The UK has been the focus of attention for traders this morning. GBP has soared, while stocks have retreated in response to improving employment and the Bank of England’s latest inflation report. Governor Carney indicated a UK “recovery has finally taken hold”, which was confirmed by the positive surprise in job growth. The Bank moved forward its expectation of when unemployment may reach its 7% threshold for potential action. While the Bank indicated it may not raise interest rates immediately on reaching the threshold, it’s possible that cutting back QE could occur earlier if the economy continues to improve. Overall, the UK appears to be in a neutral to tightening position making BoE one of the more hawkish central banks at the moment. Resource dollars have also been strong today with their performance ranked by the relative hawkishness of their central banks (NZD, then AUD and CAD). On the other hand, NOK and SEK have been underperforming again today. Defensive plays (JPY, CHF and gold) have been trading pretty much flat today. US indices and European continental indices are also trading lower this morning. Part of this may be follow through from the Asia Pacific selloff that was sparked by disappointment over the statement from China’s Third Plenary meeting. The statement was vague, said nothing about increasing outside or foreign ownership of its biggest state companies and created the realization that any reforms that do come out of this may take years to implement. Growing expectations that QE may start to get cut back in the US and UK may also be playing a role in current weakness as it indicates that the flood of liquidity that has propelled markets higher over the last year may be coming to an end. Macy’s very strong earnings indicate improving consumer spending, another sign of an accelerating economy. Commodity action has been mixed today. Copper broke down overnight along with other China sensitive markets. Energy markets, on the other hand have been rallying led by UK crude on improving economic conditions and by natural gas on seasonal conditions as temperatures fall in consuming regions (there was some snow on the ground when I left for work this morning for the first time this season). Corporate News Macy’s $0.47 vs street $0.39, maintained $3.80-$3.90 guidance vs street $3.78 Loblaw $0.78 vs street $0.81 Metro $1.19 vs street $1.22 Economic News Significant economic announcements released yesterday afternoon and overnight include: Australia consumer confidence 110.3 vs street 108.3 Japan machine orders 11.4% vs street 12.5% UK jobless claims (41K) vs street (30K) vs previous (47K) UK unemployment rate 7.6% as expected UK 3M rolling employment 177K vs street 113K vs previous 155K Bank of England 2014 GDP forecast raised to 2.8% from 2.7% Bank of England 7% employment now expected to be reached by Q3 of 2015, moved forward from 2016. 40% chance by end of 2014, 60% chance by end of 2015 Economic reports due later today include: There are no major releases scheduled for North America later today. US crude oil inventories will be released on Thursday this week due to the government holiday on Monday.

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