Geo-political risk dominates Europe as EU leaders weigh up options!

WEEK COMMENCING MONDAY 21ST JULY 2014


THIS WEEK IN BRIEF



  • In the UK we expect the Bank of England minutes to show no dissenters, however expect an uptick in the rhetoric. UK GDP and Retail Sales are also expected, both of which are expected to be GBP bullish.

  • In the US we expect CPI to push towards the 2 percent FOMC threshold while Durable Goods are expected to grow by 0.6 percent.

  • In Europe we expect the German consumer climate figure to come in flat, while the Services and Manufacturing PMI’s should be mixed. All in all, a reasonably poor week is expected for the Euro.


OVER-RIDING MARKET THEMES


The UK economy should have finally passed its pre-2008 financial crisis peak last week, according to the latest batch of figures from the EY Item Club. UK GDP will hit 3.1 percent this year, spurred on by strong capital investment by businesses and consumer spending. The Item Club raised its forecast for growth this year from a previous high of 2.9 percent, which compared to its projected growth numbers for Canada at 2 percent and Germany at 1.8 percent are phenomenal. The Item Club also forecast that interest rates, despite heavy speculation that they will be risen this year, will not raise until 2015. EY believes this is because wages are not rising as fast as inflation, with the average wage in the UK only increasing by 0.7 percent in the latest ONS report. Finally, the report also speculates that unemployment, which is currently sitting at 6.5 percent, will fall to a post-crisis low of 5.6 percent by the end of 2015. All in all, this is an incredibly bullish report for the UK’s economic prospects moving forward, and although headwinds remain (the Scottish independence referendum for example), things seem to be well and truly on the up for the UK economy.  


Sticking with a very UK themed report, UK inflation accelerated faster than economists forecast to its highest level since January, fuelling speculation that the Bank of England could raise interest rates within months.  Consumer prices rose by 1.9 percent in June when compared with a year earlier, up from 1.5 percent in May. Sterling and government bond yields jumped skywards after the figures were released as traders continued to speculate that the Bank of England will be the first of the G4 central banks to raise interest rates since the beginning of the financial crisis.


Moving to a more geo-political standpoint, it seems clear that the post MH17 plane crash environment is changing for Vladimir Putin, with considerably more pressure on western leaders to impose sanctions. This comes as both the US and EU have already bolstered sanctions against Russia over its alleged support of separatists fighting the newly forged Ukrainian government in the east of the country. Sanctions from the EU include it asking the EIB Investment Bank to no longer fund Russian projects, while the US announced further measures on both Russian individuals and companies. In a more interesting divergence, the two self-proclaimed rebel entities in eastern Ukraine are also on the list – the Donetsk People’s Republic and the Luhansk People’s Republic. Sanctions have been hitting harder than many politicians in Russia are admitting, with the fundamentally sound economy being forced into an artificially induced recession. How far this situation will develop, no one knows! However, this is by far the largest threat to both economic and political stability globally for the remainder of 2014.


GBP THIS WEEK


We have an interesting week ahead of UK data this week, with the Bank of England minutes, retail sales and Preliminary GDP the headlining releases. Starting with the minutes, despite our view that rates will likely be risen next year, it will be interesting to see the tone set by the MPC regarding when a rise should happen. We imagine that most members will be getting a little uncomfortable with the current level of interest rates, even if they do not dissent from the Mark Carney’s party line. If we do see some particularly hawkish comments from some members, it would be a good indication that raising rates has become the banks number one priority. If this where to happen, expect some significant Sterling buying on the back. 


The GDP figure and retail sales are also on the agenda, with the UK expect to have grown by 0.8 percent in the second quarter. Retail sales are expected to jump by 0.3 percent in June, following its 0.5 percent decline in May. This would mean that the UK economy has posted positive Retail sales numbers for four out of the last five months, a further indication to the Bank of England of the economy’s sustainability.


USD THIS WEEK


We have a number of highly important US releases this week, starting with CPI inflation for June. With the figure closing in on the Fed’s 2 percent inflation target, traders are likely to pay particular attention to this release. With the Fed in the same boat as the Bank of England, a near 2 percent release this time will clearly add to the calls for a rate hike and as such, support the US Dollar.


