Risk appetite making a comeback

Worldwide risk appetite seems to be making something of a comeback with the main FTSE100 index in London closing at its second highest ever figure following decent corporate data and the news out of the latest G20 meeting in Australia.

In the currency markets, the pound continues to slide away from the multi-month and year high’s seen across the board in January with another batch of decidedly mixed data.

The consumer sector for example saw optimism in the three months to February rise at its fastest rate since 1998 according to the business lobby group the CBI. The CBI data also showed that business volumes rose at their quickest pace since 2005.

Lloyds Bank Chief Economist Patrick Foley commented that "Continued gains in consumer sentiment reflect the ongoing improvements in the UK economic backdrop. With the pressure on consumer wallets from essential spending remaining muted, if employment continues to firm and, looking ahead, wages begin to rise, boosting spending power, the greater capacity of consumers to undertake discretionary spending should place the recovery on a still-firmer footing."

Not so good is the latest government borrowing data from the Office for National Statistics (ONS) who reported that in January 2014, public sector net borrowing excluding temporary effects of financial interventions (PSNBex) was just -£4.7 billion, much less than the - £6 billion figure expected by analysts.

The ONS also reported that versus a year ago, UK retail sales grew by 4.3% in terms of volumes and by 4.4% in value terms, again less than had been anticipated.

Meanwhile the euro benefitted from a report from Eurostat that euro zone inflation for January was revised slightly upwards on Monday although it remains well below the European Central Bank's (ECB) target rate.

The preliminary January reading of the consumer price index (CPI) of a 0.7% annual rise was revised upwards to 0.8% which is in line with December's reading but still well below the ECB's official inflation target of 2%.

Prior to the latest data release, ECB President Mario Draghi dismissed the idea that the euro zone monetary authority needed to be concerned about deflation stating that “We don’t have any evidence of people postponing their expenditure plans with a view to buying the same thing at lower prices, in other words we don’t see what is defined to be deflation”.

The euro also benefitted from a better than expected German Ifo business sentiment indicator as the euro zone's largest economy continues to lead the recovery. The improvement in the German economy has been underlined this morning by the second release of German fourth quarter gross domestic product (GDP) data which again show that exports drove the economy's expansion during the last three months of 2013. As expected, the euro zone's largest economy grew by 1.3% on the year, marking an increase from the third quarter's 1.1% rise.

Meanwhile, finance ministers from the G20, the 20 largest economies in the world have agreed to embrace an “ambitious” goal of boosting the world’s economy by more than $2 trillion over the coming five years after progress on returning economic growth to pre-crisis levels has been hampered by the austerity measures undertaken by a number of governments across Europe and the economic slowdown in China. However, the G20 finance leaders said they were encouraged by signs of an economic improvement in Japan, the UK and US “and the resumption of growth in the euro area”.