*Sterling clears earnings on stagnant Production UK

THE TAKEAWAY: UK industrial production unchanged in April, down 1.0% on the year -> Dovish MPC member Posen reiterates call for stimulus -> Sterling erases earlier gains
UK industrial production was stagnant during the month of April, while factory production dropped -0.7% from the previous month. The industrial production cam in slightly worse than the expected 0.1% output increase, while manufacturing production was way below the -0.1% expected drop. Compared to April of 2011, industrial production is showing a long-term decline of -1.0%, according to the UK Office of National Statistics.
Basic pharmaceuticals led the way in declining UK output, dropping -6.0% during April. Meanwhile, computer, electronic, and optical production were up 8.1% for the month.
Continued signs of a contracting economy increase hopes that the BoE will add to its stimulus program in next month’s meeting. The usually dovish Adam Posen recently reiterated his calls for added stimulus, saying additional QE is necessary to boost the UK’s struggling economy. The BoE left its asset purchase target unchanged at 325 billion pounds in June’s meeting.

Although GBPUS
D dropped following the stagnant industrial production, it was little more than a correction from a rally during the previous hours. Cable is down from yesterday’s high at 1.5581, as initial euphoria over the Spanish aid deal faded. Euro rallied against Sterling following the release, also correcting from earlier session declines.

€€ Euro to Look Past German IFO as Markets Stay Focused on Earnings

20 April 2012 07:15 GMT   Talking Points

German IFO Unlikely to Yield Strong Response, Earnings News in Focus S&P 500 Stock Index Futures Point to Cautiously Risk-On Environment US Dollar Consolidates vs. Major Currencies in Quiet Overnight Trade Major currencies consolidated against the US Dollar (ticker: USDollar) in quiet overnight trade. In European hours, the German IFO business confidence survey headlines the economic calendar, with median forecasts calling for a modest pullback in the headline Business Climate index. A print in line with expectations (109.5) would snap a streak of five consecutive increases but the rising trend playing out since late last year would be left firmly intact, both on a month-to-month and 3-month average basis. On balance, this seems to offer little that has not been priced in already, amounting to modest market-moving potential for the Euro.

Looking ahead, the corporate earnings docket enters the spotlight once again. The central uncertainty driving financial markets remains the degree to which an accelerating recovery in the US can offset a recession in the Eurozone and a slowdown in China. This means traders will be focused on guidance from cycle-sensitive companies to establish near-term direction for risk appetite trends. This time around, first-quarter reports from McDonald’s and Kimberly-Clark will be sought for a gauge of consumer sentiment while those from Honeywell, General Electric and Schlumberger will serve as a proxy for broad-based global growth trends. Sideline comments from the G-20 Finance Ministers’ meeting as well as the ongoing IMF and World Bank summit may also factor into the equation.

S&P 500 stock index futures are pointing higher in late Asian trade, arguing for a broadly risk-supportive environment (at least for the time being). This generally bodes well for stocks-linked currencies, particularly the Australian, Canadian and New Zealand Dollars. To some extent, the same can be said of the Euro, while the British Pound appears focused on BOE policy rather than risk appetite. The still-formidable correlation between benchmark 10-year US Treasury yields and USDJPY suggests sentiment-based moves will be indirectly transmitted into Yen price action as well, with the Japanese currency finding itself on the defensive in the event that an upbeat session sends shares higher and weighs on bond prices. Needless to say, the return of risk aversion would produce polar-opposite results.

Asia Session: What Happened

Tertiary Industry Index (MoM) (FEB)

MNI Flash Business Sentiment Survey (APR)

Euro Session: What to Expect

German Producer Prices (MoM) (MAR)

German Producer Prices (YoY) (MAR)

Convenience Store Sales (YoY) (MAR)

German IFO - Business Climate (APR)

German IFO - Current Assessment (APR)

German IFO - Expectations (APR)

Retail Sales ex Auto Fuel (MoM) (MAR)

Retail Sales ex Auto Fuel (YoY) (MAR)

Retail Sales w/Auto Fuel (MoM) (MAR)

Retail Sales w/Auto Fuel (YoY) (MAR)

€€€ Euro, Top Currencies Focus on Spanish Bond Sale and Earnings Docket €€€

Talking Points

• All Eyes on Spanish Bond Auctions Amid Returning Eurozone Debt Fears
• Traders Most Concerned with Guidance as Q1 Reporting Season Continues
• Last Batch of US Data This Weeks Aims to Produce Risk-Supportive Cues

Eurozone debt crisis worries take center stage in European hours as traders look for the outcomes of a pair Spanish bond auctions for direction. Madrid is due to sell 2014 and 2022 debt. Previous auctions of equivalent maturities drew average yields of 2.069 and 5.403 percent for 2-year and 10-year notes respectively. Readings north of these outcomes threaten to project returning funding stress in the currency bloc and stand to weigh on the Euro and broad-based risk appetite.

