www.traderisks.com - Historic Weekly Market Reports

24 March 2010 - Weekly Report

"·Last week, the March MPC minutes revealed a 9-0 vote to keep Base Rate unchanged at 0.5% and maintain QE asset purchase stock at £200bn. The Committee saw no material changes to the balance of risks to growth and inflation, and the wait-and-see tone of the minutes was little changed from February. Last week’s UK labour market indicators for February grabbed headlines, revealing the largest monthly fall in claimant count unemployment since 1997.

·Headline year-on-year CPI fell back to 3.0% in February from 3.5% in January, coming in slightly below the consensus expectation of 3.1%. Year-on-year RPI remained unchanged at 3.7% in February. The data suggests that the firmly downward trend in domestic inflation anticipated in the BoE’s inflation report forecasts may have already started.

·Gilt yields and swap rates have moved lower at the longer end of the curve over the past week. The 10-year Gilt yield fell to its lowest level since December after February UK Public Sector Net Borrowing (PSNB) came in significantly better than expected, with January’s deficit also revised lower. Gilt auctions have continued to attract strong investor demand adding to the downward pressure on yields. Front end interest rates remained anchored at very low levels.

·Today brings the key event of the week in the form the Chancellor’s Budget statement. Market participants will be looking for further detail on the Government’s fiscal consolidation plans, while the Debt Management Office (DMO) will also announce its Gilt sales remit for 2010/11. Surprises in either the budget or DMO remit have the potential to sharply impact."

09 March 2010 - Market Report

"·The February CIPS/Markit business surveys brought some encouraging signs on the UK economic recovery. In particular, the headline business activity index for the key UK services sector strongly beat consensus expectation, rising to its highest level since early 2007. The February business survey results should ease concerns that the UK may slip back into recession in Q1 2010, after only just managing to achieve positive GDP growth in Q4 2009.

·The Halifax house price index mirrored the monthly fall in house prices reported by Nationwide last week. The index fell by a seasonally adjusted 1.5% in February, ending a run of seven consecutive monthly house price gains according to the Halifax measure.

·The MPC once again voted in favour of holding interest rates at 0.5% and maintaining its £200bn stock of asset purchases. A no change move in March was widely anticipated, however many remain unconvinced that we have seen the end of QE in the UK.

·The past week has been quite a volatile one for sterling interest rate markets, with the stronger than expected UK business survey data and US non-farm payrolls, along with mounting election and fiscal concerns, driving rates sharply higher at the shorter end of the curve. Strong demand for long dated Gilts at auction has underpinned Gilt prices at the long end, with yields beyond the 15-year maturity broadly unchanged on the week.

·This week has already brought surprise news that the UK trade deficit has hit its widest level in 18 months, denting hopes that the lower sterling exchange rate would help boost UK exports and driving renewed volatility in interest rates. UK Industrial Production data is due tomorrow with the remainder of the week fairly quiet on the economic data front."

23 February 2010 - Market Report

"·January consumer prices data showed UK inflation rising to a 14 month high, with the sharp upward movement in year-on-year CPI forcing BoE Governor Mervyn King to write another open letter to the Chancellor explaining why CPI is so far above the 2.0% target. Year-on-year CPI rose from 2.9% to 3.5% and year-on-year RPI rose from 2.4% to 3.7% in January.

·Last week’s February MPC minutes revealed a 9-0 vote to keep Base Rate unchanged at 0.5% and pause QE asset purchases at £200bn (i.e. maintain the BoE’s stock of Gilts and corporate bonds at £200bn). However, the minutes clearly left the door open to extending QE beyond £200bn should the UK economy deteriorate further. Mervyn King has today cited his key concern for the UK economy as being headwinds arising from the stalling global recovery.

·Long dated Gilt yields have continued to drift higher with the 30-year yield rising another 13bps to 4.69% last week. This sharp upward move is being driven by nervousness over the UK fiscal deficit and the uncertain timing of essential spending cuts, and also by general sovereign credit risk concerns stemming from peripheral Eurozone economies. Long dated swap spreads are still at extreme negative values (i.e. long dated Gilt yields are much higher than equivalent maturity swap rates) with the 30-year swap spread closing the week at -42bps. Short dated Gilt yields and swap rates remain anchored at rock bottom levels.

·This week brings a fairly quiet data calendar with the main event being the second estimate for UK Q4 2009 GDP on Friday. On Thursday the US will also report its second estimate for Q4 2009 GDP. Nationwide House Prices for February are expected at some point during the week."

25 January 2010 - Market Report

"·December consumer prices data showed a record year-on-year rise in CPI inflation, attributed largely to base effects from the VAT cut and the severe high street discounting in December 2008. Year-on-year CPI rose to 2.9% from 1.9% in November and RPI rose to 2.4%, up from 0.3% in November.

·As widely anticipated, the MPC minutes revealed a unanimous committee decision to leave Base Rate unchanged at 0.5% and maintain the existing programme of QE at £200bn. All asset purchases are anticipated to be completed by the February MPC meeting, and at that point the February BoE Inflation Report will give the MPC the opportunity to reassess its outlook for growth, inflation, and monetary policy.

·UK Public Sector borrowing was significantly lower that expected at £15.7bn in December (versus consensus expectation of £19bn) and full year 09/10 Government borrowing now looks set to undershoot the Chancellor’s £178bn projection. This positive data helped drive Gilts higher last week.

·Last week a broad sell off in risky markets following the shock announcement of the US banking sector crackdown. The flight to quality caused Gilts to rally in the latter half of the week sending yields lower, and the short sterling curve to price in lower implied forward LIBOR expectations. The move reversed a sell off in Gilts earlier in the week which had been driven by the stronger than expected December inflation data."

