Post date: May 08, 2013 2:19:30 PM
The International Monetary Fund's annual visit to the UK is expected to bring with it pressure on finance minister George Osborne to ease up on government spending cuts, something that Osborne may be forced into discussing more than he might want, says IG's Brenda Kelly.
LONDON, ENGLAND, UNITED KINGDOM (MAY 8, 2013) (REUTERS) - IG MARKET ANALYST, BRENDA KELLY, SAYING:JOURNALIST ASKING QUESTION: "GDP numbers, better than expected last time around, probably not going to be enough to stop the IMF saying, "Look, you need to ease up."?"
IG MARKET ANALYST, BRENDA KELLY: "No, it certainly isn't. Granted they're higher, the GDP numbers did come in higher than expected and it did seem to give a little bit of a shot in the arm to Sterling, but we have seen a pullback since that has occurred. And I wouldn't expect the rhetoric to really change from the IMF at this particular juncture. They're predicting 0.7% growth for the UK for this year. And that's down from their previous assessment. So I think it's going to be a sort of conversation about what they can do to pull back on the spending cuts and as was a plan B effect. But then again, you have had George Osborne over the last month or so stating quite clearly that they need to get fiscal stability back under control before they waver in any of these spending acts but nonetheless, I would still expect, given that the Monetary Policy Committee have had a split in relation to what they're going to do from here in terms of more quantitative easing, what to do with rates, I think there is probably room for some conversation and possibly some negotiation there."
JOURNALIST: "All right. What do you feel when you see the Dow at 15,000? The S&P at the levels that it's at, other equity markets, do you smile or do you worry about the crashes coming?"
KELLY: "Well, it depends on whether I'm long or not really. It doesn't have thought I had to-"
JOURNALIST: "Are you long or not?"
KELLY: "I'm not currently. I do find that there's a bit of exuberance at the moment. And now as a trend follower myself, if you don't see the volumes adding up, and so they're definitely not there because this has been, as it's been referred to in the media is one of the most hated rallies. And I think a lot of it is due to the fact that people have found it difficult to get in to buy in the dips but nonetheless, the fundamentals do not add up. We're seeing the commodity suite separating and diverging quite significantly from the S&P 500 and of course from the FTSE 100 as well and what you'd really very well track. So, if the volume isn't there, you do have a certain amount of problems with the rally and of course, I think if we're going to see a correction, it will probably be accompanied by volume and that will be quite a deep one. And I'm not so sure."
JOURNALIST: "Yeah, big question of course. When is this correction going to come, do you think?"
KELLY: "Well, I think what is holding the market up a little bit are these data numbers coming out of China which seemed to be giving, I suppose an incorrect view of what exactly is going on in the economy. So I think once we see and probably a more correct and direct figure from China, we should settle things down a little bit. I think the RBA acted quickly yesterday cutting their rates by 0.25% and I think they're preempting the possibility of more, I suppose subdued growth fromChina and I think that could settle the markets a little bit in the coming six months or so."