GDP data for UK and US awaited

GDP data for UK and US awaited

Little economic data today…therefore the markets will be left to their own devices for the next couple of trading sessions. Having said that, the Far East continued Friday’s trend in equities to finish lower on the session. Wall Street traders were spooked somewhat by the seemingly ever-more frantic measures that Obama is promoting to try and revive his flagging popularity and news that Bernanke’s re-election for a further term was in doubt just left any bulls side-lined. The re-appointment of the dovish Ben Bernanke is seen as vital for the continuation of growth in the US economy going forward…..

At this stage in the week’s trading timetable then, we are very much looking forward to data and events later in the week. The headline catcher will be the release of updated GDP numbers from both the UK and the US with positive revisions expected for both. Although Alistair Darling has been down-playing expectations for the UK figure, the weekend press and market pundits have all (or mostly all) pencilled in a positive figure for the 4th Quarter (+0.3% giving a less negative annualised number of about -3.0%). This will no doubt be heralded as the first indication that the trough of UK economic performance has been passed and be greeted with great enthusiasm. The road to full recovery however will remain littered with potholes so expect any Sterling strength on the back of the news to be short-lived.

The US GDP numbers are expected to present a totally different outlook however with the numbers for the 4th Quarter, following the strong 3rd Quarter revisions, expected to indicate a significantly accelerating growth rate with the consensus for the annualised figure at +4.6% although expectations are as high as +5.5%. This leads us nicely onto the most important event of the week, the FOMC meeting on Tuesday and Wednesday, and specifically the dialogue surrounding the big up-swing in economic activity. The market expects no change in Fed Funds rates and no material change to the recent statements committing the Central Bank to maintaining rates at exceptionally low levels and for an extended period. The Fed is also expected to retain the end of March as the date to end its agency and MBS buying programmes. What is not known is the degree of discussion concerning the withdrawal of liquidity and how to present policy beyond the end of the asset purchase schemes and this is where market interest will centre. We won’t know for certain until the release of the minutes in 3-weeks time but expect market traders to become very Dollar bullish should the economy exhibit the anticipated growth rate. Given that the likelihood is that the Federal Reserve will begin the process of tightening rates and reducing liquidity much sooner than in the UK (recovery still uncertain), Japan (more QE measures expected) and especially earlier than in the Eurozone (with the continuing and ever-increasing problems with Greece requiring the ECB to maintain its current slack monetary stance), all the arguments point to the recent strong Dollar run being continued through the 1st Half of 2010.

Earlier today we got Australian 4th Quarter PPI reported as falling by 0.4% which may well cast a bit of a cloud over Wednesday’s more important CPI figure. The AUD spent most of last week firming against the US Dollar even against the back-drop of an enforced slowing down in Chinese economic activity and approaching next month’s policy meeting, I would think the currency remains in demand. The Japanese Finance Minister, Kan, made further comments about the Yen but appeared to take recent criticism to heart and ensured that his words were balanced. A more interesting statement was made by the ECB’s Nowotny who, ahead of the upcoming G7 get together, made veiled comments about the Chinese exchange rate policy and the effect that the overly weak Remnimbi was having on the European economic recovery. Looks like we have Agenda Item 1 for the next meeting……

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