NEWS / Foreign Exchange

BOE Votes 7-2 in April; Average Earnings Reach 21-Month High

- The European indices are currently trading in negative territory in the session on renewed concerns that the US will face sub-prime woes again stemming from vague market rumors.

- European government bonds are trading higher today on vague rumors that sub-prime woes may resurface in the US again, causing a rotation out of equity and into the safety of fixed income.  Gilts are also trading higher for the same reason, but gave up some of their gains upon the release of stronger than expected average earnings data. Germany sold ?‚¬6.365B in a top-up auction for the 3.75% March 2-year schatz. The bid-to-cover on the auction was 1.9, above the neutral call of 1.6, as well as the previous bid-to-cover of 1.4.

- The French trade balance widened to a deficit of ?‚¬3.3B in February, from a deficit of ?‚¬2.7B in January. The current account was expected to narrow to a deficit of ?‚¬2.4B.

- The Bank of England minutes from the April 5 meeting were released overnight. As most analysts expected the Bank of England voted 7-2 to keep rates unchanged at 5.25% at the April meeting. The dissenting voters, Besley, and Sentance, said that they saw strong upside inflation risks, and believed that demand would sustain high inflation. The MPC majority said that they did not see a compelling case for a rate hike, and believed that the consumption outlook was uncertain.

- Also in the UK overnight, average earnings including bonus, which was expected to remain unchanged at 4.2%, rose to 4.6%, its highest level since May of 2004. The average earnings figures further push the case for a Bank of England interest rate hike at the next meeting granted yesterday??™s consumer price data. At this point many analysts say that a 25 basis point hike is built in at the next meeting and speculate that, granted the recent date, the Bank of England may consider a 50 basis point hike in May.

- The ECB??™s Mersch said overnight that inflation risks remain high in the Euro-Zone and indicated that higher interest rates are ahead. Mersch said that the Euro-Zone economy should remain strong into 2008, and noted that, thus far, wages remain tame.

- According to a German newspaper, a leading German think tank sees German GDP growth of 2.4% in both 2007 and 2008.

- Front month crude oil futures are trading lower in the session following comments from the Iranian oil minister overnight. The Iranian oil minister said overnight that OPEC is unlikely to hold an early meeting, noting that current oil prices are seen as steady. The Iranian oil minister attributed oil price stability to OPEC output cuts.