14 December 2009 - Market Report

"·November Halifax house prices showed a month-on-month increase of 1.4% (-1.7% year-on-year) marking the fifth consecutive monthly rise in UK house prices, according to the lender. The recent trend of rising home prices coincides with a period of growing unemployment, declining household wealth and constrained lending conditions, which together suggest that rising prices may be driven more by temporary increases in demand from cash-rich house buyers rather than by a sustainable recovery in housing market fundamentals

·The MPC voted to hold Base Rate at 0.5% and maintain Quantitative Easing asset purchases at £200bn at its December Committee meeting. The BoE is on course to complete its existing asset purchase programme in February 2010.

·The Pre-budget Report (PBR) saw the government stick to its spending plans with an unchanged projection for the deficit. The PBR contained nothing in the way of major spending cuts which are widely regarded as essential in shoring up UK public finances. Most notable was the somewhat unexpected increase in 0.5% National Insurance contributions as well as the 50% one-off payroll tax on banker’s bonuses in excess of £25,000.

·The fiscally neutral PBR has failed to calm investors’ fears over the state of UK public finances which has triggered a major sell off in the Gilt market. The decline in Gilt prices pushed yields higher as the market concluded that there has been a lack of progress in tackling the UK budget deficit and investors demanded more compensation to hold UK debt."

30 November 2009 - Market Report

"·The second estimate of Q3 GDP showed a marginal upward adjustment from its provisional estimate of -0.4% to -0.3%. Although further upward revisions are possible in the future the 0.1% improvement for the quarter seems modest in light of a year-on-year decline of 5.1%. The breakdown of the estimate revealed that there was a notable improvement in the contribution of investment as well as household spending to GDP growth. However, the breakdown also showed that the improvement in investment was mainly due to an increase in public spending rather than business investment and that the stabilisation of consumption resulted primarily from the car scrappage scheme.

·Last week’s BBA update on mortgage lending showed that while October saw more mortgage approvals than September the pace of rise in new approvals continues to decline. The number of mortgages for newly purchased houses reached its highest level since January 2008 but the downward trend in remortgaging was extended. The slowing rate of growth in house prices evidenced by the land registry house price release was in line with the fading demand for new mortgages implied by the BBA publication.

·UK Gilts participated in last week’s global bond market rally which was set off by concerns about the Dubai debt fallout and shifted global risk appetite from equities (primarily emerging markets) to bond markets. The decline in yields was most pronounced for 10-year Gilts falling by 8 bps during the week."

24 November 2009 - Market Report

"·The November MPC meeting minutes revealed that the decision to extend QE by £25bn was not unanimous and also suggested that a number of committee members are becoming more sensitive to upside inflation risks. The MPC discussed the merits of changing the rate of remuneration on commercial bank reserves but decided against the idea, concluding that asset purchases are currently a more effective tool for easing monetary conditions.

·Last week’s UK consumer prices data revealed a rise in headline year-on-year CPI from 1.1% to 1.5% in October, which was slightly above consensus expectation. Year-on-year RPI also rebounded to -0.8% in October from its local low point of -1.4% in September. The higher that expected headline CPI number was primarily the result of a surprise rise in food prices while core CPI inflation rose from 1.7% in September to 1.8% October.

·Gilt yields fell across the curve last week and the Gilt curve flattened due to the outperformance in longer dated Gilts. Swap rates moved lower by 10-20bps across the curve and short sterling futures continued to shift lower confirming the market’s continued belief in very low short-term rates for the foreseeable future.

·This week’s key economic data releases include the UK Q3 GDP second estimate and October house prices data from Nationwide. There will be fresh data on mortgage lending and consumer credit activity published by BBA. In addition, the CBI Distributive Trades Survey will reveal the latest short-term trends in the retail and whole distribution sector."

9 November 2009 - Market Report

"·The MPC held Base Rate at 0.5% and chose to extend QE by a further £25bn (to a total of £200bn) at last week’s committee meeting, once again citing the prospect of a ‘slow economic recovery and low levels of resource utilisation’ as likely to keep inflationary pressures subdued in the near term. Meanwhile, a raft of upbeat data on the UK economy last week strongly signalled a return to positive GDP growth in Q4.

·The CIPS/Markit Purchasing Managers Index (PMI) for both the UK Services and Manufacturing sectors moved above long run average levels to multi-year highs. The manufacturing PMI rose to 53.7 in October from 49.9 in September, its strongest since November 2007, while the services PMI rose to 56.9 in October from 55.3 in September, its highest level since August 2007. UK Industrial production also reversed part of the sharp 2.6% month-on-month fall in August, rising 1.6% in September.

·The Halifax house price index rose 1.2% month-on-month in October which was better that the 0.6% consensus expectation and the fourth monthly house price increase in a row, according to Halifax. Nationwide reported a rise in house prices of 0.5% in October, its sixth successive monthly rise.

·Last week’s positive data on the UK economy pushed Gilt yields and swap rates higher across the curve. The BoE announcement of a £25bn extension to QE also led to a sharp sell off in the Gilt market implying that market participants had been pricing in a more dovish move by the BoE. Some clearly saw the move as a signal that the BoE has started exiting QE and will stop buying Gilts in early 2010.

·This week brings a fairly quiet economic data calendar in the UK, with trade data on Tuesday and employment data on Wednesday. The focus of the week is likely to be the BoE November inflation report (to be published on Wednesday) which may contain further hints on the outlook for UK interest rates"

12 October 2009 - Market Report

"·The MPC voted in favour of holding BoE Base Rate at 0.5% in September and maintaining its Quantitative Easing (QE) asset purchase programme at £175bn. Total QE asset purchases now stand at £162bn and the MPC expects to complete the existing programme within a month.

