Week Commencing Monday 3rd July 2017
EZ: Factories continue to blast off as Eurozone turns the corner!
Factories across the Eurozone rounded off the first half of 2017 by ramping up activity at the fastest rate for over six years as rising prices failed to put a dent in orders, a survey showed on Monday.
Manufacturing Purchasing Managers' Index for the euro zone rose to 57.4 in June, up from May's 57.0 and pipping the preliminary reading of 57.3. Suggesting the momentum will continue into the second half, new orders rose at the fastest rate since early 2011, backlogs of work increased at the fastest pace in over 13 years, raw materials were depleted and factories increased headcount at a near record pace.
Signs of accelerating activity and price rises will be welcomed by policymakers at the European Central Bank who have for years failed to get inflation anywhere near their target. Inflation slowed in March by far more than economists polled by Reuters had expected, driven down mostly by a deceleration of energy price rises, official estimates showed on Friday.
Prices in the 19 countries sharing the euro rose 1.5 percent year-on-year, Eurostat estimated, down from a four-year high of 2.0 percent recorded in February. The Bank wants inflation of just under 2 percent.
Sterling (GBP) - With poor data expected from the UK this week, coupled with light trading flows from the US during the bank holidays, we expect Sterling to perform poorly during the week. With weak PMI’s, Sterling should find it difficult to break through the 1.30 barrier on Cable, while GBP/EUR should continue to trade in the 13’s, potentially pushing into the 12’s.
US Dollar (USD) - With a light start to the week with Independence Day, we expect minimal movement in Dollar pairs until Wednesdays FOMC minutes are released. Should we see a continued hawkish committee, I expect to see the Dollar reverse some of its recent losses versus both the Euro and Sterling.
Euro (EUR) - The Euro continue to test most majors given the relative strength of its economic indicators, and we expect this to continue 1.13/1.12 are still very much in the range versus Sterling, however this pair remains highly susceptible to Geopolitical announcements.
Economic Calander for the Week
We have a busy week for the UK with the all important PMI releases scheduled for the first half of the week. We expect UK Manufacturing to come in slightly lower at 54.8 versus last months 56.3 print. Construction on Tuesday should come in lower again at 55.0 versus last months 56.0 print.
Finally, Services PMI should come in at 53.5 versus last months 53.8 print. We then shift out attention to Friday’s Manufacturing Production, which we expect to expand from 0.2 percent to 0.5 percent on the month.
This week marks independence day, so expect slow volumes on both Monday and Tuesday. Moving to Wednesday we have the FOMC minutes, which may well shed further light on how the Fed are looking to raise rates during the second half of the year.
Thursday sees ADP NonFarms, which should come in lower at 188k versus last months 253,000. Finally, Nonfarm Payrolls should come in at 180k versus 138k, leaving the unemployment rate the same at 4.3 percent.
We expect unemployment to drop down from 9.3 percent to 9.2 on Monday, with Manufacturing PMI expect to continue to expand to 57.4. Eurozone Services should remain stable at 54.7 on Wednesday while Retail Sales should come in at 0.3 percent versus last months 0.1 percent print.
Week Commencing Monday 26th June 2017
UK: Bank of England to start raising rates - stranger things have happened!
Bank of England chief economist Andy Haldane says he may vote for a rate rise in the second half of the year.
At the last meeting, bank policymakers voted 5-3 on Thursday to keep interest rates on hold at a record low of 0.25 percent. External members Ian McCafferty and Michael Saunders joined MIT professor Kristin Forbes in voting to raise rates by 0.25 percentage points to 0.5 percent.
Supporting the move, the Monetary Policy Committee said inflation had picked up more quickly than expected in since its last economic forecast in May (currently standing at 2.9 percent).
The concerns have led to Bank of England Governor Mark Carney doused speculation that he might soon back higher interest rates, telling bankers on Tuesday that he first wanted to see how the economy coped with Brexit talks in coming months. Interesting times ahead!
UK: Business Confidence on the rise despite Brexit fears
Confidence among companies across Britain has improved significantly over the past six months, according to the latest survey from Lloyds Business Bank.
The report showed that the confidence index, a gauge of expected sales, orders and profits of some 1,500 firms over the coming six months, rose to 24 percent in May from 14 percent in January. Despite this, the British Chambers of Commerce says that economic growth will remain anaemic over the next few years.
The business group has stated that annual GDP growth will not exceed 1.5 percent by 2020 and inflation could end up being higher than expected. In May the Office for National Statistics said the economy expanded by 0.2 percent in the first three months of the year, down from its first estimate of 0.3 percent, as the key services sector lost momentum.
