The text from Ben Bernanke's prepared speech did not throw any light on when the Fed rate is likely to start going back up. There was mention that the discount rate target is likely to be increased within the coming months but that does not necessarily mean we will then see a hike in the Fed rate. What is clear is that the removal of stimulus measures is starting to draw closer but any eventual rate hike still looks some way off. It continues to look as if the Fed will maintain the current Fed rate until late 2010 or possibly no change until the first quarter of 2011.


European Commission President, Jose Barroso, stated today that an agreement has been reached on how to deal with the Greek budget deficit with further details to follow later.

The Bank of England February Inflation report published yesterday set a dovish tone with risks to inflation viewed as very much to the downside despite an expected spike in the CPI to over 3.0% over the coming months. The Bank of England has downgraded its growth expectations for the coming year following the poor Q4 GDP performance and they now expect UK growth of just 1.5% compared to their previous expectation of 2.2%. The decidely dovish tone of the report does bring into question why the Bank of England decided to cease it asset purchase purchases last week. Whatever the outcome it looks very unlikley that rates will start to move upwards anytime soon and as in the US the first rate hike may well not be before the start of 2011.

The market has received a boost today from hints that Germany may be considering a bailout for Greece with stringent conditions attached. What looks likely is that the EU/Germany are considering some form of assistance although it would seem that nothing concrete as been concluded. The implications of a bail out are significant for markets as it will help to allay fears over the possibility of default of any European country even if such a risk remains very small. We should get further details from the EU summit scheduled for tomorrow.


A statement will today be issued on behalf of Ben Bernanke concerning the removal of some stimulus measures under the Federal Reserve Liquidity Program, which will be in focus this afternoon. The Hearing itself has been postponed due to the poor weather conditions.

There is very little economic data today and the main focus will be on the initial weekly jobless due out tomorrow. The surprising increase last week provided further fuel to the argument that the US is facing a jobless recovery. This week the consensus is looking for a claimant count of 467,000 compared to the previous figure of 480,000.

Soveriegn risk concerns continue to weigh on the market and comments today from Fitch about the UK's deficit have not helped sentiment. Greece will be in the spotlight once again on Thursday when European leaders meet to discuss how its deficit will be cut.

Sentiment at the moment is incredibly fragile and the market has the feel that it could just as easily slump as rally. We are looking for some direction before committing to another trade.

On the economic front UK retail sales for January have proved to be disappointing with a 0.7% decline compared to the same period last year. However, undoubtedly the VAT increase and the bleak snowy weather will have kept people at home and this will have impacted on the figure.

British Land reported third quarter results today which were very satisfactory and we will shortly be placing the shares on our monitored list with a note due for publication later this week.

The US unemployment data on Friday did little to allay concern about the strength of recovery in the US. The fact that previous jobs reports were revised down by a massive 1,390,000 more jobs lost than previously thought goes to show just how deep and devastating the recession has been. There were some big revisions to data for the end of 2009 which is clearly a concern given that an improving trend would be expected at this stage of the economic cycle. Looking at the figures for last month only 20,000 jobs were lost following on from 150,000 lost in December which is encouraging. Within this number, retail added 48,000 jobs whilst construction continued to shed jobs with a further 75,000 lost. The government added 33,000 jobs and only 9,000 of these were for the census work. This number will increase significantly over the next 3 months or so due to census hiring of temporary workers. The unemployment rate unexpectedly declined from 10% to 9.7% which was the main positive from this data announcement.


In the UK the Producer Price Input figure for January was considerably stronger than expected with a 2.8% jump in input prices. Given that oil has hardly risen over the period makes this something of a surprise. The core figure excluding food and energy was up by 1.8%. This figure is a little concerning but most economists still expect the energy impact to fall away over the coming months and there should not be any significant inflationary pressures within the input process to create a problem for the MPC.

A very quiet week ahead with economic data. In the US look out for retail sales data for January due out on Thursday. The consensus is looking out for a 0.5% increase following on from the -0.3% decline in December. Also on Thursday we get the usual initial jobless claims which at present have market moving significance. On Friday in the US we get the University of Michigan consumer confidence data. In the UK, France and Italy we get Industrial Production data for December which is due for publication on Wednesday. On Friday Eurozone Industrial Production for December will be published. There will be Q4 GDP data for Germany and France out on Friday with the consensus looking for growth of 0.2% and 0.5% respectively.

Worries over the Greek/European sovereign credit crisis have unnerved markets and the added negative yesterday of poor job data in the US provided the final tipping point for a big sell off. The key issues over European government debt are not going to go away and a lot today now rests with the Non Farm Payroll data in the US due for publication at 1:30. The ADP employment data for private payrolls published this week was relatively encouraging with the trend improving to just 22,000 jobs lost last month. There is a possibility that the Non Farm Payrolls will surprise on the upside with a boost from temporary employment but this will not necessarily be viewed as particularly positive.

