The Euro zone and fears over what comes next are dominating investors thinking at present with Spain now considered to be the real issue. However, any clarity on what is going to happen with Spain is probably months rather than weeks away and to what extent and for how long this problem will plague the market is very uncertain indeed. At the moment sentiment is very weak and the downside risks to the market as we approach the final trading weeks of the year have increased. The traditional yearend rally may well be nonexistent this year and with the FTSE100 up only +2.8% on the year at the time of writing the risks of a negative return for 2010 cannot be ruled out.


The first of the major economic data in the US comes tomorrow with the ISM Manufacturing Index for November. Today we have the Chicago Purchasing Managers Index for November which is expected to show a modest improvement on the previous reported level of 60.6 with anything above 50 suggesting growth. Most of the recent regional reports have shown some improvement and this particular index comprises both manufacturing and the non manufacturing sectors. Also due for publication this afternoon in the US is the Conference Board Consumer Confidence Index for November. With the improving jobs outlook we may well see a slight increase on the last reported number of 50.2 which would be consistent with the most recent University of Michigan Consumer Sentiment Index. Finally, Ben Bernanke will be giving a speech later today on the current economic environment and as always there is the possibility that what he says could move the US market this evening.

In Europe today German unemployment data for November has been published which fell by 14,000 to 2.9m although the unemployment rate remained static at 7.0%. Euro zone unemployment for October has also been published and this rose to 10.1% which is the highest level in 12 years. There is quite a divergence in the country specific rates if you compare Spain where unemployment currently stands at 20.7% to the German November rate of just 7%. Finally, the European CPI for November has been published today and that has left the year on year rate stable at +1.9%.

The week began with markets firmly in positive territory following the confirmed details over the weekend of the €85bn Irish bail out. The enthusiasm did not last very long and after a near 50 point gain in the FTSE100 this morning the gains have all been lost and the FSTE100 has closed down -117 points. Concerns over Europe and who will be next and uncertainty over the future of the Euro are not going to go away and this is likely to be a dominant theme over the coming weeks and months. If there is any catalyst out there to take the market higher it could be the US economy which has been surprising on the upside for a few weeks now although most of it has been lost with the noise over Europe and more recently Korea. Whilst we can’t get too enthusiastic about the data, it does at least suggest that US GDP is not losing any more momentum at around the +2.5% level on an annualised basis. More importantly one of the key elements of any recovery is declining unemployment and judging by the weekly initial jobless claims data this is starting to show some real signs of improvement. Whether the momentum will be maintained is another question altogether and there are still considerable barriers to recovery especially given the dire state of the US housing market. The US economy has also been on a significant amount of government induced life support and as this fades away over the coming months growth may once again fade with it.


This week brings a lot of economic data which may take some of the focus away from what is going on in Europe. Today has been relatively light in terms of economic announcements but from tomorrow onwards we have some of the heavy weight data especially in the US with the ADP private payroll report and ISM Manufacturing Report on Wednesday whilst Friday brings the Non Farm Payrolls and the ISM Non Manufacturing report. Ben Bernanke will be talking tomorrow as well which could well impact on market sentiment given how fragile it currently is.

In the UK today the Office for Budget Responsibility upgraded its GDP forecast for this year from +1.2% to +1.8% although it has downgraded forecasts for the next two years with 2011 cut from +2.3% to +2.1% whilst 2012 has been reduced from +2.8% to +2.6%. With the coming fiscal squeeze these projections may well prove to be optimistic.

In Europe there is a good deal of data due for publication this week with the main event on Thursday when the ECB meets to discuss interest rate policy. The interest rate is set to remain unchanged and the focus will be on whether the ECB decides to shelve plans to withdraw emergency liquidity support for the region’s banks in early 2011. They are also likely to revise their Euro zone GDP forecast for 2011 and 2012.