Sterling (GBP) - Sterling remains range bound as markets continue to analyse Brexit positioning and negotiations. With little in the way of economic data, focus should remain on this and as always, any geopolitical or Brexit related releases will impact sentiment dramatically. We expect GBP to remain trading within the 1.13 – 1.14 bracket versus the Euro, and continue to test 1.26 versus the Greenback.
US Dollar (USD) - The Dollar remains relatively weakened despite continued focus on the Fed’s rate hike program. While we continue to see issues surrounding the Trump administration we expect to see a range bound greenback, with it continuing to struggle versus the Euro and trade the 1.26 – 1.27 range versus Sterling.
Euro (EUR) - The Euro continue to outperform most rivals as GDP and PMI numbers blow away critics. Higher inflation points towards a potentially normalising ECB, which is providing substantial buying pressures on the single currency. Brexit related news tends to have an inverse reaction, so expect Sterling to remain on the back foot and the Euro to continue to pressure the Dollar.
Economic Calander for the Week
We have a reasonably quiet week for the UK, with the final GDP numbers for the first quarter to be confirmed in on Friday. We expect no shift in the current 0.2 percent numbers, confirming the UK grew at the slowest pace versus its G7 peers.
On both Tuesday and Wednesday, Mark Carney will be speaking at the fourth annual European Central Bank "Forum on Central Banking. Market players will look for any clues on the timing of when the world's biggest central banks plan to start winding down their monetary stimulus and begin normalizing policy.
We have a busy week for US data, with Core Durable Goods kickstarting on Monday. We expect the release to print a 0.5 percent increase for May versus -0.5 percent the previous month.
Consumer confidence is expect to edge down slightly on Tuesday, while pending home sales should pick up to 0.5 percent on Wednesday. The highlight of the week is US GDP on Thursday, which looks likely to be confirmed in at 1.2 percent.
We have a quiet week for the EU as Mario Draghi is set to Join Mark Carney at the ECB forum. On the data side, we expect Eurozone inflation to be revised down from 1.4 percent to 1.2 percent on Friday. Germany, France, Italy and Spain will produce their own CPI reports throughout the week.
In addition to the inflation data, the Ifo economic institute will produce monthly data on German business morale for June.
Week Commencing Monday 19th June 2017
UK: Brexit negotiations get underway
Brexit Secretary David Davis has said he is entering negotiations on the UK's exit from the EU in a "positive and constructive" frame of mind.
As he began talks in Brussels, he said he was determined to build a "strong and special partnership" with the EU. Day one of the negotiations, at the European Commission buildings in Brussels, will be followed by a joint press conference this evening by Mr Davis and the EU's chief negotiator Michel Barnier, a former French foreign minister and EU commissioner.
It comes as Theresa May’s cabinet is torn over how to approach negotiations with Chancellor Philip Hammond and others pushing for a softer approach, while Brexiteers threaten to resign if the Prime Minister abandons her tough stance. At the end of the week, Theresa May will speak to other leaders at European Council summit and while Brexit is not on the main agenda, some officials expect the Prime Minister to signal a softer stance.
Indeed, the talks come after Germany hinted it would be willing to make concessions over the influence of EU judges and single market access in return for a compromise on freedom of movement in a sign that the UK could be offered a so-called soft Brexit. Either way, this is the start of an important journey for the UK, how it will end will define the country for generations to come.
UK: Retail sales continue to disappoint as Inflation bites British consumers
UK retail sales grew at the slowest pace for four years last month, the latest sign of an emerging squeeze in living standards as Brexit continues to bite.
Sales volumes fell 1.2 percent month on month, worse than the 0.8 percent fall analysts has expected. The figures come after strong month-on-month volume growth of 2.3 percent in April, however economists had said those figures were likely distorted by Easter buying surges.
Retail sales were 0.9 percent higher in May compared with the same month last year, after adjusting for higher prices. Last May, retail sales were growing at an annual rate of 5.5 percent. Official inflation figures published earlier this week found that consumer prices were 2.9 percent higher in May that a year ago, while ONS labour market statistics showed that wages had only increased by 1.7 percent in the year to April.
UK consumers continue to be squeezed, and with Credit continuing to boom, things look more and more bubbly by the day!
Sterling (GBP) - Sterling continue to trade the risk on/off depending on what news is being published. Big moves are expected on the back of any Brexit related releases from negotiations. More pressing, any hint of further destabilisation of Theresa May’s position (resignations etc.) should provoke sharp GBP selling activity.
US Dollar (USD) - The Greenback continue to limp on versus both Sterling and the Euro, with both pairs trading the range. With little in the way of US data out this week we expect things to continue, with the Dollar looking strong versus Sterling and weak versus the Euro.