·Data on the UK economy has been mixed in recent weeks. Nationwide and Halifax house price measures continued their run of month-on-month gains, rising 0.9% and 1.6% in September respectively. However, the very steep 2.5% monthly drop in UK Industrial Production in August suggests that UK GDP may only just manage to register a gain in Q3.

·Equities, corporate bonds, government bonds, and gold have continued to rally in unison. This phenomenon seems to be a function of the strong investor incentive to move out of cash and into any higher yielding assets on the back of the improving economic outlook and further normalisation in money and credit markets. It remains to be seen how long the strong positive correlation between risky and safe haven assets can persist.

·This week is a fairly quiet one for UK economic data with the highlight being September Consumer Prices data (CPI/RPI/RPIX) due tomorrow. Wednesday also brings UK employment data for September and the most recent set of Federal Reserve minutes in the US."

28 September 2009 - Market Report

"· The September MPC minutes revealed a unanimous 9-0 vote to hold Base Rate at 0.5% and leave Quantitative Easing unchanged at £175bn. Surprisingly there was no mention at all of reducing the remuneration rate payable on bank reserves, in spite of this receiving much attention in recent weeks.

· The minutes showed that the BoE believed near-term downside risks to growth had eased somewhat over the previous month, while inflation had once again surprised them on the upside. Annual RPI rose from -1.4% to -1.3% and Annual CPI fell from 1.8% to 1.6% in August, while core CPI held steady at 1.8% year-on-year.

·More bearish comments from BoE Governor Mervyn King (including a statement that ‘a weaker pound would be helpful in rebalancing the UK economy’) helped to drive Gilt yields lower still across the curve. The 2-year Gilt yield hit a record new low last week while 3-month LIBOR fell by a further 3bps.

· This week brings the final estimate for UK Q2 2009 GDP on Tuesday. Later in the week the September CIPS/Markit reports for UK construction and manufacturing sectors are due, and US non-farm payrolls for September will be reported on Friday. Halifax and Nationwide House Price measures for September are also expected during the week."

14 September 2009 - Market Report

"·The BoE left Base Rate on hold at 0.5% and Quantitative Easing asset purchases unchanged at £175bn at last week’s September MPC meeting. There had been some speculation prior to the committee meeting that the BoE may also change the interest rates it pays on bank reserves, although this did not materialise.

·Halifax and Nationwide both reported another robust month-on-month gain in UK house prices in August. The Nationwide measure rose 1.6% in the month while Halifax rose 0.8%, leaving Nationwide and Halifax house prices 2.7% and 10.1% lower than a year ago respectively.

·The FTSE rallied through the 5,000 barrier to a fresh 2009 high but somewhat counterintuitively Gilt yields continued to trend lower last week. This trend may be explained by a generalised flight from cash into any higher yielding assets. Swap rates fell by 6bps-8bps across the curve and LIBORs continued to fall.

·This week brings a busy UK data calendar, with August CPI and RPI reported on Tuesday, employment data for July on Wednesday, August retails sales on Thursday, and UK public finances data for August on Friday."

11 August 2009 - Market Report

"·The BoE surprised the market last week with its decision to expand its Quantitative Easing (QE) asset purchases by a further £50bn to £175bn. Under the enlarged remit the BoE is now authorised to purchase any Gilt of greater than 3-year maturity.

·Recent UK housing market data continued to surprise on the upside with both Nationwide and Halifax reporting further month-on-month house price increases in July. The strong run in performance of the forward looking CIPS/Markit UK business activity surveys has also continued, although the BoE has recently played down the importance of these measures in determining its policy decisions.

·The surprise expansion of QE drove some big movements in sterling interest rates last week. Long term Gilt yields plummeted and long term swap spreads nearly fully corrected into positive territory. Meanwhile, the front end of the swap curve rose sharply and the short sterling futures curve steepened.

·This week brings the August inflation report which seems very likely to show CPI inflation remaining significantly below the 2.0% target over the BoE’s forecast period (based on market implied interest rates). UK unemployment, average earnings data for June and the Federal Reserve policy announcement in the US are also scheduled this week."

21 July 2009 - Market Report

"· Headline CPI fell below the MPC’s 2.0% inflation target for the first time since September 2007 and headline RPI plunged further into negative territory in June. RPI swaps price September 2009 RPI at -1.9%, while the Government last week announced a consultation for a 2010/11 rental inflation floor at -2.0%.

· The MPC held Base Rate at 0.5% at its July policy meeting as expected, but disappointed the market by failing to announce an extension of its £125bn Quantitative Easing (QE) asset purchase programme. The MPC is likely to confirm its position on QE at the August MPC with the benefit of the August Inflation report’s revised CPI and GDP growth projections.

· Since our last publication LIBORs and short term swap rates have continued to move lower, while longer term swap rates and Gilt yields have shifted higher, partly as a result of the BoE’s failure to announce an extension to QE which led to a sharp sell off in 10 year Gilts.

· This week brings a very busy UK data calendar, with June data on UK Public Finances, Retail Sales and BBA Mortgage lending all due to be reported. The July MPC minutes will be released on Wednesday and provisional Q2 GDP data is due on Friday for which there is a consensus expectation for 0.3% quarterly contraction."

6 July 2009 - Market Report

"· The ONS revealed that UK Q1 GDP growth had been revised down to -2.4% from the initial estimate of -1.9%. This was a much sharper downward revision than consensus expectation, driving the year-on-year rate of GDP contraction up to a record 4.9%.

· Last week’s forward looking business activity measures showed a mixed performance across the UK economy in June. The CIPS/Market headline business activity index for the Manufacturing Sector rose more sharply than expected, but the headline Services Sector index slipped back slightly bringing to an end the seven month run of consecutive gains since November 2008.

