THE CFD TRADER

2011-03-28T18:01:00.001+01:00

The start of any new month brings with it the first slug of major economic data in the US and this week Friday 1st April will contain the major data announcement of the month with the Non Farm Payroll data for March as well as the ISM Manufacturing Index for March. The employment data always takes the lion’s share of the news headlines and this month will be particularly important with the market desperate to see a continuation or even improvement on the trends reported last month. What it won’t want to see is another weak gain suggesting that whilst employment is improving it is not improving anywhere near enough to make a material difference to the recovery. The headline number for February increased by +192,000 and within that private payrolls increased by a strong +222,000. This month the consensus is expecting a headline number of +200,000, but the range of estimates varies considerably with some expecting a number close to +300,000 and the worst published number is around +160,000. The ISM manufacturing index is at its highest level since May 2004 with the last reported number of 61.4 for February and estimates for March are expecting a modest dip with the consensus expecting 61.2. The US manufacturing sector remains a bright spot within the US economy and the recent regional reports suggest on balance that the momentum is being maintained and we could even see a slight improvement on the last month, although it does seem likely that the ISM is now close to its peak.

In the UK this week all eyes will be on the final estimate for 2010 Q4 GDP growth which is expected to remain at the previous estimate of -0.6% when it is published tomorrow. The preliminary reading for this was -0.5% and the downgrade did come as something of a shock last time given that most were expecting a modest revision upwards after the shock contraction during Q4. It remains to be seen if the final estimate will change but the market focus will now be on what Q1 brings especially given the ongoing debate over where monetary policy is headed over the coming months.

Today in the US we have had pending home sales data for February which was a little better than expected at +2.1% month on month although this does follow on from a -2.8% decline over the previous month. Overall there is no sign yet of any real improvement in the US housing market.

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

Tomorrow in the US brings the Conference Board’s latest consumer confidence reading for March. This is likely to reflect the worries over Japan and developments in the Middle East and North Africa as well as the ensuing dip in world equity markets. The consensus is expecting a decline to 64.0 from the last reported reading of 70.4. In Germany tomorrow the CPI for March is due for publication and we also get the latest German Gfk Consumer Confidence survey.

2011-03-25T14:01:00.001Z

World equity markets are continuing to recover the ground lost as a result of fears over Japan and the ongoing situation in the Middle East and North Africa. It is difficult to say if the rally will be sustained but at present there does not appear to be any imminent negative news flow to upset the balance. However, there are still a good number of hurdles to be overcome over the coming weeks and months. The possibility of a bail out for Portugal has come a step closer with the resignation of their prime minister, although a bail out is now widely anticipated and is unlikely to have the shock factor as previous rescues have had. It will not be long before uncertainty over the expiry of QE2 in the US starts to grab the attention of world markets and that is likely to be the next major market event.

In the US today the final revision to Q4 2010 GDP has been announced and it has been revised upwards to 3.1% annualised from the last reported number of +2.8% and the first estimate which was +3.2%. The upward move was predominantly due to higher inventory replacement than what was initially estimated. It remains to be seen if Q1 delivers a similar result with consensus estimates somewhere between +2.5% and +3.0%.

The University of Michigan Consumer Sentiment index due out today is likely to have an impact on how markets trade this afternoon. After the drop from 77.5 to 68.2 at the last reading the market is looking for the index to have stabilised around 68.0. The situation in Japan and the ensuing drop in equity markets may well have had an impact on the latest reading.

The Ifo Business Climate Index for Germany has been published this morning and it has declined to 111.1 from 111.3 which is the first decline in this index since May 2010. It is a very modest fall and is probably attributable to the recent events in Japan and the drop in world equity markets, and as a result the decline is not that significant and the index remains well into growth territory.

2011-03-24T13:34:00.001Z

The UK Budget was as expected met with relative indifference by the market yesterday. With concerns over the nuclear situation in Japan now subsiding and the ongoing military action in Libya seemingly discounted in the oil price (which is relatively static at present albeit at near recent highs), the market focus may again be brought back to the economic data. European markets are currently showing gains of around 1% on the day with the Dow futures currently up around 50 points.

In the US yesterday new home sales data for February was substantially below expectations with a decline to an annualised rate of 250,000 which compared to consensus expectations of 290,000 and the last reported number of 284,000. The US housing market goes from bad to worse and is going to take years to recover.

On the agenda in the US today are durable goods orders for February which is expected to show a +1.5% month on month gain after a +2.7% gain last month. Durable goods data is notoriously volatile and the estimates for the current month are quite broad with some expecting a negative number. Also due for publication this afternoon is the weekly initial jobless claims which according to the consensus is expected to remain at 385,000.

The minutes from the latest Bank of England MPC meeting published yesterday revealed no change in the voting pattern with three member supporting a higher base rate (one for a +0.5% increase and two at +0.25%). Five members voted for no change with Adam Posen in favour of more quantitative easing. The debate over monetary policy in the UK continues to rage but with a weak consumer outlook the argument for maintaining a relaxed policy is very strong. However, inflation continues to dominate the headlines and the pressure is undoubtedly building for action.

UK retail sales data published this morning for February was disappointing with a -0.8% month on month drop. The consensus was expecting a -0.6% decline after the +1.9% increase in January. The retail sector is one area that is likely to remain under pressure for many months to come. After the January increase it looks likely that consumer spending has slowed significantly. This will place further pressure on the GDP number for Q1 which is likely to show a very modest increase at best with an outside chance of another quarter of contraction.

In Europe this morning the Purchasing Managers Index for Services and manufacturing for the Euro zone and Germany has been published. The services index for both increased on the last reported number with a particularly strong performance from Germany whilst manufacturing is showing some signs of slowdown across the region although it remains well into growth territory.

2011-03-22T15:13:00.003Z

The main news of the day has to be the latest reading for the UK CPI which increased yet further to 4.4% on an annualised basis compared to consensus expectations of +4.2% and the previous reported level of +4.0%. The main driver for the headline rate was a record increase in the price of clothing and footwear. Even the core rate which excludes the impact of food and energy rose to a heady +3.4% annualised compared to expectations of +3.1% and the last reported rate of +2.9%.. Today’s news undoubtedly places more pressure on the Bank of England’s MPC which judging by the last vote is now very close to the first interest rate hike. The news today may well tip the balance at the next meeting. The minutes from the last meeting which are due for publication tomorrow will make for very interesting reading. If we see a fourth member voting for an increase at the last meeting the probability of a decision in favour of a +0.25% next time will increase significantly. However, it also has to be borne in mind that the recent data for UK plc is not particularly encouraging, especially GDP growth which looks likely to be muted at best during Q1 and the Bank of England MPC faces a very difficult situation at the next meeting.

In the US yesterday the existing home sales data for February was disastrous with a month on month decline of -9.6% to 4.88m units on an annualised basis. The consensus was looking for 5.15m units annualised. In addition, US house prices fell by 1.1% during February bringing the 12 month decline to -5.2%. Without a healthy housing market it is very difficult to see how US consumer spending is sustainable and the more recent decline in the confidence indicators may well in part be a reflection of the dire housing market.

The debate over whether QE3 is a real possibility is now starting to gather momentum given that the end of QE2 is now a matter of 3 months or so away. It is interesting to see some commentators already suggesting that QE3 is highly likely. At this stage it is impossible to say what will happen as much will depend on what the economic data is telling the Fed nearer to the time. What is clear is that as we approach the end of QE2 market nerves are likely to increase significantly and we can expect some significant market volatility yet again as the decision time looms.

In Europe, tomorrow looks likely to be a crucial day for Portugal. A parliamentary vote on a new austerity package is due to take place and according to current reports the minority socialist government is heading for defeat. The end result looks likely to be the resignation of the prime minister which will bring a bail out that much closer. We can expect some headline on this tomorrow which may well unsettle the market.

2011-03-22T15:13:00.001Z

2011-03-17T11:54:00.001Z

All eyes remain focused on Japan at present and after yet another significant sell off in the US and Europe yesterday, European markets have opened in positive territory this morning. The Nikkei recovered most of its early losses last night and hope that the situation will be brought under control soon appears to be the driving force behind the better performance this morning. The situation in Libya and the more recent events in Bahrain are also a real concern for markets and may well impact on sentiment, although the oil price has given up some of its recent gains which does provide some short term comfort.

With everything that is going on around the world at present the economic data is taking something of a back seat. Starting with the UK yesterday we had the latest unemployment data for February. The claimant count fell by 10,200 but the unemployment measure provided by the ILO which is a broader measure actually increased by 27,000 between November and January to 2.53 million. This led to a slight rise in the overall rate of unemployment to 8.0% from 7.9% which is its highest level since 1996. The actual number of people in employment rose by 32,000 but the number of jobs being created is simply not keeping up with the growth in the labour force. Overall the trends in UK employment remain weak which is likely to hold back consumer spending and this is a factor that is also likely to weigh on the UK housing market.

The OECD published their forecasts for UK growth yesterday. They are expecting sluggish growth for the next two years with growth of 1.5% in 2011 and 2% in 2012. This compares to the forecast from the Office for Budget Responsibility which is expecting growth of 2.1% in 2011 and 2.6% in 2012. Given current trends the OECD forecasts look to be more realistic. The OECD argues that interest rates should remain lower than what the market is expecting and the first interest rate hike should come in the second half of the year at the earliest.