Euro (EUR) - The Euro continue on its offensive consolidating its new position versus both the Dollar and the Pound. We expect it to perform well on the back of Brexit news, with GBP/EUR potentially dropping into the 1.12’s should we see some surprise news.
Economic Calander for the Week
We have a reasonably quiet week for the UK with Bank of England governor Mark Carney speaking on Tuesday. With this in mind, Brexit negotiations will likely take the front line this week, with the Davis/Barnier press conference likely to cause some volatility.
We also have a quiet week for the US, with Home sales the highlight. We expect existing home sales to post 5.55m versus last months 5.57m number, so expect little movement on these. Oil inventories should post a reasonable drop in holdings by -1.6m barrels while New Home Sales should grow by 600k on the month.
In Europe we have Eurozone Manufacturing and Services PMI numbers, all of which should post reasonable figures. We expect manufacturing to come in at 56.8 versus last months 57.0 print, while services should come in at 56.2 versus 56.3.
Week Commencing Monday 12th June 2017
UK: Hung Parliament means Theresa May's days are numbered!
Mrs May was told her position in Number 10 is “untenable” amid reports Boris Johnson is plotting a bid to oust the PM with the backing of Cabinet members.
However, Graham Brady, the influential chair of the Conservative 1922 Committee which represents backbench MPs, said there was no appetite for a leadership contest which could lead to a third General Election in just over two years.
Mr Brady acknowledged there had been anger within the party at Mrs May's failure to express any regret for the Tory MPs who lost their seats when she returned to No10 on Friday to announce she was carrying on at the head of a minority Government. Mr Brady said the loss of their Commons majority meant much of the party's election manifesto would have to be abandoned and that Mrs May would have to present a considerably lighter Queen's Speech.
UK: British business confidence collapses as GE result increases political risk.
UK business confidence has fallen sharply since last Thursday's inconclusive election that left Prime Minister Theresa May weakened ahead of Brexit talks, according to a survey by the Institute of Directors.
The survey of nearly 700 members of the business group also exposed deep concern over the political uncertainty and its impact on Britain's economy. The Institute of Directors found a negative swing of 34 points in confidence in the UK economy from its last survey in May.
While 20pc of members were optimistic about the economy over the next 12 months, some 57pc were either quite or very pessimistic - a -37 net confidence score. That compares with a -3pc score in May. Businesses are now willing to reopen the subject of the type of Brexit that is in the economic interests of the UK after Theresa May failed to demonstrate there is public support for her vision of a hard Brexit in the election.
Small businesses also revealed almost all business leaders wanted to retain membership of the single market and customs union to ease trade with the EU and countries with trade agreements with the EU. These account for 61 percent of UK goods and services exports.
Sterling (GBP) - Sterling remains on the back foot after an inconclusive general election. We expect Sterling to remain week for the short term as the government sorts itself out, then remain susceptible to Brexit and/or another general election news.
With this in mind, 1.12 versus the Euro looks likely and 1.25 on the Dollar within the coming weeks. Outside the election, the Bank of England MPC will likely drive prices this week.
US Dollar (USD) - The Greenback remains reasonably robust despite poor data flows from the US. Versus Sterling we expect range bound but bias to the downside while the Euro should continue to push the Dollar down. The FOMC will drive sentiment this week, with any indication of further rate rises likely to give the Dollar a big boost.
Euro (EUR) - The Euro maintains its current strength and continues to consolidate versus both the Pound and Dollar. With UK geopolitical risk continuing, couple with an improving European economic outlook, we expect continues strength this week and moving towards July.
Economic Calander for the Week
Obviously, all UK eyes continue to monitor the general election fallout which continues to be the chief market mover. That aside, we await the Bank of England MPC meeting on Thursday with the accompanying statement. We expect economic outlook to worsen and the meeting to be Sterling negative. Finally, inflation should be confirmed in at 2.7 percent for the month.
In the US we start the week with Retail Sales on Wednesday, where we expect a month on month gain of just 0.1 percent versus last months 0.4 percent print. We then shift focus to inflation for May, with the number expect in at 2.0 percent. Finally, the FOMC should confirm its current hawkish stance with a further rate hike expected in the coming months.
We have a light week for Europe with the ZEW Survey the highlight on Tuesday. We expect the survey to confirm confidence is rising on the continent, with the index likely to print 37.2 versus last months 35.1.
Week Commencing Monday 5th June 2017
UK: Manufacturing looking healthy as the sector adjusts to a weaker Pound.
British manufacturing clocked up its second fastest growth in nearly three years last month, putting the sector on track to shrug off the election and Brexit related uncertainty.
The Markit/CIPS manufacturing PMI slipped to 56.7 in May from a three year high in April. The aggregate index for the UK dropped to 56.7 in May from 57.3 in April, in line with economists expectations because the April result was unusually strong. This provides a welcome bit of good news for Theresa May, who has been suffering from a catastrophic campaign in recent weeks. At the start of the campaign in April, May seemed on track to win an increased majority.