A brief update today given that the US market is closed for Thanksgiving and there is little on the economic agenda. What we did get yesterday in the US was again mildly positive for the economic recovery. The stand out number was the weekly initial jobless claims which came in at a much better than expected 407,000 compared to expectations of 435,000 and the previous reported level of 439,000. A move below 400,000 would be very good news and we should see a good improvement in the Non Farm Payroll data and at the very least stability in the level of unemployment. This data series has shown improvement now for several weeks in succession which does suggest an improving outlook for US unemployment. The other bright spot yesterday was the latest reading for the University of Michigan Consumer Sentiment index which was 71.6 compared to the last reported level of 69.3 and consensus estimates of 69.5. This index still remains at levels more consistent with recession based on past data but any improvement has to be welcomed and this may well be a reflection of the improving jobs outlook.


The disappointing data yesterday in the US was durable goods orders for October which fell 3.3% but this follows on from an upwardly revised +5.0% in September and most of the volatility is due to the change in transportation orders. After stripping out transportation, orders fell 2.7% during October after a +1.3% increase during September.

Finally, US New home sales fell by 8% during October to 283,000 on an annualised basis and this compares to consensus expectations of 314,000. The US housing market does appear to be going from bad to worse with little hope that conditions are going to improve for some time to come.

There has been no major economic data published in the UK and Europe today.

With Thanksgiving on Thursday in the US the tail end of this week is likely to be relatively quiet but we do still have a fair amount of economic data to get through. The calendar for today is light with just some consumer confidence data for Europe due for publication and nothing scheduled in the US. The market today has started in positive territory after the announced bail out package for Ireland but has since given up all of the gains with the FTSE100 running at a -32 point deficit at the time of writing. From the perspective of bringing stability the news has to be welcomed but realistically the fact that we now have a second EU country in need of financial assistance is not something for markets to be overly positive about. We wonder how long it will be before Portugal starts to hit the headlines. For the time being we are through the next major hurdle and the negative sentiment of the last week seems to be dissipating slowly.


The economic data emanating from the US and Europe continues to be encouraging and whilst not pointing to any significant momentum shift in GDP growth we are at least not seeing any further deterioration. In some respects the disappointing areas such as US unemployment are starting to show signs of improvement which will be a very important factor if growth is to break out of its sub trend path. Next year still holds some very significant hurdles for world economic growth and it seems likely that markets will remain range bound as we approach the year end.

The main event of the week comes tomorrow with the second estimate for Q3 US GDP. The preliminary estimate gave GDP Q3 of 2% annualised and the consensus is looking for a slight upward revision to 2.4% primarily to greater than expected inventory build up. The Q4 run rate according to most economists is still around the 2% level on an annualised basis.

Also tomorrow in the US we get existing home sales data for October. The US housing market is unlikely to show any real signs of improvement for many months to come and the data tomorrow is expected to be around 4.5m on an annualised basis, very close to the last reported level of 4.53m units.

The minutes from the latest FOMC meeting will be published tomorrow and following the decision to utilise a second round of quantitative easing we can expect their GDP and inflation forecasts for 2011 to be lowered.

In Europe tomorrow the second estimate for German Q3 GDP will be published and this is expected to be unchanged at +0.7% quarter on quarter. We also get the latest German and Euro Zone manufacturing purchasing managers index data.

UK retail sales for October published this morning registered a better than expected +0.5% increase month on month compared to expectations of a +0.2% improvement. This breaks a 2 month run of declines and is perhaps more a reflection of consumers starting to buy ahead of the VAT increase next year.


Yesterday in the US the Consumer Price Index showed little sign of any inflationary pressures with the headline rate up +0.2% month on month whilst the core rate which excludes food and energy showed no change over the month. The headline rate was up primarily due to the jump in gasoline prices and increased slightly to +1.2% year on year whilst the core year on year rate fell to just +0.6% from +0.8%. Whilst the more recent increase in commodity prices looks yet to feed through to prices the US is still not far from a deflationary environment.

The US housing market goes from bad to worse. The data for October housing starts yesterday showed an 11.7% decline to 519,000(the consensus was looking for 590,000) on an annualised basis from the previous reported level of 610,000. House builders in the US have very little confidence in a housing market recovery over the coming months and there is very little on the horizon that is likely to change this.

In the US today the weekly initial jobless claims data will make for interesting reading. The trend over the last 2/3 weeks has shown a meaningful improvement and if this is sustained we should at least see the unemployment rate in the US remaining static or possibly even improving. The last reported level for weekly claims was 435,000 after a 24,000 decline and the consensus is looking for a number of around 445,000 this week.

