Europe feels the bite as Team GB Slam in the medals!

Week commencing Monday 6th August 2012

Overriding Market Themes

European manufacturing and service sectors shrank in July, amounting to the 11th consecutive month of contraction. The July Markit purchasing managers index (PMI) came in at 46.5, 1 up from the June reading of 46.4. Although both the Eurozone’s manufacturing’s and service providers reported lower levels of output in July, it was the manufacturing sector that took the biggest hit as production shrank at its fastest pace since May 2000. The biggest worry for any European Union member now is that the recession in Germany, long known as the European Industrial Powerhouse, becomes more entrenched, suggesting that the largest Eurozone economies are starting to converge and mutually enforce recessionary pressures on one another. 


The US Economy added an extra 163 thousand jobs in July, smashing through everyone’s forecasts. That said, it’s as not all good news in the world’s biggest economy as the unemployment rate rose from 8.2 percent to 8.3 percent as more people re-entered the workforce but failed to find a job. It is worth noting that, although 163 thousand new jobs is impressive, the US economy has to generate 100 thousand new jobs a month just to stand still! This recent spike came as the Private sector hired an extra 172 thousand which countered the 9 thousand fall in government payrolls. This continues to bolster Obama’s claim to the throne for a second term, as he ebbs ahead of Romney as we enter the final weeks of the presidential elections. 


UK Service Sector output unexpectedly slows in July as the index dropped from 51.3 to 51. This seems to continue to trend suggesting that the UK economy continues to lose momentum as manufacturing and construction also continue to fall. This confirms the trend as the UK economy contracts by 0.7 percent between April and June, following a 0.3 percent drop in the first 3 months of the year. The Service Sector is still growting thankfully, and accounts for roughly 70 percent of the UK economy, so its continued health of of great concern to UK policy makers. My view is that our services sector is reasonably boyant, especially once the Olympics has been measures in the third quarter. Let’s keep our fingers crossed!

GBP This Week

Manufacturing Production for the month is due on Tuesday morning, which should follow the lead set by our construction PMI data and post a contraction of just under 4 percent. We are then watching the Bank of England inflation report, which should continue to fall despite the increase in the banks quantitative easing program. We finally have PPI Input on Friday, which should show that the price of goods and raw materials purchased by manufacturers increase by just under 1.5 percent.

USD This Week

We have Ben Bernanke speaking on Monday at the 32nd General Conference of the International Association for Research in Income and Wealth in Cambridge. This usually stokes up volatility in the markets so watch out for US Dollar strength leading into the end of Monday. He then moves to Washington to speak about the need for personal financial education in the wake of the recent financial crisis. I expect this speech to be the less influential, but it is worth watching incase he lets anything slip. Thursday then sees the release of the US Trade Balance, which should decrease by just over 1 billion US Dollars. Finally, Unemployment Claims comes out on Thursday, which should increase by just under 10 thousand.

EUR This Week

There are no really important economic releases from Europe this week, so continue to watch for political news regarding further banking harmonisation and bond purchases from the ECB. 

In Other News

What a fantastic result for Great Britain as we enter the second week of the Olympics with team GB in the number 3 spot on the medal table. Collectively we have won 16 Golds, 11 Silvers and 10 Bronze medals, which for an island of 60 million people is in my mind astonishing. Only China and the United States can claim they are ahead, and more crucially we are 8 Gold medals ahead of the French. I am looking forward to this week’s sport, and fingers crossed we can emulate last week’s amazing performance … come on Team GB.


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