· Gilt yields moved higher across the curve last week while interest rate swap rates moved slightly lower. Inflation expectations implied by RPI swaps continued to drift higher with upward movements focussed at the very front end of the RPI swap curve.

· This week’s main event is the BoE MPC policy announcement on Thursday. Although the MPC will almost certainly keep Base Rate on hold at 0.5%, there is a risk that the MPC may surprise the market by announcing changes to its Quantitative Easing (QE) asset purchase programme. It seems more likely that the MPC will choose to expand its asset purchases given recent signs that the nascent UK economic recovery may already be losing momentum."

30 June 2009 - Market Report

"· UK Consumer Prices data for May caused a surprise. Both Headline CPI and RPI were higher than expected and Core CPI resumed the stubborn upward trend seen so far in 2009.

· The June MPC minutes struck a distinctly more positive tone, citing improvements across a range of housing market, credit market and output indicators as the reasons for greater optimism.

· Gilt yields have recently moved lower across the curve leading to a significant widening of swap spreads. LIBORs and short term interest rate expectations were little changed on the week.

· This week is a busier one for UK economic data with BBA mortgage approval figures, UK GDP data and US unemployment figures to be released. Nationwide House Prices are also expected during the week."

22 June 2009 - Market Report

"·Last week’s key surprise came in the UK Consumer Prices data for May. Both Headline CPI and RPI surprised on the upside and Core CPI resumed its stubborn upward trend seen so far in 2009.

·The June MPC minutes struck a distinctly more positive tone, citing improvements across a range of housing market, credit market and output indicators as the reasons for greater optimism.

·Gilt yields moved lower across the curve last week leading to a significant widening of swap spreads. LIBORs and short term interest rate expectations were little changed on the week.

·This week is a very quiet one for UK economic data with just BBA mortgage lending figures and the results of the June CBI distributive trades survey due to be reported. Nationwide House Prices are also expected at the back end of the week. In the US, the Federal Reserve will make its latest monetary policy announcement on Wednesday."

15 June 2009 - Market Report

"· Economic data continued to surprise on the upside last week. Nationwide and Halifax House Price Indices both rose in May and the CIPS/Markit composite business activity index rose to a level consistent with the UK recession ending in May. In the US, non-farm payrolls employment data revealed a sharp fall in the monthly rate of job losses which was much better than consensus expectation.

· As expected, the MPC voted in favour of holding interest rates at 0.5% in June and maintaining its £125bn Quantitative Easing (QE) asset purchase programme. It still seems likely that the MPC will choose to expand its asset purchases even further at coming meetings.

· Gilt yields and swap rates continued to rise sharply across the curve last week. So far, it is not entirely clear as to whether rising yields are a sign that the economy is now recovering strongly (meaning that implemented policy action has been effective) or that that QE needs to be stepped up to counteract sharply rising interest rates.

· This week is a relatively quiet one in the UK data calendar. Tomorrow’s RICS house prices and Thursday’s UK industrial production numbers will be watched closely for further tentative signs of recovery."

8 June 2009 - Market Report

27 May 2009 - Market Report

"· UK Consumer Prices data for April showed year-on-year headline CPI falling to 2.3% and headline RPI dropping to -1.2%. Both measures fell more than consensus expectation. Core CPI also fell from 1.7% to 1.5% ending a four month run of consecutive rises.

· The May BoE MPC minutes indicated strongly that the MPC is prepared to expand its QE Asset Purchases beyond the £125bn to which it has already committed. The Committee still sees substantial downside risks to its central inflation and demand growth forecasts.

· Rating agency Standard and Poor’s announcement that the UK’s AAA sovereign credit rating for medium term debt had been placed on negative watch for a possible downgrade contributed to the substantial rise in longer term Gilt yields and swap rates over the week. The rating agency said it would revisit its judgement after the next general election in order to assess the fiscal plans of the next government.

· This week is a quiet one for economic data in the UK. On Thursday, the CBI Distributive Trades Survey for May will be watched closely for further signs of improvement in UK high street conditions. Also expected this week is May Nationwide House Prices data."

18 May 2009 - Market Report

"· The Bank of England’s May Inflation Report revealed further downward revisions to the central UK GDP growth forecast, even after taking into account the lower level of Base Rate and the £125bn of asset purchases announced under the BoE’s Quantitative Easing (QE) programme.

· The Inflation Report’s central CPI projection was revised upwards slightly from the February forecast but continued to show CPI inflation substantially undershooting target in 2012 owing to the large amount of spare capacity that has opened up in the UK economy.

· Gilt yields and swap rates moved sharply lower across the curve in the wake of the Inflation Report as the market priced in even lower interest rate expectations and discounted the possibility that the BoE could extend QE asset purchases even further in order to lift inflation back towards target.

· UK economic releases this week include April Consumer Prices, Retail Sales and Public Finances data. On Wednesday, the minutes of the May MPC meeting are likely to provide little new information on top of that which was presented in the May Inflation Report. The second estimate of UK Q1 GDP is due this Friday."

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11 May 2009 - Market Report

"· The recent run of stronger than expected economic data has continued over the past two weeks. Global equities have extended their rally, credit spreads have continued to tighten and government bond yields have risen further on the back of growing hopes for a synchronised global economic recovery in H2 2009.

· The BoE Monetary Policy Committee voted to leave Base Rate on hold at 0.5% in May as expected, but surprised the market by announcing that it plans to purchase a further £50bn of assets under its ongoing quantitative easing (QE) programme.

· UK Purchasing Manager Index (PMI) business activity indicators have risen sharply in April for both the manufacturing and services sectors, leading some commentators to speculate that the worst of the UK recession is now behind us.

