NEWS / Foreign Exchange

German IFO Survey Exceeds Expectations

- The European indices are trading higher in the session on increased merger and acquisition speculation after an RBS-led consortium may a bid for ABN Amro in excess of Barclay??™s bid.

- European government bonds are trading lower in the session following profit taking after some recent short technical gains, as well as a stronger than expected reading on the -German IFO survey for the month of April. Similarly gilts are trading lower in the UK following stronger than expected preliminary q/q GDP.

- Spanish producer prices, which were expected to decline to 2.5% y/y, rose to 2.8% boosted by higher oil prices. M/M producer prices, which were expected to decline to 0.5%, remained unchanged at 0.6%.

- Swedish unemployment unexpectedly held at 4.8% in March; analysts expected the unemployment rate to decline to 4.6%. Unemployment remained unchanged in a period of tax cuts and reductions to employee benefits.

- Preliminary first quarter GDP in the UK, which was expected to decline to 0.6% q/q, remained unchanged at 0.7%;Y/Y GDP declined to 2.8% from 3.0% as expected.

- The German IFO survey for the month of April exceeded expectations on all front. The business climate was 108.6, above estimates of 107.9; the current assessment was 113.2, above estimates of 112.5; the expectations figure was 104.3, above estimates of 103.5.

In the post release commentary the IFO??™s Abberger said that the ECB should raise rates to 4.00% and then hold. The IFO??™s Sinn noted that the strong Euro is hampering growth.

- The German BDB association forecasted the EUR/USD at $1.35 by the end of the year if the ECB raise rates to 4.00% and then holds. The BDB forecasted the EUR/USD rate at $1.33 y mid-2008. The BDB forecasted that the ECB will raise rates by 25 basis points in June.