In Europe yesterday the final Euro zone CPI estimate for February was published and it came in at 2.4% from the previous estimate of 2.3%. As in the UK the Euro zone headline rate of CPI is above the targeted ECB level which is just under 2% but unlike the UK it is still within a comfortable distance of target. The UK rate is double the target of 2%. The core Euro CPI rate which excludes food and energy fell from 1.1% to 1% which remains relatively low and suggests that firms are absorbing the more recent rise in input prices rather than pass it on to the consumer. The ECB has been indicating that with the recent inflationary pressures the Euro interest rate will increase next month. However, there has to be some uncertainty over this given the hit sentiment has taken from the Japan disaster and the ongoing problems in North Africa and the Middle East.

The terrible state of the US housing market was again demonstrated yesterday with the housing starts data for February which fell to 479,000 on an annualised basis compared to the January number of 618,000. The consensus was expecting 560,000. This is certainly a reflection of low housing demand at present in the US although some of the movement may be due to bad weather conditions preventing construction work from being started. Either way the US housing market remains in a very sorry state.

The other significant data announcement in the US yesterday was the Producer Price Index for February which increased by a very significant +1.6% month on month. This was against consensus expectations of a +0.7% increase. The boost to the PPI has come from the impact of higher energy and food prices. Clearly there will be short term inflationary pressures moving through the system as a result of higher input prices but this is still expected to be only a temporary situation and is unlikely to result in any change in Fed policy.

Today in the US look out for the weekly initial jobless claims which are expected to fall to 385,000 from the previous reported level of 397,000. We also get the CPI data for February with the headline rate expected to show a month on month gain of +0.4% whilst the core rate is expected to remain at a very subdued +0.1%. The Philadelphia Fed Manufacturing survey is due for publication this afternoon and is expected to show a modest decline to 32.0 from the February level of 35.9. Finally, Industrial Production for February will be published with the consensus expecting a +0.6% month on month gain.

There is no major data due for publication in the UK and Europe today.

2011-03-15T15:11:00.001Z

The fear factor has gripped world markets today after the 10.5% decline in the Nikkei index overnight. With so much uncertainty over the nuclear crisis that Japan is dealing with markets are likely to remain under considerable pressure until the situation is brought under control. Japan is the world’s third largest economy and the disruption it already faces will have an impact on world growth and any further deterioration in the nuclear situation would be taken very badly by the market. If the situation is brought under control soon that will help to bring calm to world equity markets and we may well see a relief rally. For the time being with so much uncertainty we can expect a considerable degree of volatility in trading.

Elsewhere the geopolitical situation in the Middle East is deteriorating with Saudi troops entering Bahrain. The risks of escalation remain and this is yet another factor that is likely to weigh on world equity markets over the coming days.

With so much focus on Japan any economic data announcements at present are likely to be overlooked. The US Empire Manufacturing Index for New York State has just been published for March and that came in above expectations at 17.5 compared to the consensus which was looking for +16.0. Looking at the constituent parts new orders, unfilled orders, shipments, and inventories did slow from the previous month. This may well mean that activity has now peaked and it would not be unrealistic to expect the next ISM Manufacturing Index reading to slip back a little from the recent highs. The remaining regional reports should make for interesting reading and the next March report is for Philadelphia which is due out on Thursday. This evening the in the US the FOMC will be releasing their interest rate decision and whilst no change is expected the market focus will as always be on the accompanying statement and in particular their views on the inflation outlook.

In Europe today the German ZEW Economic Sentiment survey for March has been published and not unexpectedly it fell a little to 14.1 from 15.7 reflecting concerns over the expected rise in the Euro interest rate and more recently the situation in Japan. The equivalent number for the Euro zone has also been published today and that also declined from the previous reported level.

2011-03-14T12:24:00.001Z

World equity markets are still coming to terms with the aftermath of the earthquake in Japan and sentiment is likely to remain nervous over the coming days especially given the worries over the perilous state of their nuclear reactors. The events have very much overshadowed the situation in North Africa and the Middle East which remains very difficult and the risks of further supply disruption to oil is still very high. The oil price has come off its highs during the last couple of days due to the situation in Japan with expectations of lower short term demand. However, this may only prove to be a short term respite.

The economic data in the US that was published on Friday was somewhat mixed. The retail sales data for February was broadly in line with expectations with a +1.0% month on month increase whilst the number net of auto and gasoline sales was also as expected at +0.7%. The latest reading for the University of Michigan Consumer sentiment index was disappointing and contained some ominous signs. The headline number declined to 68.2 from the latest reported number of 75.1. Looking at the constituent parts, the current conditions component declined from 86.9 to 83.6 but more worrisome was the forward expectations component which fell from 71.6 to 58.3 which is its lowest level since March 2009. The decline in the index so far this month is likely to be due to the recent decline in the equity market and higher gasoline prices. If both of these situations do not reverse in the short term it may well impact on consumer spending behaviour over the coming months.

This week in the US the main event will be the FOMC interest rate meeting. With increasing concerns over the impact on inflation of a high oil price the Fed members will undoubtedly be focusing on the inflation outlook. It is widely expected that the interest rate will be left unchanged and QE2 will also be left to run its course until the end of June. The language of the accompanying statement will be the focus of market attention and it may be that the statement becomes slightly more hawkish in nature as a means of reigning in inflation expectations.

With the end of QE2 in the US only three months away we can expect the market to start fretting over the sustainability of the US economic recovery, as happened last year with the demise of the first round of fiscal stimulus. Whilst QE3 currently looks unlikely the situation may change quickly if GDP growth starts to falter once again.

There is no major data due for publication in the US today and apart from the FOMC meeting tomorrow the other main economic event scheduled for Tuesday is the publication of the Empire State Manufacturing Index which basically gives a snap shot of the health of the manufacturing sector in New York State. After a healthy rise over the last three months to 15.43, the consensus expects a further improvement to +16.0. There are however some downside risks to this number in our view especially given that the forward looking component last time fell and the more recent decline in the equity market and the latest geo political developments may again weigh on the forward expectations component.

There is little economic data due for publication today in Europe apart from January industrial production for the Euro zone which increased by +0.3% month on month, which was a little weaker than the expected +0.4%. The January rise matches the upwardly revised December growth rate.

2011-03-10T13:42:00.000Z

The main economic news for today has been the Bank of England’s decision on the interest rate which has been left unchanged at +0.5%. With inflation sitting at double the MPS’s inflation target the debate will continue to rage as to whether or not the interest rate should now rise. With GDP growth in the UK likely to be very modest for Q1 and following on from a contraction in Q4 2010 there is a significant argument for no change in monetary policy. The recent rise in the oil price is going to be yet another headwind to growth with the added problem of yet more inflationary pressure. The minutes of today’s meeting will make for interesting reading when they are published in a few weeks time. After the ECB effectively preannounced its first interest rate hike for next month the market has quickly moved to assume the same result for the UK. This is by no means a certainty at present given just how fragile the UK economic recovery is.

In the US today there is again very little on the economic agenda. As always we have the weekly initial jobless claims due for release today and after yet another improvement last week down to 368,000 the consensus is expecting claims to rise to 385,000. A further improvement would be welcome news and a sign that perhaps the jobless numbers in the US are going to start showing more consistent signs of improvement.

The sovereign debt crisis rumbles on with the cost of borrowing in Portugal, Ireland and Greece hitting new highs. Moody’s has today cut Spain's sovereign debt rating one notch and has warned of the possibility of further cuts as it believes the eventual cost of bank restructuring is likely to be double what the Spanish government expects.

China has today reported a trade deficit for February of $7.3bn. Exports were just +2.4% higher whilst imports rose by +19.4%. The deficit was unexpected by the market although in part it is attributable to the impact of the Chinese New Year and the fact that import prices have risen considerably rather than any sudden drop in Chinese demand.

The oil price is very much in charge at present and daily movements in world equity markets are very much dependent on the geo political situation in North Africa and the Middle East. We are unlikely to see any change in this pattern until there is concrete evidence that the situation is starting to calm down. For the time being we can expect some volatile trading sessions until the oil price starts to move back to more comfortable levels. In the event that the situation starts to deteriorate further the downside risks to world equity markets are likely to rise markedly.

2011-03-07T11:15:00.001Z

The Non Farm Payroll data announcement in the US on Friday was overshadowed by further gains in the oil price which once again raised fears over the potential impact on global growth. At the time of writing the price of Brent Crude is close to $118. With the price of petrol now hitting a new high in some areas of the UK the rising oil price will begin to start reducing consumer spending power which will have an inevitable impact on sentiment. The real issue is for how long the oil price remains at these elevated levels and whether it continues to rise. The downside risks for the world economy with a high oil price are high and in particular the US consumer is very sensitive to rising gasoline prices. We can expect world markets to remain very nervous over the coming days.

