Greece edging towards paying their bills, call off the bailiffs!!

Week Commencing Monday 6th April 2015


This Week in Brief



  • In the UK we have the Services PMI release which is expected to grow marginally on the month to 57.1. The Bank of England minutes will be interesting, however no movement in either QE or rates are expected.

  • In the US the FOMC Meeting Minutes are the highlight, with any further rhetoric on rate hikes likely to be pounced upon by market participants. Unemployment claims is likely to increase marginally, however we doubt this will have a discernible impact on USD trading for the week ahead.

  • We have a quiet economic week ahead for Europe with all eyes remaining on the struggle between Berlin and Athens.


Overriding Market Themes


UK Productivity has continued to worsen, reaching “unprecedented levels” not seen since the end of the Second World War, according to the latest figures from the ONS. The indicator fell by 0.2 percent in the last quarter of 2014, leaving the level below the financial crisis in 2007. Indeed, the Bank of England has struggled to get to grips with the UK’s productivity problems, with explanations ranging from low levels of investment spending, flexible working practices and ultra-low interest rates keeps companies on life support. The bank have warned that without a sustained growth in productivity, the UK stands very little chance of breaking out of the current cycle of anaemic wage growth. Low productivity will also have a huge bearing on when the Bank of England will be able to raise interest rates, given that the more workers that are needed to produce goods, the faster economic slack will be eroded. Either way, productivity appears to be the UK’s economic bogeyman, and whichever party or parties form the next government, this will be a problem which will require a great deal of work to solve.


Over in the Far East, activity in China’s factory sector unexpectedly rose in March according to the official Purchasing Managers Index. The figures pushed up to 50.1 from February’s 49.9, and considerably higher than market forecasts of 49.7. However, HSBC’s own PMI came in lower at 49.6, indicating a striking difference between the private (and arguably less politicised) and the government sponsored PMI. The world’s second largest economy has been impacted by a recent downturn in its once booming property market, coupled with overcapacity in factory production and proportionately high levels of local debt. Despite this, the country continued to grow at 7.4 percent in 2014, which by all accounts is lightning fast compared to its western peers. Economists are now expecting growth to slow to around 7 percent this year, especially with non-manufacturing PMI’s also pointing south.


GBP This Week


In the UK we have the all-important Services PMI indicator kick starting the week after the long weekend. Market estimates point towards a slight uptick in the figure to 57.1 from 56.7, showing UK services continue to outperform all other sectors within the economy. Continued growth in this reading continue to fuel speculation that UK GDP growth will continue to increase at near G7 leading rates this year, with the US the only other country likely to match (most likely beat) us. Obviously, any downside revisions in this figure will cost Sterling some of its recent gains in the short term, but expect Tuesday’s session to be moderately Sterling positive.


 Moving to Thursdays Bank of England meeting, we expect no change in either the level of QE, and certainly no change in interest rates. With this in mind, the statement will likely be the point of interest, with journalists seeking any hints from Mark Carney on how to raise productivity.


Lastly, continued polling for the general election is likely to have a modest impact on rates, unless we start to see a clear leader out of the Conservative or Labour parties.


All things being equal, with a stronger outlook for Europe dominating this week, expect Sterling to begin to recover versus the US Dollar, and the Euro to consolidate at the mid 1.30’s.


 USD This Week


In the US we have the FOMC Meeting Minutes on Wednesday coupled with unemployment claims on Thursday. The minutes will certainly be the highlight, with any more rhetoric on when the Fed is likely to raise interest rates set to rattle markets. Indeed, markets have got so obsessed with the Fed in recent months that even words such as “likely” and “expected” are being treated as gospel. Either way, whatever the minute’s state they will have an impact on rates for the rest of the day, so expect choppy seas on Wednesday afternoon.


Unemployment claims are expected to increase marginally from 268k to 283k, which although negative in its own right we doubt any discernible impact will be felt.


EUR This Week


We have a quiet week ahead for Europe, with Spanish unemployment claims released during the bank holiday coming in considerably better than expected. We continue to feel that Greek repayment issues remain at the forefront of EUR volatility, and until the next tranche of debt repayments have been made, we expect a risk premium to be attached to the currency. That said, the Greek government have continued to state that they have sufficient funds to make the payment, and that they intend too. Failure to do so will result in some significant EUR movement, however expect little movement if they do make the payment.


With that in mind, risk remains somewhat to the downside with the single currency, however this could change drastically on the back on any further political rumbling from either Athens or Berlin this week.  

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