The Government of Brazil open their cheque book!
Week Commencing Monday 20th August 2012
Overriding Market Themes
UK Retail Sales came in better than expected last week, which offered Sterling a much needed rest from its recent stagnation in the international currency markets. The Office of National Statistics said sales volumes in July rose by 0.3%, and were up 2.8% from last year. Analysts now believe that the initial estimates (of which we originally agreed) that the economy shrank by 0.7% in the April to June quarter are overly gloomy. Indeed, a stronger rise in both factory output and construction, together with a fall in unemployment, could mean that GDP is not shrinking as quickly as many analysts first feared. Obviously this is good news for the coalition government, who are set to continue doe the path of austerity into the medium term, whose economic plan mostly depends on the private sector meeting the gap left from the dismantled public sector. Perhaps this is no more personified by the figures from the Society of Motor Manufacturers and Traders, showing that UK Car exports now exceed imports! It is just a shame that the car manufacturers are not British anymore!
UK Unemployment also hit the headlines last week, with a surprise fall by 46,000 to 2.56 million in the three months to June. This takes the unemployment rate to 8.0% in the period, down from 8.2% in the previous quarter. The ONS also stated that the number of people claiming Jobseekers Allowances fell by 5,900 to 1.59 million in July. Both these figures again will do much to shore up the Conservative led coalition, who for a long while had been losing the economic argument to Ed Ball’s and his more ‘Growth’ targeted shadow budgets. It also indicates that sentiment is beginning to ebb back into the British economy, especially when it is compared to its European peers.
The Brazilian Government has unveiled the first phase of a new major economic stimulus package designed to boost growth in their flagging economy. The Latin American powerhouse, which overtook the UK in terms of GDP only a couple of months ago, is to invest more than GBP 38 Billion in the country’s road and railways over the next 25 years, with more than half the money being used in the next five years. This comes as the government’s previous plans, including devaluing the Brazilian Real, as well as the progressive reduction in interest rates, have so far failed to deliver. Brazil is predicted to grow less than 2% this year, the weakest annual performance since 2009 and a substantial slowdown from the 7.5% it enjoyed in 2010.
GBP This Week
Only 2 UK releases of any note this week, starting with the Public Sector Net Borrowing figure due out on Tuesday. The measure of the difference in value between spending and income for the public sector should decrease sharply from a dismal 12.1 billion in the red to a 2.8 billion surplus, which it should come in as projected, continue to support Sterling moving into the end of the week. Friday then sees the release of the revised GDP figure for the quarter, which many believe will be revised up from -0.7% to -0.5% in the wake of some bullish construction and manufacturing data out last week. Sterling should therefore continue to be on its right foot, so expect some modest gains across the board as traders continue to view the UK as one of their preferred risk off trades.
USD This Week
US Data kicks off on Wednesday with Existing Home Sales and the FOMC Meeting Minutes, of which I doubt either will move the market significantly. I doubt the FOMC will retain its hawkish tone and continue to speculate that rates will remain at an all-time low until at least 2014. Moving to Thursday, we have Unemployment Claims and New Home Sales, of which the former is the highlight of the week. I expect unemployment claims to remain relatively flat against its previous reading, however for the trend to continue downward with possibly a reduction of 1k – 3k in the number of unemployed claiming support. We end the week on Core Durable Goods, which should come in positive for the first time since Q1 as US Retail Sales continue to defy gravity.
EUR This Week
German Flash Manufacturing PMI is the only release of note this week, and the focus as ever remains on a political settlement to the Eurozone crisis. I expect PMI to increase slightly from 43.0 to 43.6 as German manufacturers continue to feel the pain, but benefit from a more consolidated position. We have a string of French data and European consumer confidence out on Thursday, however I doubt this will do much to stoke the already depressed Euro market.
In Other News
Amazing scenes adorned the Ecuadorian Embassy this weekend as Julian Assange emerged from hiding. The embassy in London’s Knightsbridge was surrounded not by just police, but a collection of freedom of speech die-hards, turning a rather upmarket part of town into a scene out of Glastonbury. I must confess, I am a free speech lover, and believe it is the right of all people to have a accountable media who bring matters of the public record to the public, but it is easy to forget that Julian Assange is wanted for questioning over 2 sexual assaults. I fear that once this media storm dies down, there will be two potential victims who will never get justice.
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