Morning Forex Fundamental

EUR

'Once we hit the 6.5 per cent mark [in Spanish bond yields], the alarm bells will go off loudly in Brussels and more rhetoric will be coming from the European Central Bank' - Adrian Miller, a global markets strategist at GMP

S&P cuts Spain's credit rating by two notches

Impact High

The rating agency Standard & Poor's has downgraded Spain's credit rating by two notches to BBB-plus with a negative outlook from A, citing expectations the government finances will deteriorate.

'We think risks are rising to fiscal performance and flexibility, and to the sovereign debt burden, particularly in light of the increased contingent liabilities that could materialize on the government's balance sheet,' S&P said in a statement.

'Obviously this is not a total surprise and it shows that the recent bid we have been seeing in Bunds and the weakening of Spanish bonds has been justified,' said Adrian Miller, a global markets strategist at GMP in New York.

'Once we hit the 6.5 per cent mark, the alarm bells will go off loudly in Brussels and more rhetoric will be coming from the European Central Bank,' said Mr. Miller

USD

'While the economy continued to grow in the first quarter, the expansion remains modest in pace and subpar from a historical perspective' - Jim Baird, chief investment strategist at Plante Moran Financial Advisors

U.S. economy expands slower than forecast

Impact High

The U.S. economy grew at a slower pace than forecast in the first quarter as businesses cut on investment. Gross domestic product increased at a 2.2 per cent annual rate, the Commerce Department said on Friday.

'There's nothing catastrophic happening, this is just slow growth and this underscores that the economy is on sound footing but nothing more,' said Steven Baffico, chief executive at Four Wood Capital Partners in New York.

'While the economy continued to grow in the first quarter, the expansion remains modest in pace and subpar from a historical perspective,' says Jim Baird, chief investment strategist at Plante Moran Financial Advisors.

'The economy is still on an uncertain footing and a window of risk exists, given the global slowdown that is unquestionably underway and the recessionary environment now enveloping multiple developed economies.'

GBP

'It is clear that much like the economy as a whole, consumer confidence is in the doldrums' - Nick Moon, Director of Social Research at GfK

U.K. consumer confidence remains weak

Impact Medium

U.K. consumer confidence remained in the negative territory in April as consumers were mostly pessimistic on the outlook of the country's economy, showed a survey conducted by pollster GfK NOP.

An index of sentiment remained unchanged at -31 from March.

'It is clear that much like the economy as a whole, consumer confidence is in the doldrums,' said Nick Moon, Director of Social Research at GfK.

'And unfortunately, there are no signs either within the survey or in the recent economic figures to suggest any immediate improvement.'

CHF

'After the euphoria of the ECB capital injection, we've come back to reality' - Matthieu Giuliani, a fund manager at Banque Palatine SA

Swiss stocks were little changed on Friday

Impact Medium

Swiss stocks closed little changed on Friday after the S&P has cut Spain's credit rating and a report showed the U.S. economy expanded less than forecast.

The Swiss blue-chip index SMI, a measure of the largest and most actively traded companies, lost 0.10%, or 6.05 points, to 6,116.36. The broader Swiss Performance Index was unchanged from the previous day.

'After the euphoria of the ECB capital injection, we've come back to reality,' said Matthieu Giuliani, a fund manager at Paris-based Banque Palatine SA.

'Economic statistics will continue to be difficult considering countries' deficits and the fact that they aren't attacking the problem. Growth in the macro economy won't be found soon.'

JPY

'Investors are worried the BOJ may tighten its monetary policy, not ease it' - Koichi Kurose, chief economist at Resona Bank Ltd

Japanese stocks edged lower on Friday

Impact: Medium

Japanese stocks closed lower on Friday.

The Nikkei 225 fell 0.43%, or 40.94 points, to 9,520.89. The broader Topix retreated 0.72%, or 5.83, to 804.27.

'Investors are worried the BOJ may tighten its monetary policy, not ease it,' said Koichi Kurose, chief economist at Resona Bank Ltd. in Tokyo.

'The BOJ statement says that there's a high probability that the consumer price index will reach 1 percent before long. That's the most negative part here.'

Press Review

Europe

Greece pushed through the bond swap offer averting the immediate threat of an uncontrolled default and opening the way for a second rescue package.

Experts claim Spain has never been so close to default and Greece, Ireland and Portugal may need additional financial aid.

Europe Seeks to Restore Calm After Spanish Downgrade

http://www.bloomberg.com/news/2012-04-29/europe-seeks-to-restore-calm-after-spain-downgrade-growth-spat.html

European leaders will seek to restore market calm this week after Spain was cut by Standard & Poor's and a German-led austerity agenda to resolve the debt crisis came under fire ahead of elections in France and Greece.

Spain in talks over 'bad bank' scheme

http://edition.cnn.com/2012/04/30/business/spain-bad-banks/index.html?hpt=ibu_c1

Spain's government and its banks are discussing a new scheme to segregate problematic property loans into one or more asset management companies to relieve the burden on struggling lenders, according to officials and bankers.

USA

It is widely agreed that the Fed is unlikely to launch the third round of quantitative easing as the U.S. economy improves.

The International Monetary Fund rose U.S. economic growth forecast to 2.1 from 1.8 per cent in 2012.

Small business hiring takes step back in April

http://www.reuters.com/article/2012/04/30/us-usa-economy-hiring-idUSBRE83T02K20120430

Small business hiring slowed considerably in the April and employees saw a reduction in their hours, an independent survey showed on Monday, adding to signs of weakening in labor market conditions..

US reaps the rewards for making austerity wait

http://www.guardian.co.uk/business/economics-blog/2012/apr/27/us-economy-austerity-eurozone

The US stock market paused this afternoon to consider the latest GDP figures for the world's most powerful economy.

Asia & Pacific

China is suffering a major economic slowdown, as growth flags in the country's real estate, construction, steel, and other sectors.

Japan has published a trade surplus in February after a record deficit in January.

Bank of Japan's ‘Head Fake' Easing Fails to Move Yen

http://www.cnbc.com/id/47201162

The monetary easing on Friday by Japan's central bank failed to have the desired effect in weakening the yen after it increased the size of its asset purchases by 10 trillion yen ($123 billion), but also cut liquidity in the financial system by 5 trillion yen..

U.S.-China talks may yield little major progress

http://www.marketwatch.com/story/us-china-talks-may-yield-little-major-progress-2012-04-29?link=MW_home_latest_news

China experts don't expect high-level talks between Washington and Beijing this week to yield major progress on big issues, given a stymied policy backdrop, a fresh diplomatic row, and upcoming changes in Chinese and possibly U.S. leadership.