The leaked IMF report was finally released yesterday and caused quite a sit as although everyone new that global growth was being downgraded to 0.5%, the details of each countries' prospects put the UK at the bottom of the pile, with a forecast fall in GDP of 2.9% in 2009, the worst in the 'developed' world. The figures were much worse than the UK government's own figures, and made a mockery of the governments assertion that the UK economy is 'uniquely placed' to weather the global downturn, although admittedly this hasn't been heard as of late. Brown was also quick to claim that the recession would be longer in other countries than in the UK, as if it was a competition; if it was a competition then even though the UK are currently last we are not far behind, only 0.2% behind Japan, and 0.3% behind Germany, and it wouldn't take much to move the UK up the league table.
The IMF report made little effect on the markets as once again events in the US took precedence; Obama's stimulus plan was passed by the house of representatives, although without the support of a single Republican representative, which does not bode well for it's passage through the Senate in which individual senators can abuse the procedures to stop any bill they don't like, as long as they can stay on their feet and keep talking long enough. Throughout the day the Pound climbed as risk appetite continued to lead investors to move their funds away from Dollars, however once the US Fed had given their announcement the flow was reversed.
The Fed kept rates unchanged, as they had little choice but to do, however the general tone of the announcement was relatively optimistic, although they acknowledged that the economic conditions had actually worsened since their last meeting, they predicted recovery as early as late this year. The Fed didn't provide the type of quantitative easing that some had expected, and hoped for, however they did announce some measures to try to stimulate lending and in particular the housing market. The expectation that the US would be first out of the recession, after all it was first into it, has given the Dollar a boost and Sterling fell against the US currency from above 1.43, to below 1.41, although it has stabilised above this level this morning. The Euro mirrored Sterling's move falling from above 1.33 against the Dollar, to sit below 1.31, while Sterling kept it's recent gains against the Euro holding above 1.08.
We've had some nationwide UK housing data out overnight which shows that the housing slump as yet to reach it's nadir, with prices falling 1.3% in January, although this hasn't made much impact as no-one is surprised by bad housing news anymore. The rest of the day's focus will be on the Eurozone and their month end surveys which are likely to disappoint putting yet more pressure on the Euro, not helped by the atavistic French going on a general strike, to protest against a new labour law for the under 26, which looking at the details does seem rather draconian. It is likely that the Euro may have seen it's peak against Sterling as the currencies come back into a more reasonable level.
Michael Corcoran - Assistant Manager | Treasury Solutions