With bank holidays in the UK & US, a quiet week to bury bad news?

Week commencing Monday 26th May 2014

This week in Short

  • We have very little out from the UK this week, especially with the bank holiday on Monday. Net lending to individuals is the only release of note, with market expectations set for another print of GBP 0.9 billion.

  • In the US we expect the second estimate of GDP to remain flat at 2.5% while pending home sales could once again remain in positive territory with a print of 1.8%. The weekly unemployment claims figure is likely to increase slightly from 340k to 342k.

  • In Europe we have a very German centred week with Aprils unemployment change and retail sales all set to be released. We expect unemployment change to remain at 4k while retail sales are expected to rebound into the positive, settling around the 0.3% mark. Eurozone unemployment is also set to be released on Friday, with market analysts seeking a 0.1% rise in unemployment.

Overriding Market Themes

We start this week’s news round in “Eurolund”, where the latest surveys of Eurozone businesses showed private sector growth is continuing, albeit at a slightly eased rate. Diving into the figures, manufacturing activity was somewhat disappointing, while there was an unexpected pickup in the service industry across the continent. This should be good news for the European Central Bank, as the numbers are encouraging and shows signs that a semi-balanced recovery is underway across all regions. Unfortunately however, there still remains increasingly worrying signs that companies are continue to drastically ease prices, adding to global fears that the zone will enter deflation. The ECB has already strongly hinted that it could go for more stimulus, with a potential further cut in the cost of borrowing at its June policy meeting, along with negative rates to encourage commercial banks to lend money to business. It seems that the European financial woe saga is therefore far from over!

Back in the UK, the continued recovery of the UK economy was confirmed last week with growth at a solid 0.8% in the first quarter. The Office for National Statistics confirmed the robust expansion, disappointing some analysts expecting that growth would be further revised up. Late in April, the Bank of England suggested growth would be 1% for the first three months of the year. It seems however that despite this relatively healthy growth figure last week, the Treasury borrowings actually increased last month. The figure increased to £11.5bn last month, 21% higher than the £9.5bn recorded in the same month last year.

Finally and sticking with the UK, the inflation rate rose in April for the first time in 10 months, official data has shown. Many economics attribute the increase to a late Easter holiday, pushing up both air and rail transport costs. The consumer price index rose more than expected to an annual rate of 1.8% in April, from 1.6% in March, which had been its lowest level in more than 4 years. This news caused Sterling to hit a 16 month high against the euro and rose against the dollar, before giving up much of its gains as market expectations that the Bank of England will raise base rate in about 12 months remained largely intact. Core CPI, which excludes food costs and other items but does include transport costs, rose 2.0%, its strongest rate since September last year.

GBP This Week

With the bank holiday on Monday, we have a very quiet week ahead for the UK. The only release of note comes in the form of net lending to individuals, due to be released on Friday. We expect the figure to remain at its current level of GBP 0.9 billion, however we would need to some quite a sizable shift away from this figure to notice any discernable impact on Sterling crosses on Friday.

USD This Week

The US also has a bank holiday on Monday, and therefore with both London and New York markets out of action on Monday, expect a very quiet start to the week for markets. The event to watch state side this week is the second estimate of GDP figure, which is expected to remain at an annual rate of 2.5%. This comes as the initial GDP release disappointed markets by posting a 0.6% short figure, therefore expect traders to act positively to any upside revisions in this figure.

We then shift our attention to pending home sales, which is always important owing to the strength of the housing market as a barometer of economic health. The market forecast an increase from 1.5% to 1.8%, however given that this release has been very volatile of late, expect any reading from around flat to 2%.

Finally, we look for the weekly unemployment claims figure to increase somewhat from 340k to 342k. We would normally ignore this indicator however given the unreliability of the ADP non-farm payroll figures, it seems appropriate to watch this release as one of our economic health measures of the US economy.

EUR This Week

Much like the UK, we have a very quiet week ahead for Europe, with the main focus set to remain on Germany as it releases both Aprils unemployment change and retail sales. Starting on Wednesday, the April unemployment change for Germany is likely to remain at 4k, signalling a very modest rise in unemployment throughout the country.

Moving to Friday, German retail sales is expected to move back into positive territory after two extremely poor readings. Analysts are expecting a figure around the 0.3% mark, however expect some increased Euro longs should we see expectations underestimated.

Finally, the Eurozone unemployment figure is due to be released on Friday with markets expecting a rise from 12.1% to 12.2%. Although a marginal rise, with unemployment levels as high as they are we are likely to see quite some risk flows back into the US Dollar as we approach the weekend. With this in mind, expect a weakened Euro as we hit the later part of Friday trading. 


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