Sterling On A Knife-Edge As GDP Data Could Reveal Double Dip Recession

Published: Wednesday, 25 April 2012 09:00 BST - Written by Tim Boyer

STORY LINK Sterling On A Knife-Edge As GDP Data Could Reveal Double Dip Recession

Panic levels receded in global markets during yesterday’s session, as investors realised that the much-publicised ‘walk-out’ by the Dutch Prime Minister and his government and a second-place finish for Nicolas Sarkozy in Sunday’s first round of French presidential polling, did not in fact add up to a constitutional crisis for the eurozone.

The easing of Monday’s firmly ‘risk-off’ trading environment saw equities markets register respectable gains on the day. However, the improvement in appetite for risk was tempered by disappointing Canadian Retail Sales figures which showed a monthly contraction of 0.2% in February. Analysts had been expecting the Canadian shop sales numbers to register a slight month-on-month increase.

The forward move in world share markets came in spite of worrying developments in European bond markets, which saw Spanish, Italian and Dutch bond yields creep higher. This suggests that the improvement in equities may have simply been a ‘dead cat’ bounce after shares were over-sold on Monday. In short, the improvement may yet prove to be ephemeral, suggesting that the safe-haven US Dollar may be set for some safe haven support as we march towards Friday’s weekly close.

The major risk event of note during today’s session comes in the UK this morning, with the release of initial Q1 GDP growth numbers. The counterpart Q4 number showed that British economic activity had contracted by 0.3%, meaning that the Pound stands on the precipice of a much-vaunted double-dip recession. Anything less than the expected 0.1% showing would mean that the UK economy had indeed double-dipped. The headlines that this would generate would be sure to send Sterling lower against the other majors, ceteris paribus.

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