Contrary to analysts’ expectations British industrial output figures were published revealing a 0.6% fall in November highlighting the suspicion that the overall UK economy contracted in the final quarter of 2011 and will inevitably fall back into a technical recession zone. The ONS report stated that the fall in industrial production was caused by a decline in oil and gas extraction, and lower electricity production caused by unusually warm weather in November.
Tesco, the leading UK and european retailer has delivered its worst Christmas sales performance in decades despite the high profile £500m price cuts campaign to attract shoppers back to its stores. Philip Clarke, the CEO, stated “disappointment” with the performance, arguably the weakest of the four major supermarket chains over this crucial trading period. Analysts were anticipating an 0.8% drop in underlying sales for the six weeks to 7th January, like-for-like sales (excluding VAT and petrol), dropped 2.3%.
Sterling hit a three-month low versus the dollar in early trading as investors displayed concerns about the UK industrial output data which was due out at 9:28am. Sterling fell to a low of $1.5279, close to the 2011 low of $1.5270, below which would mark its lowest since late July 2010. Traders cited selling by a UK clearer and said the pound extended falls after dropping below stop loss orders around $1.5300. Cable has since recovered and is currently quoted at circa 1.5325.
The pound also fell versus the euro, the single currency benefited from investors trimming short positions. However, sterling is staying put, not far from a 16-month high. The euro was up 0.3 percent versus the pound at 83.15 pence.
The ECB reports that a massive €470bn was deposited with them overnight as banks favour using the ECB as tne safe haven for excess cash rather than lend it out to other banks. Overnight deposits have been at unusually high since August 2011, and hit several record highs in recent weeks particularly since the increased liquidity pumped into the system in December 2011.
Royal Bank of Scotland Group Plc, Britain’s biggest government-owned bank, has announced that 3,500 jobs will go at its investment bank over the next three years as it jettisons unprofitable cash equities and mergers advisory operations. RBS will sell or close the units, along with its corporate broking and equity capital markets operations. The lender said it’s in talks with “a number” of buyers for the operation. A further 2,000 jobs were also cut in the second half of last year.
Market Overview
Europeansequiturs rose and Spanish bonds gained after the government sold almost double the amount planned at an auction. The yield on the Spanish two-year note dropped to less than 3 percent for the first time since April 2011, with the extra yield investors demand to hold Italian 10-year bonds instead of benchmark German bunds slipping 30 basis points at 9:50 a.m. in London. The Stoxx Europe 600 Index gained 0.5 percent. Standard & Poor’s 500 Index futures added 0.2 percent. Copper climbed 1.2 percent, and the S&P GSCI gauge of 24 commodities increased 0.6 percent.
Spain sold 9.98 billion euros ($12.7 billion) of notes, compared with a target of as much as 5 billion euros. Italy is scheduled to sell 12 billion euros of bills. Japan said it may reduce petroleum imports from Iran, which has threatened to shut the Strait of Hormuz.
The euro strengthened 0.3 percent against the yen and appreciated 0.2 percent versus the dollar. The European Central Bank and the Bank of England will probably keep interest rates unchanged today, according to economists surveyed by Bloomberg.
Market snapshot at 10:30 am GMT (UK time)
Asian markets mainly fell in the overnight early morning session, the Nikkei closed down 0.77%, the Hang Seng closed down 0.3% and the CSI closed down 0.02%. The KOSPI was the major exception closing up 1.03%. The ASX 200 closed down 0.16%. European bourses have fared well in the morning session due to successful debt auctions, the STOXX 50 is up 1.30%, the UK FTSE is up 0.4%, the CAC is up 0.93%, the DAX is up 1.30 and the MIB is up 2.3%. the SPX equity index future is up 0.31%. ICE Brent crude is up $1.13 a barrel at $113.37 and Comex gold is up $12.80 at $1652.40.
Economic calendar releases to keep a weather eye on during the afternoon session
12:45 Eurozone – ECB Rate Announcement January
13:30 US – Advance Retail Sales December
13:30 US – Initial & Continuing Jobless Claims Weekly
19:00 US – Budget Statement December
Advanced retail sales are a measure of sales of goods to consumers at retail outlets. The data is gathered through a survey of a random sample of retailers and calculated as total receipts of retail sales in nominal dollars excluding returns, taxes and finance charges. The headline figure is reported as a percentage change from the previous month. Economists surveyed by Bloomberg gave a median consensus of +0.30%, compared to last month’s figure of +0.20%.
A Bloomberg survey forecasts initial jobless claims of 375,000 for week ending 7 January, compared with the previous figure of 372,000. A similar survey predicts a figure of 3,590,000 for continuing claims (week ending 31 December), compared to the previous release of 3,595,000.
