Finally the first signs that the US President is going to take a leaf out of the European’s book and start to address their huge fiscal problems at last night’s speech to the State of the Union.  The market even took the speech well with US stocks recovering from their lows which has fed through to UK and European stocks this morning with the FTSE 100 (UKX) expected to bounce recouping yesterday’s losses.  The impact of the speech means that UK investors have brushed aside the concerns of yesterday’s shocking GDP data as global indices are once again supported by strength from US.

But in the grand scheme of things the cuts to spending proposed are a drop in the ocean compared to the sheer size of the US budget deficit.  Yet again we see a politician not willing to tackle the issue properly and Obama will face stiff opposition from the Republican controlled House of Representatives for not going far enough.

Last night was a night for speeches as the Governor of the Bank of England made his first speech of the year.  Mervyn King didn’t have much encouraging things to say and who can blame him.  With inflation expected to hit 5% and growth to remain dangerously near to double dip territory the future doesn’t look bright and the UK economy needs to brace itself for tough times ahead.

The Bank of England minutes are due out at 9.30 and will be keenly read following the shock GDP data yesterday.  In the last few months the minutes have revealed MPC members becoming slightly more hawkish in their stance towards inflation and interest rates, so considering that the last decision was taken before the GDP numbers, this view will not have changed much.  There was however signs that growth was in trouble after downward revisions to Q3 GDP readings and this will no doubt keep the voting patterns the same with a three way vote.

This afternoon’s highlight on the economic data front will be US new home sales which are expected to rise a little but remain low overall.  Then it’s the FOMC rate decision which could provide some entertainment for markets later on tonight.  Not that the economic situation in the UK has any affect whatsoever on the Fed, but they’ll take note of the UK’s sudden dip into negative growth and this…

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