Apart from the above, we will be watching the durable goods orders release as this gives a good indication of how people and business view the long term health of the economy. This is a particularly volatile release however in general it has been improving, and another good release is expected for June at 0.6 percent.


EUR THIS WEEK


Thursday is the busiest day on the economic calendar front for Europe, with the Gfk consumer climate figure for German kicking off proceedings. We expect the July print to remain at 8.9 percent, following the unexpected spike higher last month. If this number can be maintained, it should be an encouraging sign for Germany, which has been trying to improve on the consumer side.


Also on Thursday are the manufacturing and services PMI releases for Germany, France and the Eurozone as a whole. With the exception of the German figures, these have disappointed in the past and unfortunately we expect much of the same.


Finally, German and European Ifo business climate figures should be an interesting read. Unfortunately, we expect a continuation of the disappointing trend in the German Ifo release, and therefore we also expect a disappointing EU release also.  

The big three central banks prepare for a grilling!

Week commencing Monday 14th July 2014


This week in Short



  • In the UK we have Mark Carney testifying to Parliament alongside the Claimant Count and unemployment rate. We expect Mark Carney to be grilled once again on interest rates, and this poses the biggest potential GBP volatility driver for the week.

  • In the US we also have Janet Yellen testifying to the Senate, where she is likely to reaffirm her strategy to end tapering and raise interest rates. Apart from this we have retail sales and consumer confidence.

  • In Europe, Mario Draghi is speaking to the European parliament and will no doubt be pressured into questions around the possibility of a European QE program. We also expect CPI to come in flat, offering him some mild rest bite as deflationary fears are shifted to next month.  


Overriding Market Themes


Starting with the UK, the trade deficit unexpectedly grew in May, pushing the gap between imports and exports to GBP 2.4 billion, fuelling concerns that the strength of the pound is undermining efforts to increase exports. A small rise in exports in the month failed to offset a dip in April that had already sent a worrying signal that the booming domestic economy was having little impact on the trade balance. To put it in perspective, Sterling has jumped from a low of around GBP/USD 1.40 in the aftermath of the financial crisis to GBP/USD 1.71 this week. Diving into the figures, exports of goods to countries outside the European Union crept up by GBP 200m in May, but by less than the value of imports, widening that element of the deficit to GBP 4bn. Analysts had predicted a contraction to GBP 3.4bn.


Over in the US, it seems that Federal Reserve officials have decided to end its asset purchase program in October, assuming the economy stays on track, according to the minutes of the June meeting released Wednesday. According to the plan, the Fed will make a USD 15 billion final reduction at its October meeting, after trimming it by USD 10 billion at each meeting up to that point. After a discussion of its exit plan, Fed officials generally agreed to keep reinvesting the proceeds of securities that mature on its balance sheet until after it had increased the base rate of interest.


Finally, despite the rather long winded German victory in Brazil on Sunday, it seems all is not totally perfect in Europe’s number one economy. German industrial output dropped for a third month in a row in May, amid signs that the economy is starting to lose momentum. Production, after being adjusted for seasonal swings, fell 1.8% from April according to the Economy ministry in Berlin. Meanwhile, manufacturing fell 1.6%, with intermediate-goods production dropping 3% and consumer-goods output down 3.5%. However, Investment-goods production rose 0.3% and energy output was up 1%. This large downside shift in Industrial and Manufacturing production has been put down to the timing of the May 1 holiday, and should only be temporary, or so say the Economy ministry. It does continue to highlight however the fragility of the European recovery, and should serve to curtail the hope of Euro bulls for a reversal in the Euro’s current fortunes.


GBP This Week


We have an interesting week ahead from the UK with the usual mid-month jobs report coupled with Mark Carney speech from the Bank of England. Starting on Tuesday, Mark Carney is scheduled to speak before the treasury select committee, where no doubt they will revisit the proposed threat from the housing market. Also, we expect some questions also on the timing of any potential rate hike, as well as any extraordinary measures to attempt to cool the housing market. With any interest rate speculation, markets will react violently should we change our expectations. Therefore, expect any further hints on timings and/or measures to impact markets accordingly.