The data set of greatest interest today will be the Philadelphia Fed manufacturing index for November. The prior reading was 1 and the consensus is looking for a around 5 for November (a positive number indicates growth). Earlier in the week the Empire State Manufacturing index for November was published and that plunged to -11.1 when the consensus was expecting a number of around +15. If we see a similar story for Philadelphia this afternoon it will set the alarm bells ringing once again.

US retail sales published yesterday were a little better than expected at +1.2% month on month compared to expectations of a +0.7% increase. However, the majority of the increase was due to a 5% gain in auto sales and after stripping this out the gain was a more modest +0.4%. It was encouraging to see some gains in clothing sales which were up +0.7% whilst spending on building materials increased by +1.9%. It must be borne in mind that the more recent increase in oil and commodity prices is yet to feed through to prices and the consequent increase will undoubtedly reduce the real spending power of US consumers in the months to come providing yet another headwind to GDP growth.


The data announcement that was generally ignored yesterday was the plunge in the Empire State Manufacturing Index to -11.1 for November from the previous reported level of +15.7 for October. New orders fell to –24.38 whilst unfilled orders declined to -24.68. This is the first time this year that this particular index has been in negative territory and it is a worrying development. The equivalent index for Philadelphia is due for publication on Thursday and after registering +1.0 in October the consensus is looking for a reading around +5.0. If this index also turns negative it may well suggest that the recent momentum in manufacturing has been lost and it will once again start to raise fears that the US economy is again losing momentum.

This morning in the UK the CPI for October has been published and once again it has surprised on the upside with the year on year rate increasing to +3.2% against expectation of +3.1%. The more recent Bank of England inflation report stated that they expect inflation to remain above their targeted level of 2% for all of next year. Nevertheless they must be uncomfortable with how stubborn inflation has been during recent months. With a VAT increase due at the start of next year combined with the more recent increase in oil and commodity prices there is a real risk that inflation will continue to get stronger in the short term making it all the more difficult for the Bank of England to bring it anywhere near to its target rate. The Bank of England continues to assert that with so much spare capacity in the economy it will eventually bring inflation down over the medium to long term.

In Europe this morning we have also had CPI data for October with the headline rate edging up slightly to +1.9% year on year which was in line with expectations. The German ZEW Economic Sentiment survey has been published for November and it moved into positive territory at +1.8 compared to the previous reported level of -7.2. A positive number suggests that more investors expect conditions in German to show improvement compared to those that expect it to deteriorate. At a time when the European debt crisis is once again rearing its ugly head this has to be good news but for how long this will last given the developments over the last few days remains very uncertain.

In the US this afternoon the main data due for publication is Industrial Production for November with the consensus looking for a month on month increase of +0.3% compared to the -0.2% reported last month. Also due for publication is the Producer Price Index for October with the consensus looking for a month on month improvement of +0.8% in the headline rate

A brief update today. The main news in the UK yesterday came from the publication of the Bank of England’s inflation report. Within it they did not rule out the possibility of further quantitative easing and given the pressures that are likely on consumer spending next year there has to be a real possibility that further stimulus measures will be needed. In terms of their CPI forecast they now expect the rate to tick up again to around 3.5% by the start of next year and the inflation rate is expected to remain above the 2% target for all of next year. However, over the medium term they still expect inflation to fall below target with the level of spare capacity in the economy providing one of the major downward pressures on prices.


The weekly initial jobless claims number published yesterday in the US provided a pleasant surprise with a drop to 435,000 from the previous reported level of 457,000, and consensus expectations of 450,000. This may well mean that the last Non Farm Payroll figure was not an anomaly and we are now seeing an improvement in the US jobs market. There is a very long way to go but even if unemployment stabilises that will be an improvement on current expectations and it will certainly help consumer sentiment.

Tomorrow in the US the only data of note due for publication is the next reading for the University of Michigan Consumer sentiment index. The November reading is expected to show an improvement on the last report of 67.7. The consensus is looking for a number around the 69 mark but with the improvement in the equity market and a seemingly improving US jobs market there may well be a surprise to the upside.