Looking at the all important Non Farm Payroll data in the US which was announced on Friday, the headline number for February was +192,000 with the previous month’s number revised up to +63,000 from +36,000. Looking at the private payroll number, the month on month gain was +222,000 whilst the previous month was revised up to +68,000 from +50,000. Despite the strength there was a distinct lack of market reaction to the strong headline number. This may in part be due to the number being broadly in line with expectations when some forecasters were expecting something considerably larger after the poor January number which had been depressed by the bad weather. Looking at the combined gains over the last two months the total is little different to the run rate at the end of last year and the conclusion has to be that whilst the jobs market is improving, we are some way yet from a point of rapid improvement. To see real improvement the headline rate should be showing consistent monthly gains of 250,000+ and if next month we see a similar number to that of February there will be grounds for feeling slightly more enthusiastic about the US jobs market. The reported unemployment rate did again decline, this time to 8.9% but this is more a reflection of job seekers giving up looking for work and leaving the work force. We may well in due course see a reversal in this number as people once again decide to start looking for work.

The only other major data announced on Friday was US factory orders for January which grew month on month by +3.1% compared to consensus expectations of +2.0%. The better than expected number was primarily due to a boost from aircraft orders. If you strip out the transportation element the gain in factory orders for January was a more modest +0.7%.

The main economic event in the US this week will be retail sales which are due for publication on Friday. The only data announcement due for release today is consumer credit for January.

In the UK on Friday the only data release of note was the Halifax house price index for February which fell by -0.9% month on month. We continue to expect a gradual decline in prices over the course of 2011. Worries over UK growth are most certainly starting to increase especially after the recently downgraded Q4 GDP data. The prospect of a declining housing market will on its own dampen consumer sentiment but tied in with rising inflation and fears over what damage a high oil price will have on global growth is likely to leave the UK in a particularly difficult situation. The Bank of England MPC meet on Thursday of this week to decide on interest rate policy and whilst a rate hike still looks unlikely we appear to be moving closer to the point of the first base rate increase, perhaps as early as next month. The market is pricing in three +0.25% increases before the end of the year which would apply yet another brake to economic activity. However, the market is not always the best predictor of interest rate movements but even one base rate increase will change consumer expectations and that alone could impact on consumer spending behaviour.

There is no major data due for publication in the UK or Europe today.

2011-03-03T15:41:00.002Z

The weekly initial jobless claims reported in the US today have fallen to 368,000 from the last reported level of 388,000. This is the lowest reading since May 2008 and is a sign that perhaps the US jobs market is starting to gain some traction. After a strong ADP private payroll number yesterday the market will be looking for a good Non Farm Payroll number tomorrow.

The US ISM Non manufacturing Index for February has been released today and that showed a modest improvement to 59.7 from the last reported level of 59.4. The consensus was expecting a modest drop to 59.0.

The European Central Bank has met today for its usual monthly meeting to decide on monetary policy. Whilst rates were kept on hold, in the clearest message yet from ECB President Jean-Claude Trichet, he said that the ECB may well raise the interest rate next month in the fight against inflation. It is not inconceivable that the ECB and the Bank of England may well both raise rates next month.

In Europe today German retail sales for January have been published and were up +1.4% month on month leaving the annualised growth rate at +2.6%.We have also had Euro zone retail sales for January which were up +0.4% month on month. The German and Euro zone services purchasing managers index for February have been released today and both were a little lower than the last reported number and consensus expectations, but still well within growth territory.

The UK services purchasing managers index for February has also been published today but this fell more than expected to 52.6 from the last reported number of 54.5. There has been a general slowdown in UK service sector activity and it is clear that UK GDP is on course for very modest growth during Q1.

2011-02-28T13:04:00.001Z

World markets start the week in nervous mode with ongoing fears of an escalation of the tensions in the Middle East and North Africa. It’s all about the oil price as far as the market is concerned with Brent Crude up 1% this morning to $113.50 at the time of writing. The risks of a high oil price destabilising world growth are high and with most developed markets struggling with fragile recoveries their Central Banks would be left in a very difficult position if oil starts to push inflation yet higher. It will be difficult for them to tighten monetary policy given the impact higher oil will have on growth.

The first week of the month always brings with it a plethora of economic announcements including arguably the most important data announcement of the month, namely the Non Farm Payroll report in the US which is due out this Friday. After a poor number last month (+36,000) which analysts were quick to pass off as being down to the bad weather, this month we should see a notable increase with the consensus expecting a headline number of +180,000. Some forecasters have been talking about a number as high as +300,000. Clearly another disappointing number will be hard to explain, apart from a weak economy. The more recent weekly initial jobless claims numbers have certainly shown improvement and we should on paper see a much better number this week from the Non Farm Payrolls. The ADP Private Payroll number will be released on Wednesday and that is expected to show another healthy gain of +170,000 according to the consensus although as we have said in the past it has been a poor predictor of what to expect from the Non Farm number.

Also in the US we have the two set of ISM data to look forward to this week with the manufacturing index due out tomorrow and the equivalent number for services due for publication on Thursday.

The main event in Europe this week will be the ECB interest rate meeting on Thursday although it is widely expected that there will be no change in the interest rate. With an elevated oil price there is yet further reason to hold off from a tightening in policy and concerns over inflation are likely to be outweighed by fear of the recovery being knocked off course.

Today in Europe the January CPI has been published and this came in a little lower than expectations at -0.7% month on month compared to the consensus expectations of -0.6%. The year on year rate fell to +2.3%. In the US this afternoon we have Personal Income and Consumer Spending data for January due for publication. In addition the February Chicago Purchasing Managers Index and December pending home sales will be released. There is no major data due out in th

2011-02-24T16:10:00.002Z

World markets continue to be dominated by developments in North Africa and the Middle East with all eyes focused on the price of oil. Brent Crude almost hit $120 this morning but has subsequently slipped back to $113 at the time of writing. Whilst the oil price remains at elevated levels world equity markets will remain in nervous mode. Some research doing the rounds today suggests that an oil price of $115 to $120 is the point at which the world could once again be pushed into recession. A short term spike that we are encountering now may well be harmful but the real damage would be done if the recent move is sustained over weeks and months. We are not yet at that point but there is no doubt that a high oil price is effectively a tax on consumers and if the situation does deteriorate the current market fears may well become a reality.

On the economic front we haven’t an awful lot to chew on today. German 2010 Q4 GDP was confirmed at +0.4%. The European Commission said its overall Economic Sentiment Indicator for the 17 countries that use the euro jumped to 107.8 from 106.8 in January, the highest reading since September 2007. The Euro zone clearly still has some good momentum which should translate into at least modest Q1 GDP growth.

In the US durable goods orders for January rose by +2.7% due to a significant increase in nondefence aircraft orders. If you strip out the impact of this the number does not look so appealing with an overall decline on the month of -3.6%. The durable goods number is notoriously volatile and it is difficult to read too much into any one month’s data.

The weekly initial jobless claims data in the US has again showed some improvement with a drop to 391,000 from the last reported level of 413,000. The employment situation the US does still seem to be showing tentative signs of improvement and the Non Farm Payrolls next week will make interesting reading giving the degree of catch up expected after the depressed number reported for January due to the bad weather.

2011-02-23T13:00:00.001Z

Geo political tensions in the Middle East and North Africa have brought the first bout of real volatility this year. The spike in the oil price resulting from what is happening in Libya is a cause for concern although it should be borne in mind that it is responsible for just 2% of the world’s supply. The real issue for world markets is if the problems spread to one of the big oil producing nations such as Saudi Arabia. Oil at over $100 a barrel is already going to drain growth from the world economy but anything significantly higher would be very damaging. Whether the turmoil spreads remains to be seen, but for the time being the rally in risky assets especially in the US is on hold and we can expect further volatility over the coming days until we have a better idea of what the end game with this particular crisis will be.

There is no doubt that a few storm clouds are now gathering and the geo political concerns have taken some of the headlines away from the arguing in Washington over fiscal cuts that are needed to address the US government’s annual budget deficit of $1.4trn and a national debt of approaching $14.1trn. With the current debt ceiling of $14.3bn expected to be hit within the next few months this is an issue that is not going away and at some point the US will have to adopt fiscal austerity measures to avoid the national debt spiralling out of control. At present they are arguing over how to fund government operations for the final seven months of fiscal 2011 with the Republicans pressing for $61bn of spending cuts as part of any deal. Without a resolution there is a risk of at least a partial US government shutdown. After so much stimulus that the US economy has enjoyed the prospect of government cuts will once again raise worries over growth and the economic outlook. We are not at that point yet but it seems inevitable that this particular issue will gain greater traction over the coming months especially as the US approaches its debt ceiling. When negotiations commence on the spending cuts that will be requested as part of any deal to raise the ceiling we are again likely to see some market volatility with heightened concerns over whether the US economy is ready to weather the fiscal austerity storm that is coming.

The Irish elections this week may also start to grab the headlines particularly given concerns over the winner pushing for a possible debt haircut on Irish banks debt. This would be a significant issue if it were to happen and would immediately raise concerns of similar action elsewhere in Europe. The implications would be significant and whilst an unlikely outcome it remains a possibility and is an issue that could well spook the market over the coming weeks.

Getting back to the economic data, yesterday in the US we had the Conference Board’s Consumer Confidence index for February which rose to a better than expected 70.4 compared to the previous reading of 60.6 and consensus expectations of 65.0. Of particular interest was the expectations index component which rose to 95.1 from the previous reported level of 87.3, leaving it at its highest level since December 2006 and above its long run average. Undoubtedly a rising equity market and a seemingly improving jobs market in the US is helping to improve sentiment despite the drag of higher gasoline prices and the double dip in house prices which appears to be underway. This does at lead bode well for consumption growth over the short term.

