NEWS / Foreign Exchange

UK Trade Deficit Widens More than Expected in February

- The European indices are currently trading in negative territory in the session following the release of the FOMC minutes yesterday, which added speculation that the ECB will also raise borrowing costs further within the coming months.

- Ahead of today??™s ECB interest rate decision European government bonds are currently trading lower as investors await the post announcement press conference. Investors will be watching for Trichet to make any indication on when the next interest rate hike may come. Note that the general consensus among investors is that if Trichet says something to the effect that [sic] ???the ECB will continue to monitor developments??? it will indicate a possible June interest rate hike, while ???strong vigilance??? is likely to indicate an interest rate hike in May. Over in the UK gilts are trading lower despite dovish comments from the British Chamber of Commerce. The UK DMO sold ??1.1B in 2017 Index-Linked Gilts with an average yield of 1.818% and a bid-to-cover of 2.07, which was below the neutral call of 2.49, and the previous bid-to-cover of 2.35.

- As expected Swedish CPI for the month of March was 0.7% m/m, but fell to 1.9% y/y, below estimates of 2.0%. Underlying inflation was 0.5% m/m and 1.2% y/y, below estimates of 0.6% and 1.3% respectively. The Swedish AMS unemployment rate declined for the second consecutive month to 4.0% in March, from 4.3% in February as continued economic growth prompted more hiring.

- The UK trade balance deficit widened by more than expected during the month of February. The visible trade balance widened to a deficit of ??6.79B, which compared to estimates for a deficit of ??6.4B. The Non-EU trade balance widened to a deficit of ??4.07B, and the total trade balance widened to a deficit of ??4.31B. The data indicated that the worsening in the global goods trade gap primarily resulted from a rise in the deficit with non-EU countries.

- As expected the final reading of Q4 GDP was unchanged from the preliminary reading in the Euro-Zone at 0.9% q/q and 3.3% y/y. Despite the stable preliminary GDP readings, the final gross fixed capital reading was revised up to 1.5% from 1.2%, while household consumption was revised down to 0.4% from 0.6%, and government expenditures was revised up to 0.4% from 0.0%.

- In its quarterly economic survey the British Chamber of Commerce said overnight that Bank of England rate hikes have significantly dampened economic growth. Furthermore the BCC said that there have been clear signs of weakening economic growth during Q1. The BCC said that further interest rate hikes could entail major economic risks.

- The EU Commission left is Q1 GDP forecast for the Euro-Zone unchanged overnight in a range of 0.4%-0.8%. The EU Commission revised its Q2 range to 0.4%-0.9% from the previous forecast of 0.5%-0.9%, and forecasted Q3 GDP growth in a range of 0.3%-0.9%.

- In its monthly report, the IEA cut its 2007 world oil demand forecast by 250K bpd to 85.8M bpd. The IEA raised China??™s 2007 demand growth forecast to 6.8% from the previous forecast of 6.1%. Front moth crude futures are currently trading higher in the session, but remain below the $63 handle.