On Wednesday we have the unemployment rate and claimant count data for the UK, however we expect very little change from last month’s figures. The markets expect a continued drop in claims by roughly 27.4k, leading to the unemployment rate remaining at 6.6%. Despite no change being expected, it is important to note that the claimant count figure is still in decline, indicating job creation continues to remain strong and the economy is continuing on track. With this in mind, while we do not expect a vastly bullish outcome expect some significant Sterling support.


USD This Week


We start our USD week on Tuesday with the all-important retail sales figure, potentially giving us a good gauge of where US GDP is moving this quarter. This month’s release is expected to move higher towards 0.6% following the 0.3% seen for April, and would reflect a fifth consecutive positive figure. This goes some way to explaining the strength we have seen in indicators such as GDP recently, and should repair somewhat the dire picture we saw with Q1 GDP a few months ago.


Moving to the Consumer Sentiment survey on Friday, we expect this month’s figure to come in at 83.2, following a figure of 82.5 last month. Given that this indicator usually plays “second fiddle” to retail sales, alongside a relatively flat increase in the headline figure, we doubt that it will create much volatility in the markets.


Finally, Janet Yellen is addressing the Senate Banking Committee for the Fed’s semi-annual monetary policy report. With the focus of markets shifting from asset purchases to interest rates in recent months, it will be interesting to hear her answers on when the US is likely to start increasing rates. Yellen has always been keen to stress that rates will rise gradually and there will likely be sometime between the end of asset purchases and the start of the rate hikes. However, with economic indicators pointing to a flourishing US economy, there is the potential for this timeline to be pushed forward somewhat. We suspect that she will indicate rates are likely to be risen in the first quarter of 2015, however we doubt that she will be this specific as it would without doubt cause quite a stir on USD crosses.  


EUR This Week


In Europe, the only release of note is the CPI reading, which should shed some more light on where the ECB’s core economic indicators stand. Markets are looking for another figure of 0.5% this month, matching last month’s release.


Before CPI however, we have a speech scheduled by Mario Draghi at the committee on economic and monetary affairs at the European parliament. With Draghi having recently implemented a whole portfolio of inflation busting measures aimed at minimising deflation, it will be interesting to get some more details regarding those steps and what impact he expects them to have on the market. I would suspect that some of the questions will also surround the potential implementation of a full scale quantitative easing program.  

Housing market pressures add to interest rate hike expectations!

Week commencing Monday 7th July 2014


This week in Short



  • In the UK we expect manufacturing production to increase from 0.4% to 0.5% on the month, while the Bank of England are not expected to adjust any monetary policy levers.

  • In the US we are only looking out for June’s FOMC meeting minutes, however given the less than impressive jobs data for June we doubt there will be any fundamental shift in the FOMC’s monetary outlook.

  • In Europe we have an almost dead week, with the ECB monthly bulletin the only release worth watching.


Overriding Market Themes


We start this week’s market report from the US, where a surprisingly robust US market continues to surprise many market analysts. Employers added 288,000 jobs in June and helped cut the unemployment rate to 6.1%, the lowest since 2008. This was the fifth straight gain for this indicator above 200,000, and the best such stretch since the late 1990s tech boom. This flies in stark contrast to current US GDP, which has seen the economy shrink at a steep 2.9% annual rate in the January-March quarter, although this was mainly due to a particularly harsh winter. Exploring the release further, factories added 16,000 workers, retailers 40,200. Financial and insurance firms increased their payrolls by 17,000. Restaurants and bars employed 32,800 more people. Only construction, which gained a mere 6,000, reflected the slow recovery of previous years. There was also substantial growth in public sector employment, but this was more down to a stark decline in the figures for the first quarter as many schools/ancillary government posts were suspended due to the weather. All in all therefore, a decent week for both Janet Yellen and Mr Obama, who has been banging their heads against the wall post disastrous GDP figures. Looks like the world’s largest economy may well be back on track!


