– Credit downgrade for Japan
– UK consumer confidence at 22-month low
Good morning. A row has erupted surrounding a BBC documentary in which 20 dogs defecate on the footpaths of a street in Preston. Ministers object that it is an egregious waste of taxpayers’ money. The BBC defends itself, saying the film is simply the pilot for a much larger project in the Ashdown Forest involving 800 bears.
Quite where they will find them all is a different matter. There were not many around on Thursday. In the early part of the London session the pound looked surprisingly perky and by lunchtime had risen by nearly a cent against the US dollar. It seemed that investors were setting more store by the hawkish Monetary Policy Committee (MPC) minutes than the negative fourth quarter growth figure. It is a debate worth having: If the -0.5% GDP shrinkage in the fourth quarter really was a function of the weather, the first quarter of this year should bring a rebound. The first estimate of Q1 GDP will come out a week or two before the May MPC meeting. That fits neatly with the idea of the May rate increase that people were talking about prior to the GDP shock.
A different sort of shock lay in wait for the yen yesterday morning. Standard & Poor’s lowered Japan’s credit rating to AA-, three steps below AAA. It fell by an instant one yen against all sort of things and spent the rest of the day wandering aimlessly. The yen found some direction overnight and headed back in the direction of its original position. What undoubtedly helped it was Japan’s inflation figures. The consumer price index was unchanged in the year to December. An inflation rate of zero might not be much to shout about for other developed economies but in Japan anything not preceded by a minus sign is a result. It was only food and energy price rises that held it up though. Stripped of their effect prices fell by -0.7%.
Sterling is looking rather less cocky this morning than it was yesterday. Figures released overnight by Gfk showed consumer confidence in January eight points lower at -29, a 22-month low and the biggest one-month fall in 19 years. Sterling moved lower on the news.
Today’s ecostats kick off with Euroland money supply, followed by Italian consumer confidence and the Swiss leading indicator. There are no UK data on the list. Michigan university’s consumer confidence index will be important but the day’s highlight will be at half past one when the first estimate of US fourth quarter GDP comes out. Analysts are going for a figure of 3.5% annualised growth, which translates roughly into quarterly growth of 0.9%. As was made abundantly clear by the UK GDP data earlier this week, the accuracy of analysts’ forecasts is not guaranteed. With Tuesday’s experience still relatively fresh in their minds it is likely that investors will approach today’s announcement in a cautiously pessimistic mood. Even though the dollar is not exactly flavour of the month, a figure of 3.5% or better could take it higher. A low print would hurt and a negative number would wound the dollar, just as it did the pound. Have a good weekend.
