The absence of any signs of Quantitative easing extension prompted a huge sell of in the short end yesterday as traders started to place there bets on the end of the easing cycle and that rates will start to be heading up.
Short sterling contracts came off over 20 ticks from sep10 onwards, with the front month dec09 mar10 spread trading 6 ticks higher. Cable jumped over 250 pips as the dollar lost ground again, and we saw a breach of 1.50 in the Euro dollar too.
Euribors dropped 8 ticks, and the bund was down over 80 as bonds started to reflect higher yields after being kept low for so long as the large availability of cash has been used to buy up the stocks and bonds.
However it remains to be seen whether we are really in a fully fledged recovery as, this morning UK retail sales came out weaker then expected and reminded as the consumer spending is still fragile.
Stocks are selling off today after a late sell of in the US yesterday night as an analyst downgrade of Well fargo prompted profit taking after a huge run up. However with many companies earnings still handily beating estimates, it is likely there wont be too much pressure to the downside for long.
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