Moving across to Europe, it looks like Mario Draghi has been taking notes at the Bank of England MPC meetings, having finally decided to issue some form of forward guidance on future ECB interest rate movements. Catching up with some of its major international counterparts, the President announced last week that the institution will start issuing minutes of policy meetings from January as part of an overall that will reduce how often its Governing Council will set interest rates. Previously, the ECB had voted to keep minutes out of the public eye for fear they would open officials to criticism in their home nation, of which the Eurozone currently has 18. Mario Draghi also said that the Governing Council will now set monetary policy every six weeks rather than monthly, again in an attempt to quell market speculation ahead of each meeting. This new ECB setup is starting to look more and more like the US’s Federal Reserve, which recently shifted to eight scheduled meetings a year and publishing its accounts three weeks later. As forward guidance goes, I still think that Carney is King (if you mind the pun!), but good attempt Mr Draghi!


Finally and a little closer to home, the IBEC has significantly upgraded its growth outlook for Ireland, saying GDP could grow by as much as 4% in 2015, nearly 1% higher than previously thought. In fact, the group claims that the economy has the potential to average 4% growth annually over the next decade as inflation growth overtakes the burden of increased tax hikes. This represents an amazing turnaround from the recession hit country of a couple of years ago, which experienced a major housing bust coupled with some of the most aggressive tax increases in northern Europe. Looking to Octobers budget with this in mind, we anticipate that Finance Minister Michael Noonan will seek a fresh adjustment of spending to significantly less than the proposed EUR 2bn, potentially only in the EUR 200m region.


Finally, rapidly rising housing prices in the UK appear to be a problem spreading beyond London, with a new report citing the ever increasing risks to the economy as prices outpace many mortgage holders incomes. London prices are already pushing 26% higher than a year earlier, representing the biggest annual jump since 1987. The rest of the UK (as an average) is not too far behind, with nationwide prices up almost 12% on the year. To put this into perspective, average British wages currently growing by less than 2% a year, and BoE expectations that this growth rate will rise to just 2.5% percent for 2014. This continues to put pressure on the Bank of England to give an indication of when interest rates are likely to increase, and while they have not commented on exact timings, the market believes that a rate increase is inevitable by the end of this year.  


GBP This Week


The UK seems to have the busiest week ahead with manufacturing production followed by the Bank of England MPC meeting. Starting with Tuesday’s manufacturing release, forecasters point towards a moderate rise from 0.4% to 0.5%, representing a reverse the slowdown of growth seen over the past two months. With this in mind, anything above 0.4% should be very positive for the Pound, and could point to yet another boost in the sector.


On Thursday the latest monetary policy decision from the Bank of England is not expected to bring any surprises to the market. We doubt that they will be in a position to raise interest rates as of this week, despite rumours of the timeline being brought forward to within 2014. Mark Carney will likely fall short of any discussing any further changes to interest rates and/or asset purchases, especially given his recent “dressing down” by the Parliamentary Select Committee. All in all, we should hear a continuation of the banks current policy of keeping rates unchanged until one of Carney’s forward guidance indicators is breached.


USD This Week


We have a reasonably light week on the data front from the US, with the minutes from June’s FOMC meeting the only release of note. Given the improvements in the economy we have seen over the past month, there are growing indications that we might see the end of asset purchases brought forward faster than the current USD 10bn we are currently seeing. However, given the less than impressive June jobs report compared to the one released this month, it is unlikely that the Fed will alter from their current trajectory just yet. Traders will instead try and figure out when the there is likely to be an interest rate hike, however we still believe that the Fed are a couple of months behind a potential BoE hike.


EUR This Week


Again, we have a very quiet week ahead for Europe with the ECB monthly bulletin the only release worth watching. Due out of Thursday, we expect this release to discuss the current threat of deflation and how the monetary policy stance of the ECB is likely to impact their targets moving deeper into 2014. Given the scale of announcements in last week’s ECB press conference, we expect a slightly more bullish tone in this month’s bulletin, potentially suggesting that these new measures will address the deflation issue over the remainder of the year. 