The Non Manufacturing ISM data yesterday did little to allay fears over the strength or sustainability of the US economic recovery. The 50.5 achieved for January just kept the index within growth territory and whilst the GDP data for Q4 2009 suggests that growth is at a respectable level, this index confirms just how weak the underlying picture is if you strip out inventory replacement. Many economists are predicting a significant slowdown in the rate of growth later this year and this to us still looks a very probable outcome. The US ADP employment report published yesterday for private payrolls for January fell 22,000. With the all important Non Farm Payrolls due tomorrow the probability of a positive figure is quite high although this is more than likely to be due to a boost from the hiring of temporary workers.

Yesterday we closed our long position in Sainsbury and a nil gain/loss position purely because of where the market is and the prospect of being able to buy the shares back at a lower level.

The US Manufacturing ISM data published yesterday for January was the strongest figure for nearly 6 years at 58.4 from the previous December figure of 54.9. This helps to support the idea of respectable GDP growth during Q1 although with manufacturing making up only a relatively small proportion of the US economy the focus reamins on the Non Manufacturing data due out tomorrow. This index only just managed to remain in positive growth territory in December at 50.1 with expectations for January standing at around 51.

With the all important non farm payrolls due out on Friday keep an eye out for the ADP employment number for private payrolls due out tomorrow. This is always a reasonable indicator of what to expect from the the non farm payrolls.

Following weakness in the Tobacco stocks yesterday after government comments on packaging and reducing the number of smokers by 2020 we took advantage of share price weakness in BAT this morning and took a quick 1% out of the share price. We may well look to do so again if the sector falls back from current levels.

The headline US GDP figure for Q4 2009 proved to be a big number at 5.7% annualised compared to expectations of around 4.7%. On the face of it this was a pleasing number for the markets to see and initially US stocks rose on optimism about growth for the coming year. However concerns in America over recent company trading reports and possibly some scepticism over the GDP data brought the US market back into negative territory on Friday. Looking at the GDP data the devil is in the detail. The primary concern is that in fact out of 5.7%, a massive 3.39% is due to inventory replacement and not what some would consider to be the start of a new inventory cycle. It has been merely replacement of stocks after such a significant rundown of existing stocks, not inventory build up in anticipation of stronger growth. So if we strip out the impact of inventory replacement the GDP number is a little over 2%, which is still sub trend growth. Underlying demand in the US remains very weak and this may well show up in Q1 2010 GDP which may well drop back once the inventory factor starts to fall away revealing a weaker recovery than many expect.


This week the Non Farm payrolls and ISM data in the US take centre stage. The payroll data could actually show a positive result although this may well be due to a temporary boost from the hiring of temporary workers for the decennial census count. The ISM Manufacturing Index is due today with expectations of a number around the 55 mark for January having reached 55.9 in December. The more important Non Manufacturing Index is due out on Wednesday. This index represents the service sector which accounts for the majority of the US economy and having struggled to stay in positive growth territory in December at 50.1, the January figure is expected to show a modest improvement to 51.0.

Today is all about the Q4 GDP data for the US due at 1:30pm. The consensus is looking for around 4.5% to 4.75 annualised which is a big number. A figure much less than this is quite likely to disappoint and result in a further sell off but if expectations are met it may well bring some confidence back into the market and we could easily see a rally off the back of this news today. Either way expect some volatility this afternoon.

The durable goods orders data for December were unexciting with a 0.9% increase excluding transportation. With transportation the figure was up only 0.3% and this was against expectations of around 1.6%.  This data is notoriously volatile and therefore not a number that should be taken too seriously until any final revisions have been made. The November figure was revised from a -0.7% decline to -0.3%. A lot of the more recent data has been uninspiring and until we see something more substantial to suggest recovery is gaining a firm footing it is difficult to see the US market making much head way and clearly this will impact on the rest of world markets. Tomorrow we may well see market moving data with the publication of the first estimate for Q4 US GDP growth. The consensus is looking for a figure to show annualised growth of around 4.5%. There is plenty of room for error either side of this so do expect some market volatility around lunch time tomorrow. It seems likely that a figure starting with a 2 will disappoint and push the market lower, but anything above that is likely to at least keep some stability and perhaps a high number may well start a rally tomorrow afternoon. Given that the 3rd quarter number started at 3.5% but was eventually revised down to 2.2% does show the room for error in this data.

European Economic Sentiment data published today showed a modest increase on the previous monthly figure. Sentiment data is again another data set that can be volatile and doesn't prove a huge amount but it does at least give some idea of where an economy is heading. Based on this data series which is below its long run average there is still some way to go before we start to see any significant improvement in European GDP with a modest increase still looking highly likely during 2010.

