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Yield is king...

More weak data from the UK this morning as official figures confirmed that gross domestic product contracted by 1.6% against the estimate of 1.5%: This follows weak sentiment from the CBI and weak retail sales data released yesterday.

Sterling has dipped this morning against the euro and the US dollar, and has even slipped a little against the yen. Historic economic data on the UK economy is still of concern and affecting Sterling; this is contrast to the US, where the market is focusing on more forward-looking projections rather than historic data. It seems the US is currently in buoyant mood, despite yesterday's posting of GDP at the weakest for 26 years and jobless rolls at a record high.

Tim Geithner yesterday announced a raft of measures to sure up the financial sector and prevent similar problems occurring again in the future. His measures included ensuring large firms being required to hold larger quantities of capital in the good times to support themselves in the bad times: Common sense, you would think, but the cold facts of the recent past paint another story.

There will also be a single body to regulate financial institutions with a similar remit to the FSA in the UK (there will be a strong focus on financial stability). Equities have continued to perform well globally following the US Fed's plan to mop-up toxic debt and this has led to volatility in the foreign exchange markets. The main trends experienced in the last week showed a move out of low-yielding currencies such as the US dollar, the yen and Sterling into higher yielding currencies such as the New Zealand and Australian dollars and the South African (the kiwi dollar climbed to a ten-week high against the Greenback).

We have a big week next week, with interest rate meetings for the Bank of England and the European Central Bank (ECB). The G20 meeting also kicks off at Excel in London.

It will be very interesting to see how the ECB moves on interest rates and if it discusses the introduction of added measures to help the economies in the Eurozone…


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