along with opening up the restrictions on certain financial products listed on

the JSE. Finance Minister Manuel put Wednesday’s falls down to speculators attacks

with the rand able to recover half the losses over the coming days.

anytime regarding these briefings, if you have any questions or thoughts on them, or if you are

interested in a particular event in the calendar.

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The above comments are only our views and should not be construed as advice. You should

act using your own information and judgement. Although information has been obtained from

and is based upon multiple sources the author believes to be reliable, we do not guarantee its

accuracy and it may be incomplete or condensed. All opinions and estimates constitute the

authors own judgement as of the date of the briefing and are subject to change without notice.

Any rates given are interbank and therefore for amounts of £5million and so are not indicative of

rates offered by World First for smaller amounts.

GBPUSD, move as any combination of two of these rates must produce the third in order to satisfy a

condition known as No Arbitrage. If there are movements in two markets, then the third must move

deterministically. Also knows as triangulation.

higher yield economy (Australia). This yields a certain profit unless the interest rate differential narrows or

the exchange rate moves such that it costs more to buy the currency back.

Macroeconomic models (such as eCIP).

elements like energy and luxury consumption leaving the ‘boring’ elements like utility bills and food.

[Quotes from BoE governor Mervyn King]

Interest Rate Traction: Although there is a group of people who announce an interest rate, it has to feed

through the economy through some very complex and poorly understood channels. Once rate hikes are

having an effect on inflation and long term yields it is said that they are finding traction with the economy.

who are not employed.

Participation rate: The percentage of the population of working age in the labour force.