· This week’s key event will be the publication of the BoE May Inflation Report which is likely to show a sharp downward revision to the February Inflation Report’s central GDP growth forecast. The BoE’s central CPI projection is likely to be revised upwards to factor in the effects of QE and a lower Base Rate, but will still show CPI substantially undershooting the MPC target over the forecast period."

28 April 2009 - Market Report

"· Last week was a volatile one for sterling interest rates as investors digested the implications of a dramatic 2009 Budget announcement and a packed UK economic data calendar produced some notable upside and downside surprises.

· The Budget revealed that UK GDP is expected to contract by 3.5% in 2009 and Government borrowing is expected to hit a peak of 12.4% of GDP in 2009/10, with £220bn of anticipated Gilt issuance. The budget left some concerned that the UK’s AAA credit rating could be at risk.

· March Consumer Prices data saw RPI inflation turning negative for the first time in nearly 50 years, but core CPI1 inflation surprised by rising for a fourth consecutive month. Friday’s UK Q1 2009 GDP data surprised sharply on the downside with a 1.9% quarterly drop in UK output. March Retail Sales figures were slightly more encouraging, rising 0.3% in the month.

· This week brings a lighter data calendar in the UK. Today’s CBI Distributive Trades Survey suggested a further pick up in conditions on UK High Streets. BoE data on March Mortgage Approvals and the Nationwide House Price Index for April are both due later in the week."

20 April 2009 - Market Report

"· Last week’s UK economic data calendar was fairly light, but data continued to suggest improvements in both the UK housing market and conditions on the High Street. .

· The 2009 Budget announcement on Wednesday is expected to reveal huge upward revisions to the Government’s borrowing forecasts in coming years. A large deviation from market expectation for Gilt issuance could have significant implications for the level of yields in the UK.

· The April BoE minutes should reveal more on how the BoE views the success of its Quantitative Easing (QE) operations. The minutes are expected to reveal a unanimous vote to hold Base Rate at 0.5% and continue with the planned £75bn of QE asset purchases.

· This week also brings March CPI and RPI inflation data, March UK employment data and Q1 provisional UK GDP. Year-on-year RPI is expected to fall some way into negative territory after February’s upside surprise heralding the arrival of UK price deflation. The markets will this week be hoping too see a continuation in the recent run of more positive news on the UK economy."

14 April 2009 - Market Report

"· UK economic data has been notably more positive since our last market report, prompting some to speculate that we may already have passed the low point of the UK recession. A wide range of indicators saw an improvement, helping to drive the FTSE back above the 4,000 point mark, although the rally faded somewhat last week as heightened risk aversion returned to the markets. It remains to be seen whether the improvement in UK data will prove sustained.

· The BoE held Base Rate at 0.5% and stated that it would maintain the current £75bn programme of Quantitative Easing (QE). Nationwide and Halifax house price measures showed a contrasting picture of the UK housing market in March, as Nationwide posted a surprise 0.9% month-on-month rise and Halifax showed a further sharp 1.9% decline.

· LIBORs and forward expectations for LIBOR have continued to move lower, in turn driving very short term swap rates downwards. Movements at longer dated swap and Gilt maturities have been mixed as swings in market sentiment have caused investors to move in and out of risky assets.

· This holiday-shortened week in the UK is a quiet one for economic data, with just the latest RICS housing market survey due on Wednesday and BRC Retail Sales monitor for March due on Thursday. The data calendars in the US and Eurozone are busier, with the focus of each being on March CPI Inflation data."

30 March 2009 - Market Report

"· UK inflation data revealed a surprise pick up in CPI from 3.0% in January to 3.2% in February forcing BoE Governor Mervyn King to write a fifth explanatory letter to the Chancellor. The widely anticipated drop of RPI into negative territory failed to materialise in February.

· The failed auction of the 4.25% 2049 Gilt was the Debt Management Office’s (DMO) first auction failure for 7 years. Gilts yields rose sharply on the week as investors became increasingly concerned over the UK’s worsening public finances.

· Retail Sales growth in the UK registered a sharp 1.9% drop in February ending the recent run of puzzlingly strong results.

· This week brings the G20 summit hosted by London and another busy UK economic data calendar. Nationwide and Halifax will report their respective house price measures for March. The market will be looking for some signs of stabilisation in UK Purchasing Managers Index (PMIs) business activity indicators for Services, Manufacturing and Construction after the sharp contraction seen in recent months."

23 March 2009 - Market Report

"· The March MPC minutes showed that the Committee had voted unanimously in favour of both cutting rates by a further 50bps to 0.5% and setting out on a path of quantitative easing (QE) with an initial £75bn purchase of longer dated gilts.

· Shocking UK employment data showed the claimant count measure of unemployment had risen by 138,000 in the month of February alone. By this measure, UK unemployment is rising at its fastest monthly rate since records began in 1971.

· The US Fed took markets by surprise in announcing plans to buy $300bn of US government bonds. This stark change in policy stance suggests that the Fed had been impressed by the success of the BoE’s QE operations and was persuaded into following suit.

· This week brings a busy data calendar in the UK with February Consumer Prices, BBA Mortgage Lending, Retail Sales and Nationwide House Prices all due to be reported. The Consumer Prices data will likely show the UK moving into its first period of annualised price deflation for nearly 50 years."

16 March 2009 - Market Report

"· The BoE held its first successful ‘reverse auction’ in which investors sell gilts to the BoE as part of its Quantitative Easing (QE) policy operations. The BoE was inundated with £10.5bn of investor offers to sell gilts - five times more than the BoE’s £2bn repurchase target.

· Lloyds Banking Group confirmed its participation in the UK Government’s Asset Guarantee Scheme alongside RBS. Lloyds will insure £260bn of assets under the scheme in commit to increase lending by £14bn per annum over the next two years.

