Bloomberg News

Pound Drops as Report Shows Corporate Alerts Surged; Gilts Fall

January 24, 2012

Jan. 23 (Bloomberg) -- The pound fell after an industry survey showed company profit alerts surged last quarter, adding to signs the U.K. economy is losing momentum.

Sterling dropped against 12 of 16 major counterparts tracked by Bloomberg amid speculation Bank of England minutes this week will signal policy makers are leaning toward further asset purchases, known as quantitative easing. The pound dropped against the euro and gilt yields rose to a six-week high as French Finance Minister Francois Baroin said negotiations on Greek debt are making “tangible progress.” Thirty-year bonds slid before a sale of 2052 bonds through banks this week.

“Recent data out of the U.K. is not encouraging, and the latest survey on profit warnings doesn’t help,” said Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd. in London. “People in the market are betting that the Bank of England will soon expand its quantitative-easing program and that would mean more sterling supply for the market” and put pressure on the pound, he said.

The pound weakened 0.8 percent to 83.66 pence per euro at 5:01 p.m. London time. Sterling was little changed at 119.87 yen and $1.5580.

The pound has depreciated 1.3 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar dropped 1.6 percent, and the euro fell 0.9 percent.

Earnings Outlook

Profit alerts increased by more than 70 percent in the final quarter of 2011 at U.K.-listed companies, the biggest jump since the first three months of 2001, according to Ernst & Young LLP. Retailers issued the most, 39 in 2011, more than the whole of 2009 and 2010 combined.

The upward trend may continue this year if European finance leaders don’t resolve the sovereign debt crisis or growth in China slows or demand from the U.S. weakens, Alan Hudson, head of Ernst & Young’s U.K. restructuring practice, said in a statement.

Futures traders increased their bets that the British pound will decline against the U.S. dollar. The difference in the number of wagers by hedge funds and other large speculators on a decline in the pound compared with those on a gain -- so-called net shorts -- was 41,634 on Jan. 17, compared with 35,853 a week earlier, data from the Chicago-based Commodity Futures Trading Commission showed.

Greece Talks

Bondholders negotiating a debt swap with Greece have made their “maximum” offer, leaving it to the European Union and International Monetary Fund to decide whether to accept the deal, said Charles Dallara, managing director of the Washington- based Institute of International Finance, who’s representing private creditors in the talks.

Gilts dropped on speculation that an agreement on the debt talks will be reached soon, damping demand for the relative safety of AAA government bonds.

The yield on the 10-year gilt climbed five basis points, or 0.05 percentage point, to 2.16 percent, after reaching 2.20 percent, the most since Dec. 8. The 3.75 percent bond due September 2021 fell 0.46 or 4.6 pounds per 1,000-pound face amount, to 113.71. Two-year yields rose two basis points to 0.43 percent while 30-year gilt yields advanced four basis points to 3.16 percent.

Gilts handed investors a 0.7 percent loss this year, compared with a decline of 0.6 percent on German government bonds, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

--Editors: Matthew Brown, Nicholas Reynolds

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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