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Equity sell off

Currencies Direct April 21st 2009 - 2 minute read

On the face of it yesterday’s Bank of America’s Q1 figures were excellent continuing the recent strong rebound in US Banks’ performances with the organisation reporting a better-than-expected $4.2bn in Q1 earnings, which reflected strong results at recently acquired Merrill Lynch.

The sunny outlook was however clouded by a serious health warning with US stocks suffering their worst one-day fall in 6-weeks as BoA worried investors with a bleak analysis of economic conditions in the coming months. This about-turn in the fortunes of Wall Street added to the US Dollar’s impetus enabling a break and hold below 1.3000 against the Euro and easing cable towards 1.4500. This trend looks likely to persist over the next few days at least, with concern for Sterling ahead of the budget and a continuation of the poor prognosis for Eurozone economic recovery.

On that theme, there was a report in yesterday’s edition of the German newspaper, Sueddeutsche Zeitung that the German government will next week slash its 2009 economic forecast and project a 5-percent contraction in gross domestic product (GDP) with the collapse of incoming orders given as the major reason. The government’s last forecast was for GDP to contract by 2.25 percent this year. This argues strongly for a weaker euro to try and stimulate the export market in both German and the eurozone as a whole. Problem here of course is that if the whole planet is going to use the same ploy of allowing their currencies to depreciate to facilitate a pick up in exports, then what currency is going to receive the ‘benefit’. It looks a toss up between the Yen and the Martian Mark but more likely will turn out to be the Dollar.

Yesterday we were also given the latest assessment of the UK economic battlefield with a surprisingly bullish outlook …. although the health warnings were never far away. “worst of UK recession is over” they state but added quickly that the move into recession had occurred much quicker than had been anticipated. No reaction from Sterling. Better news for the UK came from Tesco’s results which were stronger than had been expected and accompanied by the comment that the company were predicting that consumer pending had passed the base of the trough and was edging higher. It will be interesting to see what today’s UK inflation figures are. Anything higher than the 2.9% rate that has been widely mooted will cause consternation that both money supply and inflation are beginning to get out of control.

Today, aside from the UK data we get the German ZEW indicator (judging by the above, it should not be too good) and rate decisions from Sweden (already out – they cut by 50 points down to 0.50% but on a split vote with some members wanting a cut down to 0.25%) and Canada this afternoon with a further cut expected in Loonie interest rates. Other than these, we are scheduled to get very little data and so, just for a change, currency markets will focus on the performance of equity markets for direction. Expect a recovery in stock prices and a corresponding small fall in the Dollars value this afternoon

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