Intraday Market Thoughts

UK Contracts; FOMC New Line-up / Schedule

by Patrik Urban
Jan 25, 2012 12:48

German IFO improves and bund auction results in lower yield. UK GDP contracted boosting QE speculation. Market turns to pending home sales, FOMC (statement and press conference see below) and RBNZ.

The USD is currently losing a part of the gains it made earlier during the session. European equity indices are losing about 1% and the biggest relative strength losers are EUR and NZD.

German Ifo data for January surprised to the upside as business climate rose to 108.3 from 107.2 and the expectations component rose to 100.9 from 98.6. Positive news from Germany continued as it sold EUR 2.458 bln worth of 2042 bunds today (target EUR 3 bln). The average yield declined to 2.62% from 2.82% and cover improved to 2.1 from 1.1.

However, the sentiment turned negative and the EUR sold off after MNI reported that hopes of a successful Greece deal are falling which increases the risk that the ECB would take a loss on its Greek debt holdings. The ECB allotted nearly EUR 20 bln in 3 month LTRO today.

In the UK, Q4 GDP contracted -0.2% from +0.6% q/q (0.8% from 0.5% y/y). Larger than expected contraction combined with yesterday's dovish comments from BOE governor Marvyn King are likely to boost QE speculation. MPC meeting minutes showed unanimous rate decision and some members stated again that further QE was likely needed. BBA mortgage approvals rose in December to 36.2K from 34.8K. GBP first weakened across the board but quickly recovered losses and trades at 1.5575 against the USD.

The US session starts today at 8:15 am ET when the ECB president Mario Draghi participates in a panel discussion about Europe's outlook.

The first release of the day is pending home sales that are expected to drop -0.6% in December after solid 7.3% growth seen in November.


12:30 EST, 17:30 GMT:

Federal Open Market Committee decision


Federal Reserve published FOMC participants, federal funds rate projections for the first time, accompanied by updated quarterly, economic assumptions.


Chairman Ben Bernanke holds news conference to present the FOMC's current economic projections.

The FOMC will keep rates below 0.25% and release its statement at 12:30 pm and the press conference will follow at 2:15 pm. Given the recent fundamental improvements, especially in the labor market, the commission is unlikely to start hinting new QE at present but will stick to its "exceptionally low fed funds rate through 2013" forecast. Today will be the first time when the FOMC will announce its interest rates projections which are likely to be traders' main focus.

Later in the session at 3:00 pm, the RBNZ will announce its rate decision and release its statement. Rates are expected to stay at 2.5%.

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