Intraday Market Thoughts

UK Back In Recession; FOMC Statement, Projections, Conference Next

by Patrik Urban
Apr 25, 2012 12:57

UK GDP contracts; Draghi comments; German auction; India outlook. Market turns to durable goods orders; Onto FOMC decision, rate projections, press conference and Ashrafs LIVE FOMC Webinar (see details on how to register)

USD is mixed in the ongoing session; weaker against EUR, AUD, NZD and JPY and stronger against the rest of the majors. European gain about 1.5%, with the weakest currency being GBP.

ECB president Mario Draghi said that LTROs have been timely and successful but would not precommit for another round. He noted that the inflation is likely to remain above 2% target in 2012 but should decline in early 2013. He also reiterated that the SMP is not eternal.

The UK is officially back in a recession as Q1 GDP contracted 0.2% from -0.3% q/q (0% from 0.5% y/y). The decline is mainly attributed to construction sector that dropped 3%, which is the biggest q/q decline since Q1 2009 and to industrial production activity that fell 0.4% while the service sector grew a mere 0.1%. GBP declined across the board and fell from 1.6169 to 1.6082.

UK CBI industrial orders were unchanged in April at -8 but manufacturing business optimism surged compared to the beginning of the year.

Germany sold EUR 2.405 bln worth of 30 year bond today vs. EUR 3 bln target. The yield declined to 2.41% from 2.62% but cover declined dramatically to 1.1 from 2.1.

In other news, S&P revised its outlook for India to negative as India suffers high fiscal deficit and dim economic growth prospects.

The US session starts at 8:30 am ET with durable goods orders that are expected lower in March at -1.5% from February's 2.4% (core orders seen at 0.6% from 1.8%).

Todays FOMC Statement, Projections & Bernanke Press Conference

Todays FOMC statement/decision is due at 12:30 pm ET (17:30 BST = London time). At 2:00 pm EST, the FOMC will release the ALL IMPORTANT ECONOMIC PROJECTIONS, in which it will publish the distribution of the members expecting the appropriate time for policy firming. 15 minutes later, Chairman Bernanke will give the anticipated press conference.

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The Operation Twist will complete by the end of June so should an extension or another type of QE be announced so easing can continue without interruption, it would have to be today or on June 19/20 meeting as the FOMC does not meet in May. A hawkish surprise could come in the form from the rate hike projections.

At 5:00 pm EST, the RBNZ will announce their rate decision. Market expects the cash rate to remain unchanged at 2.5%.


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