Japanese inflation blasts north as Abeamonics stokes things up!

Week commencing Monday 30th June 2014


This week in Short


In the UK we have the PMI’s, with all three expected to come in slightly down on the month. Despite this, they all remain solidly in growth territory so expect any effect on Sterling to be muted at best.


In the US we have a very busy week, with ISM Manufacturing, ADP Non-Farms, Yellen speaking at the IMF and Non-Farms all expected. These should be mixed releases; however the general consensus should be positive with the economy back on track to recovery.


In Europe we have CPI expected to come in 0.1% higher on the month, while expectations are high for Mario Draghi’s monthly ECB press conference.


Overriding Market Themes


We start this week’s report in Japan, where consumer prices rose at an annual rate of 3.4% in May, following a 3.2% jump in April, indicating the fastest pace of growth in 32 years, according to the Internal Affairs and Communication Ministry on Friday. In fact, the increase was the biggest since April 1982, when the index jumped 3.5%. Diving into the release, electricity rates rose by 11.4%, while petrol prices rose by 9.6%. Prices of household goods also rose by a staggering 9.7%. This all comes as the Bank of Japan estimated that the newly enacted sales tax hike to 8% from 5% on April 1 would add 1.7% to annual consumer inflation in April, and 2% from the following month. “Abeamonics“, the latest buzz word for Prime Minister Shinzo Abe’s unorthodox economic strategy, certainly is stirring things up in the world’s third largest economy!


Across the Pacific to the US, the economy in Q1 contracted at a much steeper pace than previous thought, however indications that growth has since rebounded strongly are rearing their heads. The Commerce Department said on Wednesday that Gross Domestic Product fell by 2.9% in the first quarter, amounting to the worst economic performance in 5 years, instead of the 1.0% pace it had reported the previous month. While the majority of the economic woes were put down to the unseasonably bad weather, other revisions have certainly taken their toll. Growth has now been revised down by a total of 3% since the governments first estimate was published in April, which had the economy expanding at a total pace of 0.1%. The latest revisions have logged a weaker pace in healthcare spending, causing a drop in the consumer spending estimate. Despite this, data such as employment, manufacturing and services all point to a sharp acceleration in growth early in the second quarter. It seems that bad news does not come in pairs for Obama therefore, who should enjoy a slight easing of criticism as he approaches his final few years in office.


Sticking in the US, Sales of new US homes surged to a 6 year high in May suggesting the housing market is beginning to recover from its recent slowdown. The National Association of Realtors said on Monday existing home sales increased 4.9 percent to an annual rate of 4.89 million units. The sturdy housing report added to signs that economic activity has regained momentum after sliding in the dismal first quarter. However, while housing is showing tentative signs of recovery, progress is likely to be slow. This is felt acutely by the glut of first time buyers, a necessary ingredient for a strong housing market, who continue to feel as if they hug the side-lines. Credit growth in the first time buyer segment remains weak, while prices continue to favour more affluent middle income families.


Back in Blighty, UK economic growth in the first quarter was helped by the fastest expansion in business investment in two years, according to a recent report published by the Office for National Statistics. The headline economic growth rate for the first quarter was unchanged at 0.8 percent in revised official data on Friday, but the numbers showed that business investment was growing almost twice as fast as previously thought. Business investment rose by 5.0% on the quarter, up from a previous estimate of 2.7% and its fastest rate of growth since the first quarter of 2012. Annual growth was revised up to 10.5%, also a two-year high. Despite this, annual GDP was revised down to 3.0% from 3.1% for the year, however this still remains at the strongest level since 2007.  


GBP This Week


We have a very quiet week ahead for the UK as the Bank of England are not due to meet until next week. We do however had the usual, first week of the month PMI’s to get through, which should stoke up some market volatility given their importance as a gauge of economic health. The most important of the three is the services PMI, which although expected to see a slight pull back from last month’s release, should still remain at a high level of around 58.1 (down from 58.6 in May). The Manufacturing and Construction PMI are also expect to come off the boil, however as with the Services release they will remain comfortably in growth territory so should do little to weigh on Sterling’s recent gains.