The market is again floundering with the US pulling the FTSE into negative territory once more. A market which is very difficult to trade and one where we believe trading defensives are far safer than some of the more volatile stocks which can move by several percentage points very quickly in the wrong direction if your timing is out.

The state of the US housing market seems to be deteriorating once again which can only be bad news for those hoping for a consumer led recovery later this year. The sales of new homes during December fell by 7.6% to an annualised rate of 342000 units against consensus expectations of a gain to 370,000 units.

This evening we get the statement from the latest FOMC meeting and President Obama will be giving his State of the Union address tonight as well.

The market remains in sell off mode and it is difficult to tell where we go from here. One interesting area of strength remains the tobacco stocks, one of our favourite sectors. At one point today the Imperial Tobacco share price overtook BAT and it could well do so again over the coming months given the discount to BATs share price that remains. Both stocks continue to look attractive to us given their ability to grow earnings over the coming two years and of course strong defensive characteristics.

US existing home sales were reported to have decline by a very significant 16.7% during December to an annualised rate of 5.45m (the consensus expected 5.9m), which was the largest monthly drop since 1968. The reason is that the expiry of the tax credit scheduled for the end of November incentivised many purchases especially amongst first time buyers but with the extension of this tax break until April demand has fallen off a cliff during December. The real issue is whether after April the housing market will be able to recover with no incentives available especially with unemployment so high and little sign of any significant rebound in the labour force.


The news this morning that the UK has emerged from recession is somewhat tainted by the fact that Q4 growth was a mere 0.1%. This figure will be subject to revision and could conceivably become negative although more recent data may well mean it is revised upwards a little.

The UK and Europe have again opened down today with the DOW futures pushing markets weaker. The main data for today in the US will be the Conference Board’s Consumer Confidence data for January. The December figure was 52.9 with expectations for January for a slight improvement to 53.5.

We are looking for the market to show some resistance before committing to our next trade. Most chartists seem to be taking a very bearish view given the events of the last few days but we are more inclined to expect some consolidation and range bound trading rather than a move back below 5,000 which some are now suggesting is on the cards.

The last week has provided a reminder that stock markets do not always go up vertically as has been the case for the best part of a year now. The US market suffered its worst 3 day slide for 10 months with comments from Obama on bank lending restrictions providing further uncertainty over what the banking sector will look like in the near future. This has left many analysts scurrying around trying to estimate the potential hit to profitability and valuations for the banking stocks if the plans Mr Obama has come to fruition. In the UK the Conservatives have thrown their weight behind the American plans and clearly this would have some impact on the big players in the UK especially given that the Conservatives continue to look like a government in waiting. What happens next as far as the market is concerned is more difficult to tell. Clearly at this stage of the economic recovery we need the banks to continue lending to fuel growth and any measures that restrict that could damage the chances of a sustainable recovery. With world markets selling off again on Friday and Europe down again this morning this has left the UK market down over 4% in four trading days.


We would expect a degree of normality to return very soon and whilst the concerns over the banks are very real the reality is that these measures are unlikely to derail the eocnomic recovery at this stage. However, financial sector valuations look set to remain under considerable pressure given the uncertainty Obama's comments have raised and the questions that have been left unanswered. This may well mean that the market will be more range bound during the coming weeks and whilst further falls are possible we are unlikley to see a major correction this early in the year. The fear factor is back but the situation is very different to 12 months ago.

The big economic nerws of the week will be the publication of Q4 GDP figures in the US and the UK. The data for the UK is due to be published tomorrow and a negative figure will make big headlines if the UK has remained in recession during the last 3 months of 2009. The consensus does seem to be expecting a negative figure with expectations standing around -0.2%. The equivalent figure for the US is due out on Friday with an annualised rate expected to be a very strong 4.2%. As always there is plenty of room for error in these projections.

Sentiment has taken another hit today with concerns over restrictions on risk taking by US banks. The market is now actually down on the year. I did mention yesterday in my blog that the market needs to adjust to the fact that a lot of the stimulus being used worldwide will have to be withdrawn soon and clearly regulatory changes concerning the financial system are also something that will not be avoided. To what extent restrictions on bank lending will impact on global economic growth are hard to say and this is the reason why the market may well struggle at least in the very short term.

The announcement from Liu Mingkang, chairman of the China Banking Regulatory Commission that Chinese banks were expected to cut lending in 2010 to 7.5 trillion yuan (£675 billion), down from 9.5 trillion yuan last year has spooked the market today. Clearly any curb on bank lending may restrict growth but this is seen as necessary to prevent an asset price bubble in China and is something that remains a risk worldwide. The market reaction today is an indication of what we can expect as the taps are slowly turned off in the major economies and realistically the sooner the market accepts this the easier it will be. Otherwise we do run the risk of a rally to the point at which a major correction will be necessary which will be very damaging.