· Gilt yields continued to move lower in the 5 year - 25 year sector of the curve last week, but short dated (<5 yr) yields rose sharply as equity markets rallied. Short term interest rate expectations and swap rates were broadly unchanged on the week.

· This week brings the BoE minutes, UK unemployment and earnings data and the US Federal Reserve Policy decision. The BoE will make a further £5bn of QE gilt purchases this week."

9 March 2009 - Market Report

"· The MPC slashed Bank Rate by a widely anticipated 50bps to another record low of 0.5%. BoE Governor Mervyn King gave a strong indication that further interest rate cuts were very unlikely, and the market shifted to pricing in Bank Rate floored at 0.5% throughout 2009.

· The BoE surprised the markets by announcing that it would shift policy focus immediately to aggressive Quantitative Easing. The BoE will initially buy £75bn in sterling assets – expected to be mostly gilts in the 5yr to 25yr maturity range - financed by newly created Central Bank money. Gilt yields fell steeply in response to the announcement.

· The ECB lowered its main interest rate by a further 50bps to 1.50%. The accompanying statement hinted at possible further rate cuts and the implementation of unconventional monetary policy by the ECB on the back of huge downward revisions to Eurozone growth expectations.

· The closely watched US non-farm payrolls employment indicator showed a further 651,000 job losses in February, taking the US unemployment rate to a 25 year high of 8.1%."

2 March 2009 - Market Report

"· The government’s Asset Protection Scheme was launched last week. RBS will insure £325bn of its toxic assets under the scheme and Lloyds Banking Group looks set to insure a further £250bn. The enormous scale of the APS dwarfs all previous UK banking sector support measures.

· The second estimate for Q4 2008 UK GDP estimate was left unrevised at -1.5%. Underlying data showed that the bulk of the decline in Q4 GDP was due to aggressive running down of inventories.

· Nationwide House Prices surprised on the downside, showing a -1.8% month on month decline in February against a consensus expectation of -1.3%. The annual pace of decline accelerated to -17.6% from -16.6% in January.

· The announcement of the latest UK bank support package pushed gilt yields and swap rates higher across much of the curve. Short term rate expectations remain anchored with the market confident that the BoE will cut Bank Rate by a further 50bps at this week’s MPC meeting. The markets will be looking for confirmation of the BoE’s Quantitative Easing plans this week."

23 February 2009 - Market Report

"· The February MPC minutes revealed the Committee’s concerns over slashing Bank Rate all the way to zero. Quantitative Easing now looks very likely to begin at the March MPC meeting.

· The state of UK public finances continues to get much worse - the Chancellor’s pre-budget report borrowing forecast of £78bn in 08/09 looks likely be overshot by some £20bn.

· Japan’s Q4 2008 GDP data shocked on the downside, showing the Japanese economy contracting at an annualised rate of 12.7% on the back of a huge collapse in demand for its exports.

· Meanwhile, concerns are deepening over the stability of eastern European emerging economies and those banks heavily exposed to the region."

16 February 2009 - Market Report

"· The February BoE inflation report shocked markets by giving a starkly clear signal that further rate cuts and measures to increase the money supply will occur imminently in the UK.

· UK GDP growth is expected to trough at -4% y/y midway through 2009 and rebound sharply thereafter. The MPC sees the balance of risks for the path for UK GDP as ‘weighted heavily to the downside’.

· The BoE expects CPI inflation to dramatically undershoot the 2% inflation target over the three year forecast period, assuming Bank Rate follows the path implied by market yields. CPI is forecast to be 1% below target at the start of 2012.

· A sea change in sterling fixed income markets saw gilts yields, swap rates and short terminterest rate expectations move much lower over the course of last week."

9 February 2009 - Market Report

"· Global economic data continues to surprise on the downside. Shock US non-farm payrolls data showed 598,000 job losses in January alone, taking the US jobless rate to a 16 year high of 7.6%. The UK ILO unemployment measure is expected to show a rise beyond the 2 million mark on Wednesday.

· The BoE cut rates by 50bps to a new historic low of 1% but gave little hint as to what to expect from the MPC going forwards. The ECB held rates at 2% but surprised the market with a bearish accompanying statement on outlook for the Eurozone economy. Eurozone rate expectations moved sharply lower in response.

· The surprise 1.9% rise in January Halifax HPI was dismissed by many analysts as a blip in an otherwise firmly downward trend for UK house prices.

· The February BoE Inflation Report, due this Wednesday is likely to show further downward revisions to growth and inflation forecasts. Given the high degree of uncertainty in the path of UK rates, any revelations on MPC thinking could prove a key market mover."

2 February 2009 - Market Report

" · The IMF forecasts that the UK economy will contract by 2.8% in 2009 making it the worst performer of all developed economies.

· The short sterling interest rate futures curve is now pricing in a deeper UK recession. Three month LIBOR is expected to be lower for longer.

· The sterling market is pricing in an 80% chance that the BoE will cut Base Rate by 50bps at this week’s MPC meeting, taking rates in the UK to a new historic low of 1%.

· Last week saw a massive upward movement in RPI swaps – up 50-60bps from the 3yr to the 10yr maturity. This extreme movement related to the pricing of a big PFI deal on the back of thin liquidity. The RPI market may see some degree of correction this week.

· Long term swap rates and gilt yields have fallen significantly since last week. The long end of the curve appears to have corrected somewhat after overreacting to fears about UK sovereign credit risk and gilt oversupply."

26 January 2009 - Market Report

"Turmoil returned to the UK banking sector last week as the government announced its second bank bailout package. The package included a host of new measures to support troubled UK banks and the government raised its stake in RBS to an unprecedented 70%, prompting some analysts to comment that a full nationalisation of UK banks now seems imminent.