It looks like the UK is edging ever closer to the first +0.25% increase in the base rate judging from the minutes of the latest Bank of England MPC meeting which were published this morning. Spencer Dale has joined Andrew Sentance and Martin Weale in voting for an increase. Both Dale and Weale voted for a +0.25% increase whilst Sentance voted for a +0.5% increase. The minutes suggested that the some of the remaining members that voted for no change may well change their stance if the second revision to Q4 GDP due out on Friday shows some improvement on the initial estimate of a -0.5% decline. The market is expecting a +0.25% rate hike in either May or June but judging by the Minutes today we may well see the first rate rise sooner than this. The latest quarterly inflation report suggests that we could well be in for two and perhaps three rate rises before the year is out.

On the agenda today in the US the main economic announcement will be existing home sales for January. The consensus is expecting a modest decline to 5.25 million units on an annualised basis compared to the previous reported level of 5.28 million.

In Europe the only data of note that has been published today is Industrial new orders which rose by 2.1% in December after a 2.2% rise the previous month.

2011-02-21T13:00:00.001Z

With the US closed for President’s Day we can expect a relatively quiet day of trading ahead. In the UK the only economic announcement of note was the Rightmove house price index for February which actually gained by +3.1% month on month. We remain nervous of the UK housing market and still believe that we are in for a prolonged period of gradually declining house prices in the UK. With forecasts of the first UK interest rate hike now moving closer to May/June, sentiment within the housing market may quickly change over the coming months which could well exacerbate house price falls.

In Germany the Purchasing Managers Index for manufacturing rose to 62.6 in February compared to expectations of 60.3 and the January reading of 60.5. The equivalent data for services did not perform as well, declining to 59.5 compared to expectations of 60.3 and the January reading of 60.3. Overall though Germany remains the European powerhouse and this was particularly evident today in the IFO Institute’s index of German business confidence which rose to a record 111.2 in February.

The main event in the US this week will be the January durable goods orders data due out on Thursday and the second revision to 2010Q4 US GDP. For durable goods the consensus is expecting a month on month improvement of +3.0% for the headline number whilst the ex transportation number is expected to be closer to +1.0%. After posting an annualised rate of +3.2% the Q4 GDP number is expected to be revised modestly upwards to +3.3%.

In the UK the main event of the week will be the publication of the minutes from the latest Bank of England MPC meeting. With two members voting last time for a rate increase it will be interesting to see if any other members have joined the rate hike club. What is clear is that we are moving closer to the first base rate increase. There is no doubt that despite the Bank of England’s expectation that inflation will fall over the medium term there is a good deal of uncertainty by just how much. With so much room for error especially given the current inflationary pressures, a token +0.25% interest rate hike may well be viewed as a means of aligning expectations to further rate increases over the coming months and that in itself may help to start bringing inflation under control.

2011-02-17T16:36:00.001Z

The Bank of England’s inflation report yesterday was the major event and with expectations of inflation now moving up closer to the 5% level over the coming monthsthere is a real threat of a near term base rate hike. The report itself leaves considerable uncertainty over when the first rate hike will come but what is clear is that the Bank of England is becoming increasingly concerned about the medium term path of inflation and that is likely to mean at least a +0.25% interest rate rise over the coming months. An increase of just +0.25% is unlikely to unsettle the market and it will at least help to align expectations for perhaps another increase before the end of the year taking the base rate to 1%. The impact on the housing market of rising interest rates could be significant and we continue to believe that a gradual decline in house prices over the coming months is a likely outcome especially if interest rate expectations start to shift. This in itself could prove to be a big drag on consumer spending given the relatively high correlation between house prices and consumer sentiment.

In the US the minutes from the latest FOMC meeting which were published yesterday were a little more upbeat. Their forecast for US GDP was raised to between +3.4% and +3.9% for 2011 compared to the estimate last November of +3.0% to +3.6%. They are expecting the recovery to strengthen over the coming quarters and noted that “the downside risks to forecasts of both economic growth and inflation - as well as the odds of a period of deflation - had diminished." Much will depend on the state of the economy as we approach the end of QE2 which is expected to end around June.

The UK appears to be facing the prospect of a jobless recovery which is much the same situation in the US. The number of jobless increased by 44,000 to 2.5 million in the three months to the end of December. The big headline was the number of jobless in the 16 to 24 year old category with one in 5 unemployed after a rise in the number by 66,000 to 965,000. The unemployment rate remained at 7.9% but this does not reflect the number of people being forced to opt for part time employment rather than full time. Overall higher unemployment is going to impact of consumer sentiment and with the public sector cuts working their way through the system it is difficult to see the private sector being able to take up the slack. Unemployment looks set to deteriorate further over the coming months.

In the US yesterday Industrial Production was the surprise underperformer with a month on month decline of -0.1% compared to expectations of a +0.5% improvement, but this must be set against the previous month which was revised upwards to +1.2%. US housing starts for January increased by +14.6% after falling by just over 5% during the previous month. US housing market activity remains at very depressed levels and there is little evidence to suggest there will be a pick up anytime soon.

This afternoon in the US we can look forward to the weekly initial jobless claims number which after another fall to 383,000 last week is expected to move back up to 410,000. We also get the Philadelphia Fed manufacturing survey for February with the consensus expecting an improvement to 22.0 from the previous reported level of 19.3. The CPI for January is also due for publication this afternoon with expectations of a month on month increase of +0.3%, with the core rate excluding food and energy expected to be just +0.1%. Ben Bernanke will be speaking this afternoon and we may see some market volatility on the back of any comments he makes about the economic outlook.

2011-02-15T17:22:00.002Z

The much awaited UK CPI published this morning for January was as expected at +0.1% month on month leaving the annualised rate at +4.0% which is twice the level targeted by the Bank of England’s MPC . Bank of England Governor Mervyn King said today that inflation is expected to rise as high as 5% over the short term. He said that “the MPC’s central judgement under the assumption that the Bank rate increases in line with market expectations, remains that ... inflation will fall back so that it is about as likely to be above the target as below it two to three years ahead,". There is clearly a good degree of uncertainty over the medium term path of inflation and it seems likely that the market will continue to worry about the path of UK interest rates with expectations of an increase sooner rather than later with the market at present looking for a +0.25% increase mid year.

US retail sales for January have come in a little below expectations with a +0.3% month on month improvement, but if you exclude the impact of auto sales and gasoline the increase was +0.2%. Overall given the poor shape the US consumer is in this is still not a bad result for January although after the meteoric rise in the US equity market the miss may well be used as an excuse for some profit taking today.

The manufacturing data for New York State announced this afternoon was a little better than expected at 15.43 for February which is well into growth territory and is a reflection of the strong contribution that has been provided by the US manufacturing sector. The next report will be for Philadelphia on Thursday.

French, German and Euro zone Q4 GDP published today was a little less than expectations. For Germany, Q4 GDP came in at +0.4% on the quarter against expectations of +0.5% whilst France was weaker with a +0.3% gain compared to consensus expectations of +0.6% whilst the Euro zone as a whole achieved a +0.3% improvement compared t o expectations of +0.4%. Overall we can expect to see modest growth for Europe but with Germany and to a lesser extent France making up the running whilst the peripheral countries will continue to hold back growth as austerity measures impact.

2011-02-14T13:42:00.001Z

Inflation and interest rates are the buzz word at the moment. With commodity costs spiralling upwards the fear of an early interest rate hike has become the focus of market attention. This week we will be on the receiving end of a plethora of inflation data for the UK, US and China. China is already in the process of trying to cool an overheating economy and only last week the People’s Bank of China raised their base rate by another 25bp to 3% but with their CPI still running at close to 5% there may well be more to come. We get the latest data for China’s CPI tomorrow with the year on year rate expected to be over 5%.

The UK has a significant inflation problem with many expecting the year on year rate for the CPI to move up to +4.1% when it is published tomorrow from the last reported level of +3.7%. This is very significant given that it would leave UK inflation at twice the 2% level targeted by the Bank of England. A number of commentators including ex MPC members are starting to question the judgement of the Bank of England. We will get further information about the thinking of the Bank of England when their quarterly inflation report is published on Wednesday. The MPC has continued to argue that there is sufficient slack within the economy to put downward pressure on prices over the medium term with the more recent pressures such as higher energy prices and food prices likely to prove only short term. However, if inflation does continue to move yet higher over the coming months the debate over the MPC’s credibility will start to get louder and we could well see a token 0.25% rise in the base rate before long to keep the market in check.

On Thursday the US CPI for January is due for publication with a month on month increase of +0.4% expected which would take the year on year rate to +1.6%. Inflation in the US is less of a concern at present and we are far from the point of the Federal Reserve raising the interest rate. However, market expectations have shifted somewhat with an increase of +0.25% expected towards the end of the year. This seems unlikely in our view although much will depend upon whether the US economy can survive after QE2 ceases around the middle of the year. If the economy does continue to have strength post QE2 we may well see a token rise in the interest rate but at present the US economy continues to look as if it will struggle in the absence of any major stimulus measures.

There is a large amount of economic data due for publication this week although today is relatively quiet with just European Industrial Production for December which fell by -0.1%. This was broadly in line with expectations due to the impact of the harsh weather in December. Despite the fall it still left industrial production for Q4 with a +1.7% increase compared to the Q3 number of +1.3%. Overall industrial production within the Euro zone is proving to be relatively robust and should continue to make a positive contribution to overall GDP growth.