But polls over the past week show the opposition Labour Party has eaten into her lead. May has highlighted the record number of people in work in her campaign, and Thursday's figures showed that manufacturers planned to hire staff at the fastest pace in nearly three years.
Overall, orders were growing at the second-fastest rate in the past three years, just off April's peak - matching similar upbeat results in a survey by the Confederation of British Industry earlier this month.
BRAZIL: GDP returns to the black after the worst recession in the country's history!
Brazil's economy has grown 1 percent in the first three months of 2017, putting an end to the country's longest recession in history, officials have announced.
The data shows that the latest GDP result was strongly influenced by agriculture and livestock which grew by 13.4 percent in the three first months of the year. Industry grew by 0.9 percent while and the services sector remained stable in comparison to the fourth quarter of 2016.
Many economists warn however that Brazil is not out of the woods yet, as the bumper crops in the first quarter won't be repeated in the second quarter and because most other parts of the economy are still underperforming. Brazil has been struggling with political turmoil, exacerbated with a poorly performing economy and corruption.
Sterling (GBP) - Sterling remains in the hands of the gods with the election looming. We expect quiet markets until Friday morning when the results become clear. A conservative win should see Sterling recover sharply, however the degree of recovery will be dependent on the size of the victory.
Risks of a Labour coalition continue to loom and any hint of this outcome becoming reality will impact Sterling hard. With this in mind, expect Brexit style GBP sell-offs with a Labour win, and a 2 – 3 percent jump should Theresa May be successful.
US Dollar (USD) - With a light week for the Dollar on the economic front, we expect little movement from the greenback this week. GBP/USD could break through 1.30 on a Tory win, while drop back to the 1.21’s with a Labour victory. EUR/USD should remain reasonably stable throughout the week.
Euro (EUR) - With the ECB the only release of note, expect EUR prices to be driven by the UK election. A Tory win should see the rates return to the high teens, however a Labour win should push the currency back into single digits.
Outside the UK election, developments in Italy may continue to dominate the monetary landscape, and any adjustments to the ECB asset purchase program will push the Euro lower.
Economic Calander for the Week
We await Services PMI on Monday morning, with further declines in the index widely expected. The big event of the week is naturally Thursday’s election, with results likely to be released during the Singapore session around 4 am. Finally, Manufacturing Production is expected to be released on Friday, with markets widely predicting a reversal from the -0.6 percent to 0.8 percent for the month.
We have a light week for the US with ISM Non-Manufacturing kick-starting the week, where we expect a slight reduction in the headline figure from 57.5 to 57.1. Attention then shifts to Wednesday’s Crude Oil Inventories, with further reductions expected. Finally, unemployment claims on Thursday should see a small reduction in numbers from 248k to 241k.
We have a light week for the Euro with the ECB Press Conference and rate decision the only event of note. We expect no change in policy this month, however Draghi’s conference will be interesting, especially in the context of raising Italian debt yields.
Week Commencing Monday 29th May 2017
UK: General Election polling continues to point south for the Conservatives.
Labour continues to close the gap on the Conservatives as the parties fly towards the General Election on the 8th June.
The latest set of polls put Labour on 37 percent, up three points on a week ago and six points behind the Conservatives, who remain unchanged at 43 percent. The Liberal Democrats remain at 8 percent while UKIP continues to collapse at 4 percent.
Meanwhile the SNP are down one point to 2 percent (when taken nationally) while the Greens also lost a point putting them on 1 percent. This comes after both leaders battled on a Sky News Q&A session, with Jeremy Paxman delivering his usual political battering.
Markets have seen a strong reversal since the polling levels started to tighten, with Sterling dropping against all majors. Should Corbyn continue his advances, we expect significant market ramifications. With only two weeks to go, it seems there is all to play for! One outcome is good for markets, the other bad, which is it going to be?
UK: GDP revision disappoints Brexiteers!
UK GDP has been revised down to 0.2 percent from the initial estimate of 0.3 percent, the ONS has reported.
On an annual basis, GDP expansion was also lower at 2 per cent, down from a flash first estimate of 2.1 percent. The economic prospects for the UK have been widely forecast to slow this year as the British consumer begins to feel the pinch from higher inflation after the Brexit vote.
With prices rising at a four year high of 2.7 percent last month, real wages have fallen negative for the first time in two and a half years. Diving into the figures, the ONS said the growth downgrade was driven by weakness in the services sector which expanded just 0.2 percent, representing its poorest performance since 2015.