In the UK tomorrow we get the Nationwide Consumer Confidence index for October and in Europe there will be Q3 GDP data for Germany and the Euro zone. Also in Europe we get Industrial Production data for September.

Please note that the next Daily Comments will be published on Monday 15th November.

There has been little in the way of major economic data to move the market over the last couple of days and after such a strong rally it is not difficult to see why equity markets are struggling to make headway at present. The mining sector was driving the UK market ahead yesterday but even here it is difficult to see sector valuations increasing much more from current valuations despite the strong rise in commodity prices.


The data yesterday was focused on Europe and the UK. In the UK we had further evidence of likely pressure on house prices with the RICS house price survey coming in at the lowest level for 18 months. Also in the UK we had industrial and manufacturing data for September with the former up 0.4% (August +0.4%) month on month whilst the latter increased by a modest +0.1% (August +0.4%). The slowdown in manufacturing growth was broadly as expected and is in line with expectations of a slowdown in GDP growth over the coming months. The only other data published yesterday of note was the German CPI for October that came in line with expectations at +0.1% month on month.

In the UK today the Bank of England Quarterly Inflation Report is due for publication and it will be interesting to see what forecast changes are made to CPI and the GDP outlook especially following the announced government cuts.

In the US the main announcement due today is weekly initial jobless claims. After the better than expected Non Farm Payroll figures last week the market will be looking for further evidence of an improving jobs market. The last weekly jobless claims number rose 20,000 to 457,000 and the market is looking for a modest decline to 450,000 this week. The weekly jobless number needs to fall closer to the 400,000 level if we are to see any meaningful and sustained improvement in the Non Farm Payroll number.

The US jobs report this afternoon was surprisingly strong with the headline number showing a 151,000 gain although the unemployment rate remained at 9.6%. The all important private payroll number was up by 159,000 compared to expectations of between 60,000 and 80,000. The ADP private payroll number on Wednesday which was better than expected was a sign that the Non Farm figure was likely to be better than expectations. The decline in state and local government employment was 8,000, considerably lower than the figure of 83,000 (excluding census workers) reported last month. Employment of temporary workers, which is considered to be an indicator of future employment trends increased by just under 35,000. Overall a very positive report compared to previous months and if this is the start of a trend we may well see the unemployment rate at least remaining steady and potentially starting to tick a little lower. The muted market reaction we are seeing to this report after such a strong rally in equity markets this week is not unexpected. The data we have had this week combined with the announcement concerning QE2 should lend further support to equity markets and the downside risks are certainly reducing at present. The key now is for this trend in employment to continue and the data next month will be crucial.


The US initial weekly jobless claims reported yesterday have once again deteriorated with a move back up to 457,000 compared to the 437,000 reported last week. It will be interesting to see how this number moves over the next few weeks given the Non Farm Payroll data we have had today. If the employment trend is starting to shift for the good we would expect to see the weekly claims number to start moving back towards the 400,000 mark.

Yesterday in the UK the Bank of England MPC meeting took place and as expected there was no change in interest rate policy and more importantly there was no suggestion of further quantitative easing at this stage. In Europe today we have had September factory order data for Germany which declined by 4% month on month compared to expectations of a modest +0.5% improvement and this reverses all of the 3.5% gain made in August. The decline is primarily due to a drop in foreign orders although overall growth year on year remains at a very respectable 14%.

After such a busy week for economic announcements in the US, next week is relatively quiet and we would expect to see the market consolidate its position over the coming days.

The economic data in the US on Monday provided a boost to sentiment with the ISM Manufacturing Index for October exceeding expectations at 56.9 compared to consensus expectations of 54.5. The new orders element increased by the best part of 8 points to 58.9 whilst the production index element increased by 6.2 points to 62.7 and exports rose by 6 points to 60.5. Overall the US manufacturing sector is showing renewed strength which is probably partially related to increased world demand as a result of the weak dollar. Construction spending for September announced on Monday was also better than expected at +0.5% against expectations of a modest dip. The economic calendar in the US was light on announcements yesterday and the market will now be focusing on what today brings with the Non Manufacturing ISM for October as well as the ADP Private Payroll report and the all important Fed meeting result.