Tomorrow in the US we get retail sales data for January which is expected to show a +0.5% month on month increase. The US manufacturing industry will also be in the spot light this week with both the Empire State Manufacturing index (due out tomorrow) and the Philadelphia Fed Survey (due out Thursday).

Apart from the CPI data in the UK this week the market will be focusing on the December unemployment figures due out on Wednesday along with the Bank of England Quarterly Inflation Report.

2011-02-09T17:03:00.001Z

The last two days has been very quiet in terms of economic announcements and in the absence of any news the market seems intent on ticking yet higher. Today’s main economic news in the UK relates to the trade balance for December which hit a record £9.2bn. The ONS said the volume of exports declined by 0.1% in December whilst imports rose by 2%. Whilst some of the deterioration can be blamed on the bad weather it is clear that the underlying trend is poor. Without a strong contribution from external trade the UK economy faces yet another headwind to growth especially given the ongoing uncertainties over the global economic situation.

In the US tomorrow the main event will be the weekly initial jobless claims. After another improvement down to 415,000 last week the consensus is expecting 412,000 to be reported tomorrow.

In the UK tomorrow the Bank of England’s MPC meets to discuss interest rate policy and whilst no change is expected the market is becomingly increasingly nervous of when the first interest rate hike is going to come. Most commentators are expecting an increase of at least +0.25% before the year is out. At present the MPC is unlikely to raise the interest rate despite inflation remaining almost twice the targeted level of 2%. Their argument is that the factors creating the recent inflation surge such as commodity prices are only temporary and that inflation will move below target over the medium term. However, it does seem likely that they are also concerned about the potential impact of an interest rate increase on an already fragile UK economy. Whilst a +0.25% increase is unlikely to make a huge difference it would almost certainly raise expectations of a further increase and that alone would impact on consumer behaviour.

2011-02-07T13:35:00.001Z

The disappointment over the headline Non Farm Payroll number on Friday of just +36,000 and a private payroll number of +50,000 quickly dissipated as headlines rolled out that the snow was to blame. Undoubtedly the bad weather will have had an impact but the consensus clearly didn’t factor this into their equation given that they were expecting a headline number of around +140,000. The bad weather may have held the number back but it doesn’t disguise the fact that the improving trend is still very weak. There is every chance we will see a degree of catch-up next month and some brokers are already talking about a headline Non Farm number for February of +300,000. We remain unconvinced by Friday’s announcement and unemployment in the US looks set to remain weak for a long time to come. The decline in the unemployment rate to 9% was unexpected but it is nothing to do with any improvement in the trend and more to do with the labour force shrinking by 500,000 as people continue to give up looking for work. Overall the bulls have focused on the weather impact but if we don’t see a healthy bounce next month it will again prove that employment trends in the US are far off what you would expect at this stage of recovery.

In Europe today December factory orders data for Germany were published which came in below expectations with a -3.4% month on month decline compared to expectations of a -1.5% fall. However, this does follow on the heels of a 5.2% gain last month and the year on year rate remains at a healthy +21.9%. The German economy remains the leading growth force within Europe but with the austerity measures starting to bite in the peripheral countries overall growth is likely to slow as the year progresses.

The only major data due for publication in the US today is Consumer Credit for December although this is unlikely to be a market moving event. Expectations are for a number of around $2.0bn.

There is no data due out in the UK today and the main event of the week will be the Bank of England MPC meeting on Thursday. Expectations are for no change but with two members voting for a +0.25% rate hike at the last meeting the market is growing increasingly nervous that the first increase in the base rate is getting closer. It still looks very unlikely that the interest rate will be increased but if inflation does continue to strengthen above expectations during the course of the year we may well see a token +0.25% increase before the year is out.

2011-02-02T14:24:00.002Z

A brief update today as there is little in the way of economic news. The main event has been in the US with the publication of the ADP Private Payroll number for January which came in at +187,000 compared to expectations of around 150,000. The number for December was revised down to 247,000 from the previous reported number of 297,000. The ADP number has provided little guidance during recent months as to where the important Non Farm Payroll number is headed. However, the trend is most definitely positive and we should expect to see the private payroll number within the Non Farm data to be at least +100,000 with the consensus looking for around +150,000.

2011-02-01T16:56:00.001Z

A very strong reading from the US manufacturing ISM index this afternoon for January is responsible for the rally gathering momentum during afternoon trading. At 60.8 the reading was well above consensus forecasts of 57.5 and the last reported reading of 58.5 (revised from 57.0). The US manufacturing sector has outperformed for some time now and the momentum judging from this data is still being maintained. Conversely to this, the construction spending data announced this afternoon for December actually fell by -2.5% month on month compared to expectations of a modest improvement of +0.2%. The data for November was also revised down to a decline of -0.2%. Within the data, private residential construction decline by -4.1%. Clearly expectations within the residential construction industry of any housing market recovery in the US remain very depressed. As we have said before without an improvement in US house prices US consumer confidence is likely to remain at very depressed levels. The major hope is that the employment market improves which makes the Non Farm Payroll data due out on Friday a very important announcement this month if the positive sentiment is to be maintained.

In the UK today the CIPS/Markit report on manufacturing was very strong with the PMI rising to 62.0 in January from the last reported level of 58.7. Some of this strength may well be attributable to catch up after the bad weather slowed activity during December. This lends weight to the theory that Q1 GDP may well show a reasonable amount of strength after the Q4 contraction. However, even without a degree of catch-up within the figure for January the trend is still firmly in growth territory.

Also in the UK we have had further evidence of weakness in the housing market with the Bank of England’s measure of housing approvals declining to 42,600 in December from the previous reported level of 47,300 for November. The Nationwide house price index for January was released today and this showed a -0.1% decline. The reported slump in consumer confidence last week combined with increasing unemployment may well raise the spectre of forced selling as the year progresses which may well put further pressure on house prices. An immediate slump is unlikely but a drift back in house prices over the coming months does look a real possibility.

Finally, in Europe today we have had unemployment data for December which fell by 73,000 leaving the unemployment rate at 10% compared to November which was revised down to 10% from 10.1%. German unemployment announced today for January fell by 13,000 after a 1,000 increase in December. This leaves the German unemployment rate at 7.4%, the lowest level since 1992 whilst for the whole Euro zone it is near a 12 year high. This demonstrates just how much divergence there currently is between the core and the peripheral countries.

2011-01-31T17:17:00.001Z

This is the busiest week in the US economic calendar with the all important non-farm payroll data due out on Friday and both sets of ISM data due for publication. After the last disappointing Non Farm number for December the market will be looking for an improvement this month. The consensus is looking for the headline number to show an improvement of around +150,000 and within this we would estimate that private payrolls are expected to come in around the +130,000 mark. After the dip in the unemployment rate last month to 9.4% there is every chance it will spike back up as disheartened workers return to the work force looking for a job, and the consensus is looking for an increase in the rate to 9.5%.

In the US today we have the Chicago Purchasing Managers Index for January due for publication. Consumer spending and personal income data for December will also be published with the former expected to show a +0.7% month on month improvement with income likely to have increased by +0.4%. The most recent employment data suggested a slight pickup in the number of hours worked and hourly earnings which should reflect in the data today.

The ISM Manufacturing Index is also due out tomorrow and is expected to show a slight increase according to the consensus, up to 57.5 from the previous reported level of 57.0. The US manufacturing sector has been outperforming during recent months and the regional reports continue to show good growth. Tuesday also brings construction spending data for December which is expected to show a +0.2% gain on the month which would be the fourth consecutive gain.

The ADP private payroll report due out on Wednesday cannot be relied upon to give any idea of where the Non Farm private payroll number may be headed and it has consistently been at odds with the Non Farm data during recent months. After registering a +297,000 gain last month the equivalent number within the Non Farm data turned out to be just 50,000. This month the consensus is looking for an ADP number of around +150,000.

The equivalent ISM number for non manufacturing is due out on Thursday. This index remained comfortably within growth territory for the December reading at 57.1 and this month the consensus is expecting no change or possibly a modest drop.

After the significant spike back up to 454,000 due to seasonal factors and bad weather the US weekly initial jobless claims are expected to fall back to 425,000 when they are released on Thursday. Also on Thursday factory orders for December are due for publication with the consensus expecting a -0.4% month on month drop.

We finish the week in the US with the all important Non Farm Payroll data for January.

In Europe we started the week off with German December retail sales which were below expectations with a month on month decline of -0.3%, which is the fourth decline in five months. On Tuesday in the UK the Nationwide House price index is due for publication. With the sharp decline in UK consumer confidence reported last week it will be interesting to see what impact this is having on housing market activity and if the recent decline in UK house prices is picking up momentum. In Germany tomorrow the manufacturing Purchasing Managers index and the unemployment rate for January will be released.

Wednesday is relatively quiet with the Euro zone Producer Price Index for December. On Thursday the European Central Bank meets to discuss interest rate policy. There will be no change in the interest rate but with headline inflation creeping up to 2.2% (the ECB target is 2%) in December from the previous reported level of 1.9% we are likely to start seeing the ECB members begin to take a slightly more hawkish view. Any change in monetary policy does not look imminent but as in the UK the chance of a hike in the interest rate before the end of the year has certainly increased. Also on Thursday Euro zone retail sales for December will be published. Expectations are for a +0.6% month on month increase but after the poor German retail sales data this morning there may well be some downside risk to this number.