The government allocated a £50 billion fund to a Bank of England asset purchase program which will initially be financed through the issuance of treasury bills. The BoE was also formally authorised by the Treasury to implement quantitative easing – essentially increasing the money supply with the aim of reducing longer term interest rates – in order to meet its CPI inflation target.

Longer dated gilt yields rose sharply and sterling came under heavy selling pressure as clear signs emerged that investors are pulling money out of the UK on growing concerns over public finances. Jim Rogers, business partner of highly respected billionaire investor George Soros, further unnerved sterling markets by controversially commenting that the UK ‘has nothing left to sell’ and encouraged investors to pull out of all sterling denominated assets.

UK Interest rate expectations continued to converge towards zero in a week which was rounded off with shock GDP data showing that the UK economy had contracted even more than most had expected in the final quarter of 2008."

19 January 2009 - Market Report

"Last week turned out to be a week of dramatic events in the financial markets, which was dominated by renewed turmoil in the banking sector. Fears over spiralling bank losses were reignited as Deutsche Bank reported a record €4.8 billion loss in Q4 and Bank of America accepted a $138 billion bailout package to help with its absorption of Merrill Lynch. Meanwhile, Anglo Irish Bank was fully nationalised by the Irish government and Barclays’ share price plummeted 25% in late trade on Friday as investors panicked about the scale of its Q4 losses. This extreme sell off – likely accentuated by the lifting of the FSA ban on short selling financial stocks – took Barclays share price to a 15 year low and prompted the bank to take the extraordinary step of pre-emptively declaring that its Q4 2008 profits would be reported better than expected in mid February. This week looks set to be a rollercoaster week in GBP fixed income and equity as investors absorb the UK government’s second bank bail-out package alongside a very busy economic data calendar."

12 January 2009 - Market Report

"The outcome of Thursday’s MPC meeting was particularly uncertain. This uncertainty in the future path of interest rates can be attributed in part to the inherent ambiguity of non-linear recessionary dynamics. However, another major source of uncertainty stems from the fact that the MPC is entering uncharted monetary policy territory, with Bank Rate now at a 315 year low of 1.5%. The need for lower interest rates is clear given the awful state of the UK economy, but the BoE’s thinking on future policy is quite unclear. For example, the MPC may wish to stop some way short of implementing zero interest rate policy (‘ZIRP’) and embark on a path of quantitative easing (‘QE’) - essentially increasing the supply of money in the UK economy - as the Fed is now doing in the US. In this unprecedented ultra-low rate environment, monetary policy (more specifically, expectations for future monetary policy approach) is now a central driver of both short term and long term interest rates. The January MPC minutes (to be published on 21 January) may contain revelations on the policy outlook, which could prove to be a significant market mover at both the short and long end of the yield curve."

5 January 2009 - Market Report

"Economic data over the holiday period continued to paint a grim picture of the global economy and GBP markets have responded by pricing in even lower interest rate expectations. Sterling fell to a six and a half year low against the dollar and continued its slide towards parity against the Euro, touching a low of £0.98. Sterling has now fallen 30% from its peak on a trade weighted basis. Expectations for further aggressive policy easing by the BoE at this week’s MPC meeting were heightened over the holiday period. The poll of economists consensus view is now for a 50bps bank rate cut, and the market is currently discounting close to 75bps with a further 50bps of easing expected in H1 2009. However many market commentators are expecting a cut of 100bps given the very dovish tone of the November MPC minutes. The minutes indicated that the MPC had only held off from making a larger cut than 100bps in November due to fears undermining confidence in the UK economy, potentially bringing about a run on sterling assets and leading to a further sharp devaluation in the pound. The fall in oil to below $40 a barrel, in addition to collapsing consumer demand and steeply falling inflation expectations are intensifying the risk of a sustained period of deflation emerging in developed economies. There now seems a significant risk that the BoE could soon follow the Fed in moving Bank rate close to 0%."

16 December 2008 - Market Report

"Another week of high drama in the financial markets culminated with the collapse of the $15 billion bailout talks for troubled US carmakers and European Union leaders backing plans for a €200 billion fiscal stimulus package in response to what is now certainly the worst financial crisis for 80 years. Economic data continued to show further sharp deterioration in the global economy. On Wednesday, yields on 3 month US treasury bills turned negative for the first time in post-war history, meaning investors are now prepared to pay for the privilege of owning US government debt. This is a stark reminder of the extreme investor risk aversion we are seeing in the current environment."

8 December 2008 - Market Report

"The flow of terrible data on the global economy continued relentlessly last week, with most releases surprising on the downside in spite of the fact that markets are now pricing in extremely bearish growth expectations. The BoE and ECB eased aggressively on Thursday, lowering policy rates by 100bps and 75bps respectively. Business survey indices, in particular the manufacturing PMIs1, continued to collapse to new record lows. An awful week was rounded off with a shock 533k fall in US non-farm payrolls – the fastest rate of job losses in 34 years – taking the US unemployment rate up to 6.7%. On Monday the NBER business cycle dating committee had decided that the US economy had already been in recession for a year. The Federal Reserve is now widely expected to implement a zero interest rate policy (ZIRP) in early 2009 and other Central Banks may well follow suit."

1 December 2008 - Market Report

"Equity markets made strong gains last week on the back of further systemic support from the US Fed. US and UK Government bond yields however touched multi-decade lows as investors continued to pile into safe havens and fret over the dangers posed by deflation. Economic data from around the globe continues to indicate that we may be heading for the sharpest Q4 global GDP slide since WWII. Last week the key German Ifo business climate index collapsed and this week the closely watched UK CIPS business activity reports are likely to show that activity has slipped even further from the record lows seen in October. The US non-farm payrolls data is also expected to show another steep fall in employment this week, supporting the consensus view that we are now in a deep and synchronised global recession."