There was more encouraging news on business investment, which expanded 0.8 percent on the tear to its best pace since the end of 2015. The UK’s 0.2 percent quarterly expansion compares with an average of 0.5 percent in the Eurozone in the first quarter, and 0.6 percent for Germany. The revision also puts UK GDP expansion lower than Frances 0.3 percent but slightly ahead of the US at 0.175 percent.
GREECE: Debt mountain continues to grow as disagreements hit creditors.
Greek finance ministers have urged both the IMF and European creditors to come to a decision next month regarding Greece’s massive bailout package.
The deal granting Greece debt relief has been held up by disagreements between the International Monetary Fund and European creditors led by Germany on Greek fiscal targets.Greece could default on its debts in July if it can't repay some 7.3 billion euros. To ensure the new bailout funds, the Greek parliament approved pension cuts and tax hikes last Thursday.
However, for the payment to proceed, the Greek government needs to implement new laws to make the reforms stick, and some have yet to be passed. With German elections looming, debt relief seems a long way off! Instead, the Eurozone has indicated support for extending repayment periods or reducing interest rates on Greece's loans next year.
Could this be the story which kills the European good news round, possibly! Watch this space!
Sterling (GBP) - Sterling continues to feel the pinch as UK general election polls tighten. We expect the election to continue to dominate UK markets, with further Conservative losses likely to push Sterling and other UK assets lower.
With little in the way of rest bite, we expect either a continuation of current market trends, or a lowering of Sterling assets should we see continued Labour poll success.
US Dollar (USD) - The greenback remains trading on the back foot as US political risk continues to dominate the agenda. Should we see further moves from the Trump administration, expect to see further US Dollar losses.
In terms of data, we expect lacklustre economic indicators from the US this week, therefore we see little rest bite for the Dollar. Expect EUR/USD to continue to push towards 1.12 therefore.
Euro (EUR) - The Euro continues to push forward on the back of bullish GDP numbers, hammering both the Dollar and the Pound. With a light week on the data front, we see no reason why the Euro should not continue to trade further, potentially pushing Sterling into the 1.14’s and the Dollar to 1.12.
Economic Calander for the Week
With little from the UK for the remainder of the month, all eyes now turn to the both Manufacturing and Services PMI. We expect Manufacturing to post slightly down from last month at 56.5 versus 57.3 in April. Construction meanwhile should also post slightly lower figures at 52.7 versus the 53.1 print last month. All in all, a mixed to poor week expected form the UK.
The US data set dominated the end of the week with ISM Manufacturing out on Thursday and Unemployment numbers on Friday. ISM should come in slightly lower on the month, posting 54.5 against last months 54.8 figure.
Friday’s unemployment rate should remain stable at 4.4 percent which non-farms should decline markedly to 183k from 211k. As with the UK, expect a poor week of economic data from the US, adding further pressure to the Dollar as we draw closer to June.
As with the UK, we expect Eurozone Manufacturing PMI alongside the unemployment numbers this week. We expect the unemployment rate to drop from 9.5 percent to 9.4, adding further fuel to the Euro’s fire! Manufacturing is likely to remain to 57 for the month, which represents a healthy level of growth for the zone as a whole.
With this in mind, expect further Euro strength as we draw closer to June.
Week Commencing Monday 22th May 2017
UK: Retail Sales bounce back despite income squeeze on households.
UK retail sales bounced back significantly in April as shop prices fell, according to the latest data from the Office for National Statistics.
The pound broke through the psychologically important 1.30 on the news, the first time it has been above that level since the end of September 2016.
Retail sales volumes were up 4 percent on the same month a year earlier, accelerating from the 1.7 percent growth rate registered the previous month. On a quarterly basis there was a 0.3 percent increase in volumes, following a decline in March. This is undoubtly good news for the UK economy, however rising prices are continuing to stretch household budgets.
While the volume of goods bought by shoppers rose by 4 percent on the year, the amount of money they had to spend on those goods jumped by 7.1 percent. Diving into the figures, shoppers continued to spend on clothes and shoes, with sales rising by 5.1 percent on the year. By value, spending rose by 7.5 percent to a weekly average of just under GBP 1 billion.
JAPAN: GDP is back, but is it here to stay?
Japanese GDP rose more than expected during the first quarter, rising by 0.5 percent during the period.
This accounts for the fifth straight quarter of expansion, supported by continued strength in exports and domestic demand. Domestic demand rose 0.4 percent compared to the December quarter, marking a return to growth after coming in flat in Q4 and contracting the quarter before that. Private consumption likewise rose to 0.4 percent last quarter after stagnating in Q4.
Residential investment growth ticked up to 0.7 percent from 0.4 percent in the quarter prior, while quarterly growth in government consumption held at 0.1 percent. Despite the figures, analysts remain concerned that with an aging population and nearly maxed employment figures, levels of growth may not be sustainable.