On Friday there is no major economic data due for publication in Europe but in the UK the latest Halifax house price survey will be released for January.

2011-01-28T16:17:00.001Z

The US Q4 GDP report came in at +3.2% annualised compared to consensus expectations of +3.5%. Given the only slight miss the market has taken this data in its stride. The next two quarters will be far more interesting especially once we start the approach to the end of quantitative easing in June. Any slowdown will very quickly start the alarm bells ringing especially if we are close to the stimulus tap being turned off. Also this afternoon in the US the next reading for the University of Michigan Consumer has just been published and this was a little better than expected at 74.2 compared to the last reported reading of 72.7.

UK consumer confidence fell by the most in almost two decades with the publication of the GfK NOP consumer confidence index which dropped eight points this month to -29. After the negative reading for Q4 GDP it must set the alarm bells ringing that the UK is at risk of2011 becoming one of no growth and certainly at the best very modest growth. Whilst Q1 GDP is likely to reflect a degree of catch-up after the poor last quarter which should help to achieve some growth in the first quarter there is every risk that we will see another quarter of negative or zero growth before the year is out.

2011-01-26T14:37:00.001Z

In the US today the main event although some would argue non event will be the result of the two day FOMC meeting. There is unlikely to be any change in monetary policy and they may well tweak the language that was used for the last statement, but at present with QE2 still in motion it seems unlikely we will see any change in policy for January. Also scheduled for today are US new home sales for December which are expected to show an annualised pace of 300k from the previous reported level of 290k.

The Bank of England MPC meeting minutes have been published this morning and the big news is that a second member, Martin Weale has joined Andrew Sentance in voting for a +0.25% hike in the interest rate to 0.75%. Adam Posen on the other hand voted for another £50bn of quantitative easing with the rest voting for rates to stay on hold. The meeting minutes stated that the MPC considered the case for a rate rise in January, and that for some members this was 'a finely balanced decision'. Furthermore, the minutes stated "For most members, recent developments implied that the risks to inflation in the medium term had probably shifted upwards’. The shift in sentiment towards an interest rate hike is therefore clear although this meeting took place before the news that the UK contracted by -0.5% during the final quarter of 2010. With this in mind the interest rate is likely to be held at 0.5% over the coming months but if GDP does start to pick up again the first interest rate hike looks more likely than not before the end of 2011.

2011-01-25T18:08:00.001Z

The big news of the day has to be the -0.5% contraction in GDP the UK suffered during Q4, according to preliminary estimates. Undoubtedly a lot of this is due to the bad weather conditions experienced but it does raise the question of just how well the UK economy can withstand the austerity measures being put in place as well as the recent hike in VAT. Whichever way you look at it a contraction of -0.5% is very bad indeed and certainly demonstrates just how fragile the UK economy is and how susceptible it is to any negative shock. The ONS estimated impact of the bad weather is -0.5% which suggests that in more normal conditions the UK would have registered no growth during Q4 anyway. Whilst a degree of catch up can be expected during Q1, which should result in a positive number, the data today will provide policy makers with a lot to worry about.

In the US today the main economic announcement was the Conference Board’s Consumer Confidence Index for January which rose to 60.6 from the previous reported level of 52.5. A lot of this will be due to the rise in the stock market and the perceived improvement in the jobs market. The increase is certainly welcome news although it must be borne in mind that confidence even now remains at very depressed levels.

Also in the US, the FOMC start their two day policy meeting today although we expect little change in their statement due out tomorrow evening.

2011-01-24T16:59:00.001Z

The Purchasing Managers Index data for the Euro zone today has confirmed a solid start to the year with the PMI for services up to 55.2 from the December level of 54.2 whilst manufacturing did register a modest decline to 56.9 from the December level of 57.1, but remains well into growth territory. The composite index rose to 56.3 from 55.5. The equivalent numbers for Germany were strong suggesting that we are seeing the continuation of a strong trend within the core and a weak showing among the peripheral countries which will report next week.

There is no other major data that has been published today in Europe or the US. The main event of the week will be on Friday with the first estimate for US Q4 GDP which the consensus is expecting to provide a reading of around +3.5% annualised. Growth looks almost certain to be above 3% with an outside chance of 4%+.

In the UK tomorrow the first estimate for Q4 GDP will be published and it is expected to show a +0.5% quarter on quarter growth rate compared to the last reported reading of +0.7% for Q3. The economic headwinds continue to build and expectations are that growth over the coming quarters is likely to remain at around the current run rate with the risks skewed to the downside. Tomorrow also bring news of the UK public borrowing for December.

In the US tomorrow the two day FOMC meeting starts and the announcement on Wednesday is not expected to be materially different to the previous meeting result. The US interest rate is unlikely to change this year although expectations have started to shift with raised concerns over the inflation outlook. The main event in the US tomorrow will be the Conference Board’s consumer confidence index for January. After the dip in December to 52.5 the consensus is expecting a modest increase to 54.3. With unemployment showing some signs of improvement and a US stock market closing in on levels not seen since mid 2008 we should see some improvement in consumer sentiment.

Wednesday in the US brings new home sales data for December with the consensus expecting an improvement to 300K annualised from the previous reported level of 290k. After the better than expected existing home sales data last week we may well see an improved performance from new home sales although activity remains at very depressed levels.

In the UK on Wednesday the minutes from the latest Bank of England MPC meeting are due for publication. The market will be looking for comments concerning inflation and any indication that perhaps the currently divided opinion is starting to move closer to a rate rise. We have seen one broker projection this morning expecting the first +0.25% hike in the UK base rate in November of this year. In an interview on Friday, Adam Posen who is a member of the MPC stated that he expected UK inflation will fall well below the 2% target after a temporary surge, suggesting that it could be some time yet before a rate rise is on the agenda.

On Thursday the January CPI for Germany is due for publication as well as European Consumer Confidence. After a better than expected weekly initial jobless claims in the US last week of 404,000 the consensus is expecting a similar number when it is published on Thursday of this week. Also on Thursday US Durable Goods Orders for December are due out and are expected to show a +1.5% month on month improvement, although the headline number could well come out higher than this due to large non defence aircraft orders.

On Friday there is no major UK or European data due for publication and in the US we get Q4 GDP and the latest reading for University of Michigan Consumer Sentiment index which is expected to show a modest improvement on the last reported level of 72.7.

2011-01-21T14:49:00.000Z

A brief note today given that there is no economic data scheduled for publication in the US and the only data worthy of note here is UK retail sales for December which declined by -0.8% against consensus expectations of a +0.1% gain. The recent retail trading reports had already flagged up the extent of the disruption caused by the bad weather and we may well see a degree of catch up during January.

In the US yesterday existing home sales were above expectations at 5.28m on an annualised basis for December against expectations of 4.9m. The jump from the previous reported level of 4.68m is encouraging but it must be borne in mid that activity is still bumping along close to levels not seen for over 10 years. It will be a long time yet before sales activity increases to a more meaningful level that could signal a real recovery.

Also in the US, the Philadelphia Fed Manufacturing Survey for January was broadly as expected at 19.3 compared to the consensus of +20.0. The constituent parts of this index did show some encouraging signs with a healthy jump in new orders and employment. Overall the regional reports continue to show the US manufacturing sector achieving respectable growth. It will be interesting to see the first estimate for Q4 US GDP which is due for publication on Friday of next week.

2011-01-20T14:23:00.002Z

Worries over an overheating Chinese economy have once again brought fears that their central bank will have to implement further hikes in the Chinese interest rate. Chinese 2010 Q4 GDP came in at an annualised rate of +9.8% compared to Q3 of +9.6%. Consensus expectations were for a drop in the growth rate to +9.4%. Another increase in their interest rate looks to be almost a certainty given the high rate of growth and more importantly their inflation rate. The Chinese CPI for December was +4.6% year on year although this was a drop from the previous reported level of +5.1%. Most analysts expect the next rate rise of 0.25% in February.

US economic news yesterday was confined to December housing starts which fell to 529k from the November level of 555k. The US housing market faces many months of depressed activity and without a meaningful upturn it is difficult to see consumer confidence returning to pre crisis levels. The US economic calendar today provides further news of what is happening with the property market in the form of existing home sales for December which are expected to increase to 4.9m on an annualised basis from the previous reported level of 4.68m.

The US weekly jobless claims continues to provide a volatile picture making any assessment of current trends in unemployment very difficult to quantify. The reading last week was 445,000 and this week the consensus is looking for a drop to 420,000. The manufacturing data announced for New York State earlier in the week was still comfortably into growth territory and this afternoon we get the equivalent January data for Philadelphia. Expectations are for a slight drop to 20 from the previous reported level of 24.3, but again still well into growth territory.

There is no real news due out of Europe today but we did get UK unemployment data yesterday with the broader ILO measure showing an increase of 49,000 unemployed in the 3 months to November, bringing the total unemployment rate up to 7.9% from 7.7%. A combination of high unemployment and declining house prices is likely to weigh on UK consumer confidence over the coming months.