The US Non Manufacturing ISM for October is expected to show a modest improvement to 54.0 from the previous reported level of 53.2, according to consensus expectations. The ADP private payroll number is becoming increasingly difficult to forecast given the divergence we have been seeing with the reported private payroll numbers in the Non Farm Payroll data. Last month the ADP number posted a negative figure of -39,000 compared to the private payroll data within the Non Farm Payroll number of +64,000. Estimates for the private payroll number within the Non Farm number due out on Friday are again for around +65,000 and it seems likely that the ADP number will be short of this and probably close to zero growth, but there is considerable scope for error in forecasting this number. Finally, today on the economic front in the US we get factory orders for September with the consensus looking for a gain of 1.8% after the -0.5% decline during the previous month.

For the Fed meeting result we are looking for a number of around the $500bn mark to be committed to asset purchases over the coming 6 months or so, possibly with an indication that more will be done if necessary at the end of this term. A lot of the good news/expectation is now baked into the market and it is therefore very difficult to estimate how the market will react to this announcement. Any disappointment over the announced number will inevitably result in a sell-off.

In Europe on Monday we had the second estimate for the October Manufacturing Purchasing Managers Index which was revised upwards, primarily due to a greater contribution from Germany. Overall we are continuing to see growth within the European manufacturing sector. The equivalent number for services for the Euro zone was published yesterday and again it was a little higher than expectations and remains well within growth territory. In the UK today the October Purchasing Managers Index for Services has been published and it was also slightly ahead of expectations at 53.2. The consensus was looking for a slight dip to 52.2 from the previous reported level of 52.8. Overall Europe still appears to be maintaining the momentum in GDP.

The week ahead is packed full of economic data and key announcements which may prove to be pivotal in how the market moves over the coming weeks. What the Fed announcement contains on Wednesday has been debated for several weeks now and the consensus appears to have settled on around $500bn of asset purchases over the next 6 months or so with the promise of more if it is needed. It seems fair to assume that the Fed committee is aware of what the market wants and expects and this will undoubtedly have some bearing on the decision. What they will undoubtedly want to avoid is an announcement that misses the mark and sends financial markets into reverse.


On Friday of last week the much awaited first estimate for US Q3 GDP was announced and the number was almost bang in line with estimates at 2% annualised. The term ‘growth recession’ seems to be used a lot at the moment to describe the US situation and basically it refers to modest growth that is not sufficient to prevent the level of unemployment from climbing higher. To what extent any new policy measures will improve the situation remains to be seen but it is difficult to see any meaningful improvement on the Q3 level for several quarters to come.

The main event in the UK this week will be the Bank of England MPC meeting on Thursday to decide on interest rate policy and also the possibility of further quantitative easing. The interest rate will almost certainly remain where it is and after the better than expected Q3 GDP data announced last week there is now considerable doubt as to whether the MPC will employ any additional quantitative easing this year.

In the UK today we have had the October Purchasing Managers Index for manufacturing which was better than expectations at 54.9 compared to the consensus forecast of 53.0. There is little doubt that the UK has maintained a reasonable amount of momentum from Q2 but this still looks likely to drop away over the coming months as the new government spending cuts come into being and the housing market decline starts to impact on consumer confidence.

There is a significant amount of US data to get through this week including the all important Non Farm Payrolls on Friday. Today we have the ISM Manufacturing Index for October. The previous reported level was 54.4 and the consensus is looking for a similar number to last month. The new orders element of the last reading did fall back signalling a weaker period ahead although the regional reports do not suggest any material softening in the manufacturing sector.

Also in the US today we get data for construction spending for September. During August construction spending did increase by +0.4% although this was almost entirely down to government spending. This is likely to slow during September and the decline in private sector construction spending is likely to result in a negative number with the consensus looking for a drop of -0.5%.

Finally in the US today personal income and spending data for September will be published. There is no major data due for publication in Europe.

The market has got off to a good start this week with better than expected manufacturing PMI data in China providing an early boost to world markets. With so much critical data ahead over the coming days we can expect a good degree of volatility.