Also, weak readings are casting doubt on the Bank of Japan’s exit plan from its ultra loose monetary policy. All things being equal, the worlds third largest economy is not out of the woods yet!
GENERAL ELECTION: Labour tightens the race after Conservative manifesto disappoints.
UK general election polling has heated up, with the latest string of polls putting labour on between 35 percent and 33 percent, up significantly on the scores as low as 26 percent earlier in the campaign.
The Tory advantage was narrowed to just nine points in one survey by YouGov, the first time it has been in single figures in a mainstream poll since Theresa May called the snap election on April 18. This has prompted a strong assault on Labour by the Conservatives, with Jeremy Corbyn’s historic association with the IRA in focus.
Odd’s of a conservative victory remain unchanged, however this proves that everything remains to play for in this election. With Brexit talks likely to start almost immediately, these are crucial days for the country!
Sterling (GBP) - Sterling dipped towards the end of last week as opinion polling suggested Labour closing the election gap against the Tories, pushing Cable back through 1.30 and GPB/EUR through the crucial 1.16 level.
We expect Sterling to trade a mixed bag this week, especially given the second posting of GBP and Carney are unlikely to surprise markets. Expect a reasonably stable trading session therefore.
US Dollar (USD) - The Dollar continues to either lose ground or stagnate versus most majors as the pressure continues to mount on President Trump. EUR/USD continues to push higher with the rate finally above 1.11, while Election woes have reversed Cables recent gains.
As above, we expect a mixed bag with the Dollar on the back foot, so expect further small gains on EUR/USD and a range bound GBP/USD figure this week.
Euro (EUR) - The Euro continues to perform having crystallised gains against most majors. We expect this trend to continue, albeit at a more modest rate this week. Expect EUR/USD to test and break through 1.12 while GBP/EUR could drop below 1.15 if we continue to see strong Labour poll numbers.
Economic Calander for the Week
We have a busy week for the UK, with the inflation report hearing on Tuesday and GBP on Thursday headlining. Starting off, Mark Carney is due to testify in front of the Treasury Committee in Parliament Tuesday. Any questioning relating to either Brexit or monetary policy could well spark some GBP volatility. GDP is the key number this week, with the figure likely to be confirmed in at 0.3 percent for the first quarter, bringing year on year growth to 2.1 percent.
We have a big week for the US with the FOMC Meeting the highlight. We start with Tuesday’s New Home Sales, where we expect 610k units sold in April. Wednesday will be dominated by the FOMC, where are hint of policy shifts on the back of Trump impeachment risks will signal sharp selling of the Greenback.
Moving to Friday, we expect to see a rebound in Core Durable Good Orders to 0.5 percent from -0.2 percent. GDP meanwhile should post a .0.9 percent number for the first quarter (annualised).
We have a slow week for Europe with Mario Draghi headlining on Wednesday. He is scheduled to speak at the first conference on Financial Stability organised by Banco de Espana and Centro de Estudios Monetarious y Financieros in Madrid. Any Brexit or QE talk/questions could impact EUR and GBP prices moving into Thursday.
Week Commencing Monday 15th May 2017
GERMANY: GDP Blasts into the stratosphere with solid 0.6% print!
Economists have hailed Germany’s economic resilience after it grew by 0.6 percent in the first quarter of the year, twice as fast as the UK and France.
Business investment, consumer spending and exports all helped Germany’s GDP expand at a faster pace, up from 0.4 percent in Q4 2016. The report concluded that mild winter weather contributed to a sharp rise in construction, while rising foreign demand for German goods also helped lift first-quarter growth from an annualized 1.7 percent in the fourth quarter of 2016.
Private consumption and government spending rose slightly at the start of 2017. Europe's largest economy is widely forecast to maintain solid growth, despite global geopolitical and economic uncertainties.
The European Commission forecast on Thursday that Germany's economy would grow by 1.6 percent in 2017-and 1.9 percent in 2018. Official tax revenue estimates published on Thursday suggested Germany's strong economy and labour market would deliver a EUR 54 billion windfall through 2021, creating scope for tax cuts. You know the world has turned on its head when a UK Conservative government is looking to put taxes up, while Germany seeks to reduce them!
US/CHINA TRADE: Have we seen the last of Trump's "China Bashing"?
The US and China have reached a 10 point trade deal that opens the Chinese market to US credit rating agencies and credit card companies.
Under the deal, China will also lift its ban on US beef imports and accept US shipments of liquefied natural gas. In return, the US will allow Chinese meats and banks to enter the US market.