The market sell off which started yesterday afternoon is more a function of the strong rally during recent weeks rather than any significant shift in sentiment and a bout of profit taking was to be expected at some point. The news about China this morning has certainly provided a further reason for profit taking but a catalyst for a more significant correction remains absent at least for the time being. The European debt crisis seems to have lost some of the impact it did have last year, which is probably given the level of perceived political will to correct any problem, but it remains to be seen how the market will react to another bail out. The real worries are unlikely to come until mid year when the US quantitative easing program comes to an end and fears over whether the US economy is able to survive without government intervention will then be very high on the agenda.

2011-01-18T16:08:00.001Z

The UK Consumer Price Index has again surprised on the upside today with the annualised rate moving up to +3.7% in December compared to the previous reported number of +3.3% and consensus expectations of +3.4%. The main driver is higher fuel, energy and food prices and with a vat hike this month the pressure will continue in the short term. A 4% inflation rate looks highly likely at present. The debate over when the first hike in the interest rate will come will rumble on with at least one+0.25% increase looking likely before the end of the year.

In Europe today the ZEW Economic Sentiment indices for Germany and Europe have been published, both of which exceeded expectations suggesting that conditions within the core remain in positive growth territory.

In the US the Empire State Manufacturing index increased to +11.92 for January from the previous reported level of +10.6, although it was a little lower than consensus expectations of +14.0.

With the earnings reporting season now getting underway in the US and with optimism still riding on a high the US market has reached levels not seen since mid 2008. Inflation expectations have jumped sharply but with the interest rate in the US unlikely to move this year equities look set to attract liquidity seeking yield. Fears of a double dip recession have all but disappeared and the market at least for the time being looks set to creep higher. There remain significant hurdles this year including the ongoing sovereign debt crisis in Europe plus the end of quantitative easing in the US in June. The debate over raising the US debt ceiling has already begun and with the current ceiling of $14trn expected to be reached during the coming weeks there is still no sign of how and when the US will actually start to reduce its budget deficit.

2011-01-17T12:27:00.001Z

Inflation expectations are currently shifting with higher commodity, food and energy prices starting to spook the market over what to now expect from monetary policy in the UK and Europe. Both Central Banks met last week to decide on interest rate policy and in Europe the ECB made more hawkish comments about inflation which has started to shift expectations that the first rate rise may come sooner rather than later in Europe and certainly before the end of 2011. The European headline CPI reported last week increased to +2.2% year on year in January from the last reported level of +1.9%. The same situation in the UK is occurring and with a vat hike to contend with as well as the other major inflationary forces at present the CPI looks set to rise further over the short term. The December UK CPI is due for publication tomorrow with the consensus expecting no change in the last reported year on year rate of +3.3%. The debate now is about how much the MPC will raise rates in the UK this year with expectations now closer to a 0.5% hike compared to 0.25% only a few weeks ago. The question is whether the Bank of England can hold its nerve especially if the headline CPI starts to edge closer to 4% which would be double the targeted rate.

In Europe today all eyes will be on the gathering of European finance ministers to discuss the ongoing issues in Europe and undoubtedly this will include debate on whether to extend the size of the European rescue fund. Any firm decisions are unlikely for several weeks and possibly months but some expansion of the facility seems likely to help alleviate fears over a country such as Spain requiring a rescue.

Last week in the US the Beige book was published and this is a valuable aid in giving an up to date picture of what is happening with the US economy. This report which covered the period of November to the 3rd January stated a “moderate or modest” improvement in economic activity for 10 of the 12 regional Fed districts. The report was not dissimilar to the previous one although the overall tone suggests a modestly improving outlook.

The US unemployment outlook is far from clear. After making a decisive move below 400,000 during the holiday period the weekly initial jobless claims in the US once again spiked up, this time to 445,000, which was against consensus expectations of 420,000. The data is subject to the impact of seasonal variation and therefore the latest spike should not necessarily be taken as a sign of further deterioration but if we see a continuation of the trend this week it will be disappointing. Expectations for the number this week are for a drop to 420,000 (due out Thursday).

Also in the US last week we had retail sales data for December which fell a little short of expectations at +0.6% month on month compared to expectations of +0.8%. The University of Michigan Consumer Sentiment index also came in light of expectations and fell to 72.7 from the last reported number of 74.5. Inflation in the US remained almost non existent with the core rate for December at just +0.1% month on month. Finally, Industrial Production for December surprised on the upside at +0.8% month on month compared to consensus expectations of +0.5%.

Today the US market is closed for Martin Luther King Day. The economic data starts tomorrow with the Empire State Manufacturing Index for January. This data set which provides a snapshot of manufacturing activity in New York State has been prone to volatility more recently but expectations for this month are for a modest increase to +14.0 from the previous reported level of +10.6. For the UK and Europe the calendar is quiet today with just the Rightmove house price index for January. This has already been published showing a +0.3% increase although this is after a -3.0% decline during December.

2011-01-10T14:55:00.001Z

A relatively quiet day in terms of economic announcements today. In the UK we have had the Halifax house price index for December which fell -1.3% month on month after a -0.2% drop in November. Against an economic backdrop of spending cuts and fiscal tightening there is a good possibility that house prices will fall during 2011. Low interest rates and reduced supply are likely to prevent a significant decline, but the real risk is if the Bank of England’s MPC change their inflation outlook and start to raise interest rates. Whilst a remote possibility in 2011, the risks of this will increase next year if an economic recovery is starting to take hold and inflation is remaining stubbornly high.

The press are continuing to come up with articles over the disappointing US Non Farm Payroll data published last Friday. The reality is that the numbers were broadly in line with recent data and the disappointment is more down to the fact that the market raised its forecasts after the strong ADP private payroll numbers earlier last week. The fact that the recent US economic data has continued to show a respectable growth rate during Q4 2010 has also raised expectations over employment growth. Either the ADP number is very inaccurate or more likely we will start to see an improvement in the Non Farm Payroll data over the coming months. It remains to be seen whether growth in employment will be sufficient to bring down the unemployment rate but it may well stabilise. The reported decline in the unemployment rate on Friday can be ignored due to the large number of people who gave up looking for work and who are more than likely to return to the labour force, which will simply reverse the decline. Ideally Non Farm Payrolls need a consistent run rate of around +250,000 to make any real difference.

The Euro zone debt crisis is starting to wake up again with various reports about Portugal doing the rounds. We are likely to see a similar story with Greece and Ireland when their respective governments denied they needed help until the market eventually forced their hand. The debt crisis is here to stay at least until the second half of 2011 when we may by then have more clarity on what is to be done with the remaining problem countries such as Portugal and Spain.

The main economic data event in the US this week will be the publication of December retail sales with the consensus expecting a +0.8% month on month gain with an increase in gasoline prices likely to play a big part in the rise. The core retail sales number which strips out the impact of gasoline sales and auto sales is likely to show a more modest rise of closer to +0.3%. The snow storms in the North East are also likely to have held back sales in the tail end of December.

Other US data this week of importance is related to inflation with the December Producer Price Index due out on Thursday and the Consumer Price Index on Friday. The next instalment of the University of Michigan Consumer Sentiment Index is also due for publication on Friday, and the first January reading is expected to show a modest improvement to 75.0 from the last December reading of 74.5. The Fed’s Beige book is due out on Wednesday and that provides anecdotal evidence of economic conditions in the twelve Fed districts.

In Europe we get euro zone November industrial production on Wednesday. Also on Wednesday the UK Nationwide Consumer Confidence index is due for publication. With consumer confidence already taking a hit with concerns over cuts during the coming months it will be interesting to see if sentiment is still deteriorating. On Thursday UK industrial and manufacturing production is due for publication and the MPC meets to decide on interest rate policy. There is no chance at present of any hike in the interest rate, but the meeting minutes when they are published will be scrutinised for any signs that the committee is starting to become more concerned about the inflation outlook. The ECB meets on the same day and again we can expect no change in policy at this stage. Friday in the UK brings more inflation data in the form of the Producer Price Index for December and in Europe we get the consumer price index for December.

2011-01-06T16:53:00.001Z

After the exceptional Santa rally world markets have continued to run ahead during the first days of the New Year. The primary reason at present for the optimism is the US economy which continues to show good signs of recovery. The question of how much of this is down to the huge amount of stimulus being pumped into the economy will only be answered when we get closer to the end of QE2 in mid 2011 when the economy will have to stand alone. That is not to say we might still have QE3 but that looks less likely at present.

In the US within the last few days we have had both sets of December ISM data for manufacturing and non manufacturing which came in a little ahead of expectations and well within growth territory. The surprise of the week so far was the December ADP Private Payroll number which was announced yesterday and came in at a very significant +297,000, far higher than the expected number of around +100,000. The ADP number has been a poor predictor of what to expect from the Non Farm Payroll number during recent months but nevertheless with a number of this size the market will be looking for a healthy Non Farm Payroll number tomorrow when it is published. The consensus is looking for a headline number of around +140,000 and is expecting +150,000 from the private payroll element. The headline number is likely to be held back by declines in the public sector workforce.

Other surprises in the US this week were factory orders for November which rose by +0.7% month on month compared to expectations of no change. On the employment front the weekly initial jobless claims that were published last week fell to 388,000, the lowest level seen since early 2008. The number for this week has just been published and that came in at 409,000. The overall trend is most certainly down and if we do start to see claims consistently at the sub 400,000 level we may well start to see the US unemployment rate start to decline.

