G7 and Euro-meetings keep currencies hanging in the balance
Week Commencing Monday 8th October 2012
Overriding Market Themes
UK consumer spending rose in September as shoppers stocked up for the winter season, spending a whopping 26.5% more than the same period last year. This type of bullish data release continues to add to evidence that the economy pulled out of recession in the third quarter, although more longer term growth still remains the unknown question. Hopefully this question should be answered on the 25 October, when the Office of National Statistics releases their preliminary estimate of economic growth in the third three months of the year. It is expected to return to growth, being helped by the Olympic boom, potentially signalling a return in the UK’s fortunes.
The Euro remains under considerable pressure, despite its recent good form, as speculation continues to encircle the single currency as growth wains. Today’s German Industrial Production figures are key, and with markets anticipating a dramatic fall, it seems that the warning signs on growth are ever more apparent. The single currency has already broke a seven-day stretch of gains against the Yen and the Dollar as technical indicators signalled the euro’s advance was too rapid. With European finance ministers meetings in Luxembourg today, and the German Chancellor Angela Merkel’s visit to Greece on Tuesday, we are hoping for some tough rhetoric to calm things down. German industrial production is likely to fall by 0.6% in August from July, which represents the largest drop since April.
The World Bank has lowered China’s growth forecasts amid concerns of weakened demand for Chinese products and lower investment growth. The bank expects Asia’s biggest economy to grow by 7.7% this year, down from its previous projection of 8.2% in May. China’s exports have been hurt by the continuing problems in the Eurozone and the US, its two biggest markets. Domestically also, policymakers have found it difficult to boost internal demand enough to offset its foreign sales. Other Asian countries, such as Indonesia, Malaysia, Thailand and the Philippines will also likely have their growth forecasts slashed, although compared to the figures we are seeing in Europe and the US, these slashed growth figures continue to amaze.
GBP This Week
Manufacturing Production is released on Tuesday, and represents the on real release of note this week for Sterling apart from the usual political news which has become all so important in recent years. I expect the manufacturing sector to contract for the month to roughly -0.6%, indicating a sharp slowdown after September’s spectacular release of 3.2%. We also have the Trade Balance release on Tuesday, with a deficit of -7.1 Billion GBP posted in September, which beat many traders forecasts, I expect this month’s calls for the deficit to widen to -8.3 Billion GBP. Finally, the G7 meetings on Wednesday should be a good watch.
USD This Week
This week’s US data set is heavily loaded towards the end, with the US Trade Balance release kicking it off. I expect the deficit to widen to -43.9 Billion USD from -42.0 Billion USD. Unemployment Claims is also out on Thursday, with the figure looking set to remain relatively flat, with perhaps a tendency to the upside. Friday sees the release of the Preliminary University of Michigan Consumer Sentiment and PPI for the month. PPI should come in around 0.8% whilst the UoM I reckon should come in roughly 77.9.
EUR This Week
With European Finance Ministers meeting in Luxemburg today, we are watching the news wires to see if any further resolution will be made. Hopefully we should get some further indication of the likelihood of a Spanish bailout at this meeting, so expect some significant volatility when this comes out. Tuesday sees Mario Draghi speaking at the Committee on Economic and Monetary Affairs of the European Parliament, in Brussels. We finish with watching the G7 meeting on Wednesday in Tokyo. I am sure that the Eurozone will be the first topic of conversation so expect the newspapers to be full of renewed rhetoric on Thursday.
In Other News
Hugo Chavez has won the presidential elections in Venezuela, again! Mr Chavez won 54% of the vote after an impressive turnout of 81%. Noisy celebrations erupted in Caracas as the President vowed to continue his march towards socialism. Meanwhile, Turkish artillery has returned fire after a Syrian mortar round landed in a border village, sparking fears that the conflict in the region will escalate.
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