The spread between yields on Spanish and benchmark German 10-year bonds now stands at 410.2 basis points, which is 67.6bps or 2 standard deviations above its three-month average. France is also on the issuance calendar, with Paris selling up to 3bn in 2018 inflation-linked bonds as well as a tranche of 2014, 2015 and 2017 paper.

Later in the session, another helping of corporate earnings reports enters the spotlight, with names including Bank of America, Verizon and Microsoft on tap. Traders appear primarily concerned with guidance from major cycle-sensitive companies as the primary question defining the macro environment remains the degree to which a pickup in the US can offset a slowdown in China and recession in the Eurozone this year.

On the US economic data front, expectations call for a minor pullback in the Philadelphia Fed business confidence gauge in April while Existing Home Sales rise the most in five months while the composite Leading Indicators metric gains 0.2 percent to reach the highest level since June 2008. Weekly jobless claims numbers are expected to yield mixed results, with initial applications for benefits down while continuing ones advance.

The US Dollar (ticker: USDollar) continues to show a formidable inverse correlation with the S&P 500, hinting a pick-up in risk appetite that sends share prices higher – whether courtesy of earnings outcomes or the economic data set – is likely to weigh on the benchmark currency. Needless to say, the inverse scenario stands to produce the opposite effect.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
22:00	NZD	ANZ NZ Job Ads (MoM) (MAR)	-1.0%	-	4.6% (R-)
22:45	NZD	Consumer Prices Index (QoQ) (1Q)	0.5%	0.5%	-0.3%
22:45	NZD	Consumer Prices Index (YoY) (1Q)	1.6%	1.6%	1.8%
23:50	JPY	Merchandise Trade Balance Total (¥) (MAR)	-82.6B	-223.2B	29.4B
23:50	JPY	Adj. Merchandise Trade Balance (¥) (MAR)	-223.2B	-446.3B	-321.4B (R-)
23:50	JPY	Merchandise Trade Exports (YoY) (MAR)	5.9	0.2	-2.7
23:50	JPY	Merchandise Trade Imports (YoY) (MAR)	10.5	7.0	9.2
1:30	AUD	NAB Business Confidence (1Q)	-1	-	1
1:30	AUD	RBA FX Transaction (A$) (MAR)	944M	-	372M

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
8:00	EUR	Italian Industrial Orders sa (MoM) (FEB)	-1.1%	-7.4%	Low
8:00	EUR	Italian Industrial Orders nsa (YoY) (FEB)	-6.2%	-5.6%	Low
8:00	EUR	Italian Industrial Sales sa (MoM) (FEB)	-	-4.9%	Low
8:00	EUR	Italian Industrial Sales nsa (YoY) (FEB)	-	-4.4%	Low
8:30	EUR	Spain to Sell 3.3% 2014 Bonds	-	-	High
8:30	EUR	Spain to Sell 5.85% 2022 Bonds	-	-	High
9:00	EUR	France to Sell €3bn I/L 2018 Bonds	-	-	Medium
9:00	EUR	France to Sell 2014-2017 bonds	-	-	Medium

 Critical Levels

CCY	SUPPORT	RESISTANCE
EURUSD	1.3074	1.3157
GBPUSD	1.5931	1.6135

~ Crude Oil, Gold Look to US Earnings Calendar for Direction Cues ~

Crude Oil, Copper Look to US Earnings Calendar to Set Sentiment Trends Gold and Silver Look to US Dollar for Risk Appetite Trends Transmission Commodity prices are little changed in early European trade, reflecting directionless risk sentiment trends projected via flat S&P 500 stock index futures. A quiet US economic calendar keeps the focus on the earnings calendar, with cycle-sensitive names including Halliburton and Dover as well consumption-trend proxies like Yum! Brands and American Express on tap.