The deal marks the first tangible results of trade talks that began last month, and is widely seen as Donald Trump toning down his rhetoric versus Beijing post his election. Indeed, this is seen as something of a victory for Trump, with many suggesting Trump’s pre-election China-bashing had given him some “leverage” over Beijing and highlighted his focus on economic issues.
Sterling (GBP) - Sterling continues to maintain its current range as market makers continue to watch for the general election. In the absence of any short term geo-political events on the horizon, this week should be reasonably quiet for FX markets. We expect GBP/USD to continue to test the 1.30 range, while GBP/EUR should maintain around the 1.18 pivot.
US Dollar (USD) - The Greenback has seen its previous gains eroded over the past weeks, with EUR/USD pushing 1.10 for the first time in a year. With a light week of FX news, we expect the Dollar to hold firm, with the Euro failing to break 1.10 while Sterling continuing to trade around 1.29.
Euro (EUR) - The Euro continues to perform well after Macron’s election victory last week. With all eyes now on the German elections and solid economic performances there, we expect the Euro to be the strong performer of the week.
Economic Calander for the Week
We have a relatively light week for the UK on the economic data front, with all eyes continuing to focus on the general election.
The highlight of the week will be Tuesday’s CPI inflation, which could peak as high as 2.6 percent as post-Brexit Sterling weakness continues to filter into the real economy. Retail sales is also expected on Thursday for April, with 1.0 percent vs last months -1.8 percent figure widely expected.
We have a surprisingly light week for the US with the Philadelphia Fed’s Manufacturing Survey the only release of note. We expect the index to come on in at 19.8 versus last months 22.0 print, indicating a moderate slowdown in manufacturing activity for the month.
We have Eurozone GDP out on Tuesday, with most analysts pitching the print at 0.5 percent for the quarter. This would push the expectation for annual growth within the zone to 1.7 percent, considerably more solid than previous years.
Week Commencing Monday 8th May 2017
FRANCE: Macron defeats Le Pen in crucial election victory for the EU!
Centrist candidate Emmanuel Macron has decisively won the French presidential election, defeating far-right candidate Marine Le Pen.
Macron won by 66.06 percent to 33.94 percent to become, at 39, the country's youngest president. Despite the wide margin of the final result, Le Pen’s score nonetheless marked a historic high for the French far right. Even after a lacklustre campaign that ended with a shocking performance in the final TV debate, she was projected to have taken almost 11 million votes, double that of her father, Jean-Marie Le Pen, when he reached the presidential run-off in 2002.
The anti-immigration, anti-EU Front National’s supporters asserted that the party had a central place as an opposition force in France. Marcon’s win poses some problems for the British Brexit negotiations, however has been widely praised by all aspects of the UK political spectrum.
Macron maintains his harsh Brexit stance, indicating that the four pillars are indivisible and is known to be a particular proponent of removing the City of London’s “passporting” rights to the EU.
UK: PMI "Hat-Trick" points to reversal in UK GDP fortunes!
UK factories had their best month in three years in April, the strongest signal yet that manufacturers are enjoying a boost from the pound's fall after the Brexit vote and an improving global economy.
This, coupled with strong services and construction data completed a UK “Hat-Trick” of PMI’s for the month, stunning analysts who predicted the Brexit pain to kick in.
The services sector drew a reading of 55.8 in the month, significantly higher than the 55.0 reading in March, and the expected 54.5 forecast by economists. These PMI numbers point to a GDP growth of 0.6 percent for the second quarter, which would be double the 0.3 percent growth announced by the ONS last week.
This is clearly good news for the UK, with the Conservatives capitalising on this as proof of their economic record. Risk remains on the horizon however as the rhetoric continues to escalate between Brussels and London!
Sterling (GBP) - Sterling remains robust after the French elections with all eyes now focusing on the UK General Election. We expect range bound trading this week, perhaps with the exception of any big announcements during the BoE Inflation Report. Expect Sterling to potentially test the 1.30 on cable and break through, while 1.20 on GBP/EUR remains a harder target.
US Dollar (USD) - The Greenback continues to suffer, losing ground against both the Euro and Sterling. That said, with key levels of Dollar support in sights, we expect solid range bound trading this week. Should we see an incredible Retail Sales numbers, we could see some reversal in its fortunes.
Euro (EUR) - The Euro has had a small relief rally on the back of Macron’s win, however we expect markets to now return to normal. With little in the way of European data, eyes now focus on UK/German elections and ongoing Brexit news.
Economic Calander for the Week
We have a quiet week for the UK with the Bank of England MPC meeting scheduled to hit the wires on Thursday. We expect no change in monetary policy, however the Inflation Report will be an interesting watch.
We expect focus to be on the first quarter GDP which generally disappointed markets and the rise in inflation. Manufacturing Production for March is also expect on Thursday, with a print of -0.2 percent expected.
