UK Construction continues to be the Achilles Heal of UK Growth.
Week commencing Monday 15th October 2012
Overriding Market Themes
The UK Construction sector seems to continue to decline as recent figures suggest it contracted again in August. The Office of National Statistics stated that construction was down 0.9% against the previous months figure and an incredible 11.6% down from August last year. This certainly pushes this sector into the worst performing part of the economy, and the main contributor to the economies overall sluggish performance over the past year. There is still hope that some form of growth can ebb back in the third quarter, as the second quarter had been plagued by very wet weather and bank holidays. Ultimately, one of the main drivers of construction in the economy is government, and capital spending and investment, such as the H1 High Speed rail link and the Olympics, does wonders for this sector. Will the government ever find the money for more projects? Probably, although let’s hope they find it sooner rather than later!
European leaders are to convene for an emergency summit in Brussels on Thursday this week to discuss the renewed aid for Greece and Spain’s potential requirement for a bailout. Many of the leaders, basking in the glory of being awarded the Nobel Peace Prize, are now relatively optimistic that the firewalls in place can contain the Euro’s turmoil. Wolfgang Schaeuble, the German Finance Minister, ruled out a Greek exit from the Euro, stating that the challenge was not financial, moreover resolving differences on aid for the heavily indebted nations. The Euro’s fortunes began to turn when the European Central Bank’s pledged it bond buying program last month and enacted a 500 Billion Euro permanent rescue fund, known as the European Stability Mechanism.
Chinese policy makers have been given more room to boost stimulus measures after the countries inflation rate dropped in September. There have been calls for Beijing to ease its monetary policy to boost domestic demand and spur growth amid the global economic slowdown. China’s economy has been hurt by falling demand from western nations and a slowdown in internal investment. The government has already lowered the reserve ratio requirements for Chinese banks three times in the past months, lowering the amount of money banks need to keep in reserve in an attempt to boost lending and spur demand. It has also cut interest rates twice since June, again in an attempt to bring down the cost of borrowing to consumers and businesses.
GBP This Week
We kick start the week with UK CPI on Tuesday, which should come in relatively flat against last month’s figure at 2.2%, indicating that the change in the price of goods and services purchased by consumers has remained relatively stable. Also on Tuesday is the Bank of England’s Inflation letter to the Chancellor. Wednesday sees the Claimant Count Change and the MPC Meeting Minutes, where I also believe that the number of people claiming benefits will only decrease by around 0.2k overall. Thursday’s Retail Sales should come in at 0.5% growth against the -0.2% posted last month, hopefully giving Sterling a much needed boost. Finally, Public Sector Net Borrowing on Friday should come in around the 11.8 billion mark, signalling a slight decline in the difference in value between spending and income for government.
USD This Week
Monday sees the release of both Core and non-core Retail Sales, both of which should be in the positive, posting around 0.6% and 0.7% respectively. Tuesday’s Core CPI release should come in roughly in line with last month’s figures at 0.2%. Thursday sees the all-important Unemployment Claims release, potentially signalling that the number of people claiming unemployment benefits in the US has increased by an estimated 35,000. Despite this news, more bullish data is expected in the Level of a diffusion index based on surveyed manufacturers in Philadelphia, which should come in around 0.5 against the -1.9 posted last month. Finally, existing home sales should come in roughly in line with last month’s figure at around 4.73 million properties.
EUR This Week
German ZEW kicks off the Eurozone data set this week, with a market expectation that the index will increase slightly from -18.2 to -14.6, indicating that confidence is returning although remains heavily subdued. Moving into Thursday, we are watching the Spanish 10 year bond auction with anticipation to see how investors treat the Spanish amid the bailout rumours. Finally, Thursday sees the start of the EU economic summit, where hopefully the question on a Spanish bailout and on Greece will see some resolution.
In Other News
The UK Government and the Scottish Government have finally agreed on the terms of the independence referendum, setting the framework up for the battle for Scottish independence. Cameron’s government managed to narrow the referendum to a single question, however capitulated by allowing 16 – 17 year olds to vote. We will not know the outcome until 2014, however it looks set to be a hard fought race either way. Almost on another planet is Austrian Felix Baumgartner, who skydived from 24 miles up in the atmosphere above New Mexico. The 43 year old broke the speed of sound, reaching a maximum velocity of 833.9 mph.
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