Yellen headlines this weeks events as she distances herself from the interest rate hike saga!

Week commencing Monday 7th April 2014


This week in Short



  • In the UK we have the Bank of England’s monthly MPC meeting alongside the NIESR GDP estimate and manufacturing production. The BoE is unlikely to be an event of note, while GDP and manufacturing as expected to be reasonably positive. Expect a quiet week for Sterling therefore.

  • In the US we have a relatively busy week ahead with the FOMC headlining. We do not expect any deviation from their tapering plans however it will be interesting to see what Janet Yellen says about the Feds interest rate hike timetable. The UoM is also an important release with a further rise expected.

  • With very little in the way of economic data from Europe we expect markets to continue to focus on the issues in Crimea, and its effect of European exports to Russia (specifically German exports). The German trade balance and French industrial production is also due for release.


Overriding Market Themes


The ECB (European Central Bank) has kept interest rates unchanged at a record low 0.25%, even though inflation in the Eurozone has fallen to its lowest in more than four years. Mario Draghi said there will be no economic stimulus for the near term, despite the urgings of some economists, including some extremely senior figures at the International Monetary Fund. He did not rule out action in the future however; possibly in an effort to counter those who have expressed concern that the Eurozone risks slipping into a spiral of sinking prices and meagre growth. The ECB also made no adjustment to its institutional overnight rate, the rate it pays to banks that leave money on deposit with it overnight. There were calls from senior economists over the possibility of embarking on bond purchases as the United States, Japan and the UK have, if the threat of deflation became more acute. We feel that this is a situation that Mario Draghi will be hard pressed to avoid, and with this in mind expect some sort of measure in either Q2 or Q3.


Across the Atlantic, the U.S. economy added 192,000 jobs in March, an improvement over previous months when winter storms and extreme cold cut into hiring and a potential sign that U.S. labour markets may be gaining momentum. Despite this, the unemployment rate held steady 6.7% in February. Economists had predicted that 200,000 new jobs would be created. Diving into the figures, the total number of unemployed Americans stayed essentially unchanged at 10.5 million. The number of long-term unemployed, or those without work for 27 weeks or more, was also unchanged at 3.7 million. This figure is becoming increasingly important to global investors, as Fed policy makers have made it clear that unless the labour numbers in concert with other important economic indicators move sharply in one direction or another, the central bank will continue to move ahead with its plan to gradually reduce its bond purchasing program by USD10 billion each month until the program expires later this year. This view was cemented as newly installed Federal Reserve Chair Janet Yellen has placed a renewed emphasis on strengthening U.S. labour markets through monetary policy in a number of well times pre-release speeches.


Finally back on home soil, U.K. house prices fell for the first time in three months in March, according to the Halifax house price survey, which said the overall trend of rising values may continue. Prices dropped 1.1% from February after a 2.5% rise in January, however quarter on quarter we have seen a 2.3% from the last three months of 2013. While U.K. mortgage approvals fell in February after record rainfall deterred home buyers, the underlying housing market remains strong, with approvals in January reaching the highest since November 2007. The report also demonstrated the ever increasing gap between prices in London and the rest of the UK, which is now the widest it has ever been, with prices of homes in the capital twice those in the rest of the country.


GBP This Week


We have a very quiet week ahead for the UK with only a few pieces of economic data scheduled for release, alongside the Bank of England MPC rate decision. Starting with the MPC then. The UK is not expected to see any real change in monetary policy stance, nor are we expecting to see change for quite some time.  The asset purchase facility and interest rates have remained at £375 billion and 0.5%, respectively, since July 2012. With this in mind, we expect Thursday’s decision to be uneventful.


The most notable release of the week is the manufacturing production, trade balance and NIESR GDP estimate. With manufacturing activity picking up nicely in the last six months, we see no reason why this trend will not continue, and therefore expect production to rise by 0.3% for the month.


Finally, the NIESR GDP estimate can provide a good insight into the quarterly performance of the UK economy. With market estimates pointing towards a 0.7% – 0.8% figure, I would suspect it would take quite a miss to stoke up some significant market volatility.


USD This Week


We have a reasonably busy week ahead for the US with the FOMC minutes from its meeting in March set to dominate global markets on Wednesday. These minutes will be under particular scrutiny since Janet Yellen claimed that the Fed would look to raise interest rates for the first time about six months after the end of its quantitative easing program, which based on the current pace of reductions would suggest the end of the second quarter of 2015. Yellen was highly criticised for her first performance but quickly moved to ease market concerns when speaking last week at a conference on community investment. That said, this is one of the few meetings from the last few years where most of what we want to know from the meeting we already know, therefore it may have less impact on market sentiment as it would do normally.


We doubt that Thursday’s weekly jobless claims numbers will stoke up any market reaction, especially as over the past 12 months it has hardly deviated from its fairly consistent 310,000 – 340,000 posting. This week it’s expected at the lower end of that range, around 314,000.


Finally, the UoM consumer sentiment figure for April is expected out this week, and as this is a preliminary reading it should have a bigger impact on markets. This month the number is seen rising to 81.2, in line with February’s number and wiping out the drop in March.


EUR This Week


We have a quiet week ahead for the Eurozone with only the German trade balance and French industrial production the releases of note. Both of these are only of ‘medium’ importance and therefore their impact is likely to be limited, however in the absence of anything else they do have the potential to set direction. Expectations are for a surplus of EUR18.8 billion in February, the highest since September. It will be interesting to see if this figure has started to become effected as Germany’s trade with Russia begins to hurt as a result of the ongoing tensions over Crimea.

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