Financial Markets Review by Lloyds TSB

A downbeat BoE quarterly Inflation Report, a drop in US retail sales and weak Chinese exports put the breaks on expectations of global economic recovery.

Bond yields, swaps fall on downbeat BoE report

A downbeat BoE quarterly Inflation Report, a drop in US retail sales and weak Chinese exports put the breaks on expectations of global economic recovery.

Sterling fell after the BoE quarterly Inflation Report showed the risk weighted towards a relatively slow and protracted UK economic recovery.

High yielding currencies put in the worst performance as equities fell back. The NZ$ weakened as poor Q1 retail sales raised perceptions that the central bank will need to cut interest rates below 3.5%.

East European currencies including the Polish zloty and Hungarian forint unwound some of last week’s gains as EU-16 Q1 GDP contracted by a sharper than expected 2.5%. This dampened hope of recovery in the region’s key export market.

The BoE warned that any recovery in the UK economy will be slow and that inflation may undershoot the target longer than previously projected. This helped gilts to post impressive gain and yields to fall sharply

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