Risk aversion makes a return

The latest US employment report out on Friday disappointed leading to a worldwide sell-off in the stock markets led by technology stocks. The increase in risk aversion allowed the pound to make a strong start to the trading week against the high yielding currencies like the Australian dollar but the pound was otherwise subdued.

This morning, the British Chambers of Commerce’s (BCC) produced their latest quarterly economic survey which showed that UK export orders rose by 39% and export sales increased by 38% in the service sector in the period.

The six key manufacturing balances also reached record levels with domestic sales up by 38%, domestic orders up by 42%, employment expectations up by 40%, investment in plant and machinery up by 37%, investment in training up by 33% and turnover confidence up by 67%.

Almost all the key balances in the services sector are now above 2007 pre-recession levels.

David Kern, Chief Economist at the BCC commented that “The results of our survey suggest that growth is strengthening in the short-term, and support our recent forecasts that the economic recovery is moving at a solid pace. But challenges persist and despite this progress, the recovery is not yet secure. Our current account deficit is the largest in the G7 and will pose long-term risks unless it is tackled. Investment and exports must play a larger contribution to our economic future, or else there is a risk that our recovery could stall. Businesses need a stable environment to plan ahead and invest. So while this period of low inflation and low interest rates cannot last forever, every effort must be made to sustain it for as long as possible.”

Meanwhile, credit card provider Barclaycard reported that UK consumer spending hit a 14-month low in March as wages failed to keep pace with the cost of living. Spending rose by just 1.1% between March 2013 and March 2014 and well below the rate of inflation for the first time in six months.

Barclaycard Chief Executive Val Soranno Keating commented "With predictions that wages won't return to pre-recession levels for another three years, the outlook for consumer spending is set to be uncertain for some time to come."

In the euro zone, Destatis reported that German industrial production for February narrowly beat consensus forecasts with industry output for the euro zone's largest economy rising for the fourth consecutive month by 0.4%, up from the prior month's revised 0.7% gain and slightly ahead of forecasts.

The data also showed that year-on-year industrial production rose by 4.8%, down from the previous revised reading of 4.9% growth the month before but slightly above forecasts.

Meanwhile in a further blow to risk appetite, the World Bank has cut its 2013 forecast for China growth from 7.7% to 7.6% citing a “bumpy start to the year” following the release of weak economic data.

However, the World Bank did add that it expects recent reforms in China to boost sustainable growth in the long term.

In its latest report, the World Bank comments that “If implemented, the reforms will have a profound impact on China's land, labour, and capital markets, and enhance the long-term sustainability of its economic growth. Some reforms, including efforts to reduce regulatory and administrative burdens, reform taxation, and make more land available for commercial activities, are also likely to support growth in the short term."