So far, the twenty-nine S&P 500 companies to report first-quarter outcomes have produced mixed results: earnings growth slumped 0.5 percent on average, but this marked a 4.6 percent outperformance relative to expectations. Broadly speaking, traders are looking to the reports for answers to a familiar question: can a stronger recovery in the US offset a recession in the Eurozone and a slowdown in China this year?

Crude oil and copper remain closely correlated with the S&P 500, hinting shares’ response to today’s earnings reports will see direct reflection in prices for the growth-driven commodities. Meanwhile, gold and silver continue to look to the US Dollar for direction cues. For its part, the greenback, continues to show a meaningful inverse relationship with share prices, hinting a sentiment-supportive set of reports is likely to weigh on the benchmark currency while bolstering precious metals (and vice-versa).

WTI Crude Oil (NY Close): $104.20 // +1.27 // +1.23%

Prices are testing resistance at 104.90 after putting in a Bullish Engulfing candlestick above rising trend line support set from mid-December. A break above this level exposes falling trend line barriers at 105.61 and 106.70. Support is now at 101.22.

 Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1649.57 // -2.30 // -0.14%

Prices put in a Bearish Engulfing candlestick pattern below falling trend line resistance set from early March. Initial support has been found at 1638.02, the 23.6% Fibonacci expansion. A break below this exposes the 38.2% level at 1612.02. Trend line resistance is now at 1670.97.

 Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $31.68 // +0.18 // +0.57%

Prices continue to consolidate below resistance at 32.93, the former neckline of a Head and Shoulders (H&S) top carved out between late January and mid-March, and horizontal support at 31.04. A break blower exposes the first downside barrier at 29.79. The H&S setup broadly implies a measured downside target at 26.84.

 Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.648 // +0.020 // +0.55%

Prices put in two back-to-back Hammer candlesticks above rising trend line support set from early October, hinting a move higher may be ahead. Initial resistance lines up at 3.716, the 38.2% Fibonacci retracement. A break above this barrier exposes the 50% level at 3.761. Trend line support is now at 3.621.

 Daily Chart - Created Using FXCM Marketscope 2.0

>>> Weekend: Early Markets Drifting, Looking to Earnings, Spain, China for Cues

15 April 2012 21: 43 GMT Weekend DevelopmentsECB Asmussen: Europe has done enough on firewall, IMF members should increase contributions ECB Asmussen: Spain is repairing market confidence Spanish PM Rajoy seen supported by regional leaders for more austerity PBoC/Chinese government increases CNY trading band to 1% per day US 1 Q earnings start next week, major financials reporting throughout week Concerns stemming from the European sovereign debt crisis extending into Spain continued to affect markets in early trading. As Spanish 5 year CDS, a measure of insurance costs against Spanish default, traded near its all-time high again, Spanish leaders are continuing to push through additional budget cuts to bring its debt down from 68.2% currently. Although market reaction is relatively muted due to the safeguard provided by the ECB's LTRO lending earlier this year, traders will continue to actively monitor the situation in Spain to gauge possible contagion effects. Spain is scheduled to sell 2014 and 2022 bonds on April 19th at 0830GMT.

-Data Bloomberg/Markit
The Australian and New Zealand dollars led gainers higher against the dollar this morning on the heels of the People's Bank of China and State Bureau of Foreign Exchange's decision this weekend to increase the trading band for USDCNY from 0.5% to 1.0% per day. As the Chinese government continues to fine-tune its economic policy to keep inflation low and stable growth, it has been more willing to use exchange rate policies to reach its goal.
Following recent commentary from first Wen Jiabao that the USDCNY exchange rate may be nearing "equilibrium," USDCNY's tight range in 2012 and this weekend's move, markets may see China as less willing to only let the Yuan appreciate, choosing instead a more liberalized policy. The lack of expected continued gains combined with capital current RMB controls may start a shift of capital into higher yielding, more liquid assets denominated in Australian and New Zealand dollars, supporting this morning's move.

-Data Bloomberg
At the time of writing, the Euro is leading losers, followed closely by the Swiss Franc. The New Zealand dollar is leading gainers were higher expected data.

-By David Liu, DailyFX Research