We start the US week with Job Openings for March, widely expect to fall from 5.743 million to 5.670 million. We then shift our attention to PPI on Thursday, which should come in at 0.2 percent versus the -0.1 percent we saw last month.
Finally, Friday sees the all-important CPI and Retail Sales numbers. We expect inflation to come in at 0.2 percent in March, which retail sales should post 0.5 percent (core) and 0.6 percent (normal) for April.
We have an extremely light week for Europe with Mario Draghi’s speech on Wedensday the only event of note. Expect any Brexit related statements to impact Sterling, while any hint of cutting QE will give the Euro further cause to strengthen.
Week Commencing Monday 3rd April 2017
EU: Inflation causes speculation on QE drop.
Eurozone inflation has fallen from its highest level in four years last month, slipping sharply to 1.5 percent from 2 percent in the previous month.
Consumer prices had surged faster than expected at the start of 2017 as rebounding global oil prices pushed up energy costs and led to Eurozone inflation hitting 2 percent for the first time since 2012. Underlying inflation, a measure closely watched by the ECB, meanwhile fell to 0.7 per cent from 0.9 per cent, all but erasing pressure on Draghi to tighten the ECB’s money taps soon, many months before its currency guidance.
When overall inflation hit the ECB’s target last month, conservative countries like Germany piled pressure on Draghi, calling for an end to the bank’s EUR 2.3 trillion asset buying scheme. The ECB repeatedly rejected those calls, arguing that inflation has already peaked this year and will not return back towards its 2.0 percent target perhaps until 2019, as unemployment remains high, wage growth is feeble and the economy is still operating with significant slack.
UK: Falklands mark 2.0!
Spanish Foreign Minister Dastis moved to calm down a diplomatic spat with the UK over the status of Gibraltar after a weekend of heated rhetoric that climaxed in a suggestion Britain could go to war over the territory.
The diplomatic spat threatens to spoil Prime Minister Theresa May’s hopes that Spain might be an ally in her negotiations with the European Union. The first indication of trouble came on Friday, when it emerged that EU President Donald Tusk had handed Spain a determining say on whether any Brexit deal will apply to Gibraltar.
Meanwhile, optimism among UK chief financial officers climbed to an 18 month high in the weeks before Prime Minister Theresa May formalized Britain’s intention to leave the European Union. Almost a third of CFOs said they are more optimistic about prospects for their company than they were three months ago, according to a survey published by leading accounting firm Deloitte. While finance chiefs’ risk appetite rose, it remains below long-term averages and is about half the level seen in the year preceding the referendum.
Sterling (GBP) - Sterling consolidated its gains last week after the historic triggering of Article 50 by the UK government, with GBP/USD at 1.25 and GBP/EUR at just over 1.17. With this week concentrating on further Brexit related Geopolitical events and UK PMI’s, Sterling should be on track for a mixed week. 1.26 and 1.18 remain key psychological levels, while any negative prints could see a slight reversal given Sterling’s recent bullish performance.
US Dollar (USD) - The Greenback had a mixed week last week with it losing ground against Sterling and providing little resistance versus the Euro. The majority of data releases are towards the back of the week, so we expect little volatility until then. Dollar gains could see EUR/USD push down through 1.06, while 1.25 appears now to have some solid support.
Euro (EUR) - The Euro should trade on further inflation related comments from Draghi this week, where any hint of reducing QE should provide it with some power to fight a resurgent Sterling. 1.16 now has some resistance to countenance an aggressive Euro, however a poor set of UK PMI’s could see this level tested and potentially broken.
Economic Calander for the Week
We have the usual set of UK PMI’s this week, with all three expected to some slight gains over the month. Manufacturing PMI kicks off the calendar with a print of 55.1 versus 54.6 expected. Construction follows where market expectations sit at 52.6 versus last month’s 52.5 print.
Finally, Services is the highlight of the week, with expectations set for no movement from the 53.5 posted last month. Should any of these post lower than expectations, we should see Sterling sell off.
We have a busy week for the US, starting with ISM Manufacturing on Monday. We expect a print of 57.0 versus last months 57.7. ADP Nonfarm Employment should come in roughly in line with the last print of 53.3 while ISM Non-Manufacturing should come in at 57.0.
The FOMC minutes will be the highlight, and any comments regarding potential further interest rate hikes will push the Greenback higher on the day. Finally, Nonfarms and Unemployment will finish off the week, however we expect little change in either.
Euro news is dominated by Mario Draghi, who is speaking on both Tuesday and Thursday. Any hint of a reduction in QE on the back of last weeks inflation figures will likely provide support for the Euro. Outside this, both the Euro and Sterling will continue to trade on the back of ongoing Brexit news.