UK economy shrinks in Q4

2012-JAN-25

President Obama’s State of the Union Address, the Davos meeting of the global financial elite in Switzerland, and confirmation that the United Kingdom’s economy shrunk in the fourth quarter of 2011 are all in the headlines this morning. In addition, as James Turk discusses in his latest interview with Eric King over at the KWN Blog, Greece is edging ever closer to bankruptcy – with private creditors and eurozone politicians still in disagreement over the interest rate on restructured Greek debt. Yesterday S&P warned that it was moving closer towards deeming Greece in “selective default”, though stated that “it’s not a given” that this default would start a chain-reaction of defaults across the eurozone.

European equity markets have fallen in trading this morning, with the euro losing ground against the dollar. Sterling is also down against the dollar following news that the UK economy shrank by 0.2% in the fourth quarter of last year. This was worse than the 0.1% reduction in GDP economists had been expecting, and has added to expectations that the Bank of England will resort to more quantitative easing following the conclusion of its latest £75bn bond-buying scheme this month.

For a bigger picture assessment of the ills afflicting the UK, US and other developed nations, you’d be well-advised to read Sean Corrigan’s latest article over at the Cobden Centre website. As Sean notes of monetary policy:

“As such, this rollercoaster of incomplete recuperation, alternating between stimulus-driven boomlets and stimulus-starved mini-busts – with each successive switchback attaining lesser new peaks of output and generating more inflationary friction earlier in the ride – is something we foretold way back at the start of the crisis."

Fed chairman Ben Bernanke is due to give a press conference later today following the conclusion of the two-day FOMC meeting. Dovish overtones from Bernanke will probably lead to gains in commodities and stock markets. On the other-hand, should Bernanke disappoint the markets by appearing slightly more hawkish than was expected, we can expect to see gold and silver face selling pressure and gains in the dollar.

Tomorrow is also options expiration day at the Comex exchange in New York, which could mean gold and silver futures coming under selling pressure. See this GoldMoney News article from last August for an explanation of why options expiration tends to coincide with falls in gold and silver prices.