24 November 2008 - Market Report:

"Round-up: Last week saw renewed turbulence in financial markets as CPI data in both the UK and US showed that inflation is plunging much faster than had been anticipated. Additionally, the MPC and FOMC minutes (both released last week) indicated that policy rates still have significantly further to fall in order to avoid undershooting inflation targets by a substantial amount. US headline CPI fell an enormous 1% month on month, the biggest decline since the series began in 1947. Global markets are now pricing in much higher expectations for deflation taking hold in developed economies. There is a distinct possibility that a zero interest rate policy will soon be implemented in the US. The yield on the 3-month US Treasury bill is now very close to 0%.

Equities: More grim economic data caused equity markets to tumble around the globe, with shares on Wall Street falling to their lowest level for more than a decade. The u-turn by the US Treasury on the uses for the Troubled Asset Relief Program (TARP) funds also contributed to heavy selling of risky assets. The FTSE 100 fell 10.7% and the S&P 500 was down 13.6% over the week. A Credit Suisse note to investors pointed out that equity markets are heading for their worst year since 1825, having seen peak to trough declines of around 50% in 2008..."

17 November 2008 - Market Report:

"Positive signs emerged from the G20 summit held over the weekend with leaders agreeing unanimously to move quickly on radical regulatory reform for the global financial system. Both developed and emerging nations also promised to use fiscal measures to boost domestic demand. Q3 GDP data on European economies saw Germany and Italy enter a technical recession1, with Q3 GDP growth falling 2% in each country. Data also showed that Holland’s economic growth has stagnated at 0% in Q3. France bucked the trend registering a 0.4% rise in Q3 GDP, surprising on the upside. The Euro area as a whole saw GDP fall 0.8% in Q3, having fallen 0.8% in Q2, meaning the Eurozone has now also entered a technical recession."

10 November 2008 - Market Report

"Markets responded positively to the election of Barack Obama on Tuesday. However, a darkening picture for the global economy regained investor focus as the IMF released forecasts showing it expects developed economies to contract by 0.3% next year. The IMF expects the UK to be hit hardest and see its GDP fall at a steep rate of 1.3% in 2009, suffering a downturn on a par with the early 1990s recession. Policy rates were slashed in Europe, most notably in the UK where the MPC shocked financial markets by announcing a historic rate cut of 150bps. This is three times the size of any move by the MPC since it was established in 1997, with UK base rate now standing at a 53 year low. A week of dire news on the economy was rounded off with US non-farm payrolls data showing 240,000 US job cuts had been made in October. This is the steepest monthly fall in this key economic benchmark in nearly 7 years, taking US unemployment up to a 14 year high."

3 November 2008 - Market Report

"The debate has shifted from whether we are in the worst financial crisis since at least World War II - this is now the consensus view - to focussing on how deep and prolonged the ensuing economic fall out will be. During October, investors experienced heavy losses across equities, commodities, currencies and corporate bonds as the deleveraging cycle continued at full force. Short dated government bonds were once again one of the only asset classes to register gains in the month, as investors continued to seek out safe havens and financial markets priced in even lower interest rate expectations. Hedge funds lost 9% in October to register their worst monthly performance ever, prompting questions about the sustainability of the hedge fund model."

27 October 2008 - Market Report

"The darkening outlook for the global economy caused steep falls in equities and commodities and sharp adjustments in currencies, as markets increasingly price in the expectation of a deep and severe global economic downturn. For the first time last week, both Gordon Brown and Mervyn King were heard using the word ‘recession’ when speaking about the outlook for the UK economy. It is widely believed that their use of the term refers contextually to something much more severe than the textbook ‘technical’ definition of two or more consecutive periods of negative GDP growth. It is expected that this week will see further market intervention from governments and central banks around the globe with the intention of stabilising markets."

20 October 2008 - Market Report

"Governments around the globe announced unprecedented measures to recapitalise troubled financial institutions, similar to plans which were first announced by the UK. On Tuesday, the US committed $250 billion of its Troubled Asset Relief Programme (TARP) for bank recapitalisations and a sovereign guarantee on new bank debt. The move marked a radical shift away from the original focus of the $700 billion TARP as a scheme for purchasing distressed assets from banks. European governments - including France, Germany, Spain, the Netherlands and Austria - also committed $1.8 trillion to guarantee bank loans and take stakes in lenders."

13 October 2008 - Market Report

"Equity markets around the globe plunged to multi-year lows and unprecedented market intervention was seen from governments and central banks in a desperate effort to rescue a financial system thought to be on the verge of a total systemic collapse. Last Sunday Germany announced that it would guarantee €568bn of its bank deposits prompting calls for Gordon Brown to do the same in the UK. The fragmented approach to Eurozone policy action caused investors to panic in the Monday trading session, causing heavy falls in equity markets around the globe. Amid outright panic in the markets, six of the world’s most important central banks - including the US Federal Reserve, the ECB and the BoE – announced simultaneous emergency rate cuts of 50bps. Many Asian central banks followed suit in the early hours of Thursday. The UK government on Wednesday announced unprecedented measures to recapitalise its banks. The circa £400bn rescue plan will involve investing up to £50 billion in banks while offering guarantees of around £250 billion on new bank debt, and adding £100 billion to existing BoE market liquidity operations (SLIS)."

6 October 2008 - Market Report

"Last week was seen by many as by far the worst week so far in the credit crisis. By the time the markets closed on Monday the rescue of 5 major banks had been announced, with further bail outs announced later on in the week. The Belgium, Luxemborg and Netherlands governments joined forces to rescue Fortis. It was agreed over the weekend that French bank BNP would take control of the remaining assets of Fortis after the Dutch government’s surprise nationalisation of its share on Friday..."