USD This Week


To start off the US week we have both the Chicago PMI and manufacturing PMI, both of which should give us a glimpse into how the US economy is rebounding from its dismal start to 2014. Both of these indicators have returned to near the levels that were being posted at the end of last year, and it is this confidence and optimism that will mean that traders will be watching both of these releases closely. Any miss in estimates will be seen very negatively, and would weigh heavily on risk-on trading as we move into the week.


On Wednesday we expect to see the release of the ADP employment numbers, which are expected to come in at 206,000 this month. This should give Janet Yellen something to talk about as she speaks at the IMF in Washington, also on Wednesday. Also, given the hawkish comments from James Bullard last week, Yellen is likely to be asked to clarify the Federal Reserve’s position on rates and confirm whether a rate hike at the start of next year is likely. As always, central bankers have a way of influencing currency markets, and as such be prepared for a volatile Dollar on Wednesday afternoon.


Finally, traders will concentrate on Thursday’s non-farm payroll numbers, which are expected to post a decent figure of above 200,000 once again. We also expect to see revisions to the number of unemployment claims, potentially down marginally from 312k to 310k on the week. This figure will most likely fall short of impacting the current level of unemployment, with the rate set to remain at a reasonably decent 6.3%. Finally for Thursday (given that Friday is a US bank holiday), we expect ISM Non-Manufacturing to come in relatively flat at 56.2 from the 56.3 posted last month.  


EUR This Week


We have a busy week ahead for Europe, with the all-important inflation numbers and PMI numbers all stealing the lime light. We also have the ECB meeting, which given last month’s rate cut could very well be the release of the week. We start the week however with Inflation, where CPI is expected to rise to 0.6% from 0.5% previously, however we doubt this will give the Euro much rest-bite given its marginal increase.


Given that the ECB announced a whole package of stimulus measures last month, and the distinct lack of any further monetary “wiggle room” for base rate, it will be interesting to see what Mario Draghi can do to continue boosting the European recovery. Clearly, markets are waiting for Draghi to release some form of quantitative easing, especially owing to its success in both the US, UK and Japanese economic recoveries. This is an extremely difficult step for Draghi to take however, especially due to the lack of a single Eurozone bond. Purchasing debt directly from member states would be considerably more difficult, and as this would likely drive down bond yields, could act as an incentive to reduce the pace of austerity and economic reforms. Draghi’s approach to these problems will excite markets, and I have no doubt that Thursday’s meeting will cause some significant Euro volatility.


 Lastly, the PMI numbers on their own are unlikely to effect the Euro, as is German Retail Sales which came in at -0.6% early Monday morning. All in all, expect an abnormally volatile week for the single currency, especially against a bullish Pound. 

Mark Carney poised to answer more interest rate questions ... Oxygen mask for Sterling anyone?

Week commencing Monday 23rd June 2014


This week in Short



  • We have a quiet week ahead for the UK with the Financial Stability Report and Mark Carney’s speech the only events of note. Expect some interesting questions of interest rates to capture the limelight!

  • In the US we expect Q1 GDP to drop to -1.7 percent while consumer confidence is expected to marginally increase on the month. Despite the drop in GDP, we expect a reasonably stable week ahead for the Dollar.

  • In Europe we have the PMI’s for both Germany, France and the Eurozone as a whole. We could see French manufacturing finally push through the 50.0 level of expansion while Germany should continue to lead to pack in both services and manufacturing.


Overriding Market Themes


Starting with the US this week, the Federal Reserve slashed its growth forecast for the US economy from 2.9 percent to between 2.1 and 2.3 percent last week. They cited bad weather at the start of the year as being party to blame for the reduction in growth forecasts, with the bank stating that “Economic activity will expand at a moderate pace and labour conditions will continue to improve gradually”. Policymakers did however feel confident enough to continue to reduce the amount of monthly asset purchases from USD 45 bullion to USD 35 billion a month. In terms of interest rate expectations, in contract to the Bank of England and with the lower than expect economic growth on the horizon, the view is that long term interest rates are likely to rise slightly slower and not as far as previously thought.


