UK GDP on the up as Mr Bean signs his praise!
Week commencing Monday 29th October 2012
Overriding Market Themes
There are reasons to be optimistic about the UK economy, according to the aptly names Mr Bean, the deputy governor of the Bank of England. Last week saw the release of exceptional GDP and unemployment figures from the UK, causing a big boost in Sterling as traders were surprised to see the country performing so well against its peers. Mr Bean did state that getting over-excited might be a tad premature, as the GDP figures were skewed by the Olympics, which naturally would have lent a hand to jump. He also cited that the signs of progress emerging from the Eurozone were boosting the UK and European markets, as can be so widely seen by the return of the Euro’s form of late. Regardless of what Mr Bean says about being cautious, for any Brit seeing the country fly out of recession is a fantastic bit of news. There is now talk of a triple dip recession, however I believe the we are out of the worst now, and although are unlikely to see growth rates enjoyed by the cousins across the Atlantic, growth in any form is better than decline.
Talking about the cousins, US economic growth also increased sharply in the third quarter. The world’s largest economy grew at an annualized rate of 2%, with the majority of growth attributed to a steep increase in government spending. Federal government expenditures and gross investment increased 9.6% compared with the previous quarter, while national defence spending rose by 13%. The Commerce Department also said there was a large jump in personal consumption as well. The economy has managed to escape recession for the last 3 years, and although they have a significant structural deficit and relatively high unemployment, it seems their distance to the Eurozone and safe haven status has saved them from the worst the crisis had to offer. Markets continue to view the US favourably; however are watch the election for signs of a winning party. Romney is widely viewed as the more market friendly, however some analysts have cited that his election would increase the risks associated with conflict in Iran, something the highly inflated Oil markets barely need.
Greece seems set to receive an extension to its bailout, claims Yiannis Stournarasm, the Greek finance minister. Greece had been asking for 2 more years to meet the spending cuts demanded by both the Troika and its international creditors, and this represents a very promising turn of events for the Greek people. The government has been negotiating with the EU, IMF and ECB about signing off the release of more money from the 130bn EUR rescue package, of which the next tranche is worth around 31.5Bn EUR. If true, this extension means that the Greek government can cut slower and in a more targeted way, hopefully even reducing the rate at which the economy is declining.
GBP This Week
This does not seem to be the most exciting week for Sterling, with only Manufacturing and Construction PMI hitting our radar screens. I expect Manufacturing to remain relatively stable, perhaps with a tendency to the downside by a couple of points. Construction has constantly been the weak link in the UK economy, however I foresee it stabilising this month also, with perhaps PMI only dropping 3 or 4 points. Sterling should continue to be on good form as it enjoys the boosts seen by last week’s GDP figures, so expect it to remain imbedded in the low 1.60’s on cable and in the 1.24 – 1.25 region on GBP/EUR.
USD This Week
We start the week off with CB Consumer Confidence on Tuesday afternoon, which I expect to come in around 72.4 against the previous 701.3 posting. This follows with Thursdays ADP Non-Farm Employment Change, Unemployment Claims and ISM Manufacturing PMI, all of which should come in roughly in line with previous postings. Finally, Non-Farm Employment Change and the Unemployment Rate is due out on Friday. Once again, I don’t expect any dramatic change, although a 0.1% increase in unemployment is likely.
EUR This Week
Europe’s data releases seem to be predominantly found early week, with the ECB President Mario Draghi speaking at the Second Conference of the Macro-Prudential Research Network of the European System of Central Banks, in Frankfurt. We are also watching the Italian 10 year bond auction on Tuesday, which should be a good indicator of investors’ confidence in the zone’s ability to contain the debt crisis.
In Other News
Most importantly, sausages made in Suffolk have been granted a special status which puts them alongside the likes of Parma Ham, Champagne and Melton Mowbray pork pies. Newmarket Sausages have become the 50th food product from Britain to be awarded the Protected Geographical Indication from the European Commission.
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