Moving back to home soil, UK inflation has slumped to a 4 and a half year low, despite a house price surge in April. Consumer price inflation dropped to 1.5 percent in May from 1.8 percent in April, the lowest reading since October 2009. Diving into the figures, the ONS stated that inflation in May was subdued by the first year-on-year drop in food prices since 2006, as well as lower clothing prices and cheaper air and sea transport costs. Interestingly, food prices have dropped by 0.6 percent as the major UK supermarkets begin a price war to win back consumers. Meanwhile, house prices continue to rise, prompting considerable concern from the MPC and the Bank of England. London house prices rose 18.7 percent on the year, while excluding London and the south east of England, house prices were 6.3 percent higher.


Sticking with the UK, retail sales have fallen for the first time since January last month, despite World Cup fever. Specifically, a drop in food, petrol and household goods pushed the numbers south in May, offsetting strong growth in other areas of the economy such as internet sales, clothing and footwear and second hand goods. Sales at sport retailers were boosted on the back of the World Cup, however no doubt this trend is likely to reverse given England’s recent performance in Brazil! All is not doom and gloom however, on a quarterly basis, retail sales rose by 1.3 percent in the three months to May, making this the longest period of growth in 6 and a half years. On an annual basis, retail sales is up by 3.9 percent. Consumer confidence continues to rise amid the growing economy, rising house prices, falling unemployment and low inflationary pressures and interest rates. Despite these factors however, wage growth remains somewhat subdued and continues to put pressure on households as falls in real pay continue to effect the majority.


GBP This Week


We have a very quiet week ahead for the UK, with the only event of note in the form of the Financial Stability Report on Thursday, followed by Mark Carney’s speech. This report is released twice a year, and largely focuses on how the bank can promote stability in the financial system moving forward. One hot topic is likely to be house prices, in particular the over-extension of the banks in loan to value ratios. Also, we expect some questions on interest rate speculation, especially after his contentious comments last week where he indicated rates could be risen sooner than markets had anticipated.


USD This Week


We have a mixed week ahead for the US with the release of consumer confidence figures as well as the GDP figures headlining. We will focus the majority of our attention on Wednesday’s final GDP release for Q1. Initially, the advance figure was published at 0.1 percent, which was lowered to -0.6 percent for last month’s preliminary figure. We are now expecting to see a figure closer to -1.7 percent on Wednesday. Despite being quite a fall, the impact on markets should remain to be seen, as they will now probably focus on more recent economic indicators. Despite this, it will distort the expected annual rate of growth and should put the USD bears back into the ring.


On Tuesday the release of the latest consumer confidence survey is likely to shed some light on the health of the US retail space. Earlier this month we saw a reasonably decent print in the May retail sales, posting a growth rate of 0.2 percent following a marginal rise in consumer confidence from 82.3 to 83.0. This week we expect another marginal rise to 83.4, which should spell out a similar growth in sales as last month.


EUR This Week


We have a busy week ahead in the Eurozone, with the first part of the week dominated with the PMI surveys, followed by the German Ifo. Starting with the PMI’s, we will be keeping a close eye on the French manufacturing PMI, which seems to be shifting back towards the critical 50 mark donating expansion. Market analysts are expecting this release to print around 49.6, however should we see expansion this could be enough to reverse the Euro’s recent bad form.


On the German manufacturing side, things are looking considerably better, and any further growth in this PMI should be welcomed by markets. The Eurozone PMI should also be an interesting read, as it is by far the most comprehensive view on how the manufacturing and services sectors are performing in the zone as a whole. We would need to see some quite powerful moves in both these indicators to shift sentiment, however with Germany progressing well and France/Italy regaining some momentum, we could see something reasonably positive this week.


Finally, Tuesday’s German Ifo business climate survey is due to be released. This figure typically requires a strong divergence from expectations to cause any volatility in the market, so we would need to see a considerable push away from the 110.4 figure we saw last month to impact sentiment. This month, we expect a reasonably flat release in line with last months figure.

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