The minutes of the last FOMC meeting published earlier this week suggest that the Fed is still unconvinced about the recovery but clearly views the recent new fiscal stimulus packages and QE2 as a good support to growth during 2011. It does beg the question of whether the recovery is simply government led and lacks the foundation for sustainable growth, but that will not become clear for many months to come.

Europe and the UK have been relatively quiet on the economic front and the sovereign debt crisis has been sleeping over the holiday period but no doubt will awaken at some point during the coming weeks. It was interesting to see that the UK December Purchasing Managers Index for Services published today fell below 50 at 49.7 from the last reported reading of 53.0. The consensus was looking for a number of around 53 this time and a number that indicates contraction is certainly a cause for concern, but we would have to see the number remain below 50 over the coming months before taking it as a real indication of slowdown. The equivalent numbers published for Germany and Europe yesterday remain well into growth territory.

The oil price is starting to become a concern and whether we are going to see $100 plus this year remains to be seen but even at current levels it will sap spending power from consumers. In particular the US will be vulnerable as the drag on spending could well negate the additional stimulus measures announced towards the end of last year.

2010-12-20T12:33:00.000Z

The economic news emanating from the US towards the tail end of last week was enough to keep market sentiment firmly in positive territory. The latest regional manufacturing index was published on Thursday for Philadelphia and that came in ahead of expectations at 24.3 after the previous monthly reading of 22.5 and consensus expectations of a dip to 16.0. The equivalent index for New York State was also firmly in positive territory when it was published earlier last week and all of the regional reports so far indicate that the US manufacturing sector has recovered from the soft spot earlier in the year and the momentum is still being maintained.

The US initial weekly jobless claims data is also indicating that the trend in unemployment is still showing signs of improvement. The latest number of 420,000 was bang in line with consensus expectations and follows on from the 421,000 last week. Not so long ago this number was drifting around the 500,000 mark, but realistically for the unemployment rate to fall in the US this number has to be south of 400,000.

With the holiday period almost upon us the market has already moved into its usual end of year subdued mode and we are unlikely to see much volatility over the next couple of weeks, and there is every possibility it will tick higher on low volumes if history is anything to go by. We do have a few data announcements this week. The main event in the US will be on Wednesday with the final estimate for Q3 GDP due for publication. The last estimate was +2.5% annualised and the market is looking for this number to be revised up to around +3%. The run rate for Q4 according to most forecasters is closer to +3.5% at present giving the US a better end to the year. Estimates for 2011 currently sit around the +3% mark.

Existing home sales data for November is due for publication in the US and is expected to show some improvement on the October level. Estimates are for 4.7m annualised compared to the last reported level of 4.4m. One key element of the US economic recovery will be an improvement in the US housing market which is some way off but we are least seeing some improvement on the very depressed levels of activity.

Thursday in the US brings durable goods orders for November with the consensus expecting a modest drop of -1.0% which is likely to be due to weak transportation orders. The initial weekly jobless claims are expected to remain static at 420,000 when they are published on Thursday. To round the week off the University of Michigan Consumer Sentiment data for December is due for announcement and is expected to show a modest improvement to 75 from the previous reported level in December of 74.0. The rise in the equity market is likely to play a big part in the improved sentiment.

In Europe today we have had the German Producer Price Index for November which rose +0.2% month on month which was a little lower than expectations. UK mortgage approvals announced today for November declined to 45k from the October level of 47k. There is no doubt that we are seeing weakness in the UK housing market and a decline in UK house prices during 2011 looks likely.

The CBI has published their forecast for 2011 UK growth this morning which they now estimate will be 2% followed by 2.4% in 2012. The main headline grabber from this announcement was their forecast for UK interest rates which they expect to start rising from the spring of next year and to reach 2.75% by Q4 2012. This is based on their estimate for UK inflation being significantly above the Bank of England’s 2% target during 2011. In our view it would be surprising to see the Bank of England raise rates so early next year given the fiscal tightening that 2011 will bring combined with the government job cuts. The MPC forecasts already allow for inflation to stay well above their target rate next year and it would take a significant spike in inflation to change interest rate policy so soon.

The only notable announcements due out tomorrow in Europe and the UK are the GfK Consumer Confidence surveys but neither will be market moving events. Wednesday brings the minutes of the latest Bank of England MPC meeting with a three way split expected again. The final estimate for Q3 UK GDP is also due out on Wednesday and is expected to be unrevised at +0.8% quarter on quarter.

With little in the way of market moving announcements due out over the next two weeks the Daily Comments will be issued if there is a notable event. Otherwise normal service will resume on the 4th January.

2010-12-16T11:42:00.001Z

The market rally continues despite the rumbling in the background of the European debt crisis and in particular concerns over Spain. This story will gain more ground in the New Year with Spain facing the prospect of raising up to 170bn Euros next year from the markets according to Moody’s. In addition Spanish banks have around 90bn Euros of debt to refinance next year. With Moody’s threatening the prospect of a Spanish debt downgrade after placing their debt rating under review this story has some way to go. An EU summit today to discuss how future problems will be addressed from 2013 onwards is likely to keep the sovereign debt crisis firmly in the headlines for the rest of this week.

In the UK yesterday the unemployment data provided signs that the recent improvement in the unemployment trend may well be reversing and this is before the significant cuts come in the public sector workforce next year. According to the ONS unemployment in the 3 months to October increased by 35,000 to 2.5 million. The majority of the increase was due to cuts in the public sector work force which appears to have already begun. On a more positive note the claimant count measure of unemployment did fall during November but only by 1,200 following on from a 5,200 fall during October.

This morning in Europe we have had the December Purchasing Managers Index for manufacturing and services. The former increased to 56.8 from the previous reported level of 55.3 but the service index declined to 53.7 from 55.4. This was in part due to a slowdown in Germany where the PMI Service index fell to 58.3 from the previous reported level of 59.2. Overall most of the recent data points to a slowdown in GDP momentum within Europe which is not unexpected given the weakness among the peripheral countries, especially as the austerity measures start to bite. The coming 12 months will be another of sub trend growth.

UK retail sales for November published this morning were weaker than expected at +0.3% month on month compared to expectations of +0.5% and the upwardly revised October figure of +0.7%. December may well enjoy better than expected sales as consumers bring forward purchases in advance of the VAT hike in January.

In the US yesterday most of the data was either in line or a little better than expectations. The Empire State Manufacturing index which gives a gauge of manufacturing activity within New York State rose back into positive territory at +10.6 for December after the -11.1 reported for November. If anything this does demonstrate that the regional reports can be quite variable and you cannot read too much into one bad month. Industrial Production for November increased by +0.4% month on month during November which was bang in line with estimates. Inflation for November was a little less than expected with a +0.1% month on month increase in the Consumer Price Index leaving the year on year rate at +1.1%. If you strip out the impact of food and energy the year on year rate stands at just +0.7% leaving little in the way of inflationary pressures within the US economy at present.

Today in the US housing starts for November are due for publication. The consensus is looking for an increase to 550,000 on an annualised basis from the last reported level of 519,000. Given the poor state of the US housing market expectations are set firmly in negative territory and so a poor number is unlikely to upset the market at this time.

The weekly initial jobless claims provide the most up to date evidence of what is happening with the US labour market. The last reading came in at 421,000 and the consensus is looking for a similar number this week. Finally today we have the next regional manufacturing report, this time for Philadelphia. The November reading jumped to +22.5 from the October number of +1.0 and for December the consensus is looking for a number of around +16.0.

2010-12-13T13:31:00.001Z

World equity markets have started the week firmly in positive mode. This is partially due to relief that the People’s Bank of China chose not to raise their interest rate over the weekend to follow on from the announced increased in the banks reserve requirement. With inflation getting ever stronger in China a tighter monetary policy seems inevitable with some commentators suggesting that a failure to act now will require significantly higher interest rates in the future.

In the US analysts are pleased that Congress is likely to pass a more favourable tax package before the yearend giving the US economy yet another injection of additional stimulus measures. The extension of the Bush tax cuts combined with a 2% payroll tax holiday in 2011 and a 3 month extension of the Federal unemployment benefits should provide a useful boost to household income during 2011. However, It must be borne in mind that the fact that the economy needs these measures in the first place when we are the best part of two years into the recovery phase suggests that the underlying picture remains very difficult indeed. However, for the time being anyway the market will accept any new measures that at least help to maintain the momentum even if growth is likely to remain at sub trend levels for the foreseeable future. The size of the US budget deficit rarely gets mentioned with the focus still very much on stimulus measures to keep growth going and these latest announcement could add a further $200bn to the deficit according to some estimates. At some point the US budget deficit will need to be addressed as we have seen across Europe and this may well be something that the market becomes concerned with as we move through 2011.

On Friday in the US the University of Michigan consumer sentiment index rose to 74.2 from the previous reported level of 71.6. The consensus was expecting a modest improvement to 72.0. The fact that sentiment has improved is welcome news although this probably a good deal to do with the rally in equity markets during recent weeks. This index during more normalised economic recovery conditions would be registering around the 90 level and at present it is still at a level more consistent with recession.

In the UK today the latest Rightmove House Price Index has been published and this fell -3.0% month on month following on from the previous monthly decline of -3.2%. These are significant falls and it remains to be seen whether this is a broadly based picture of what is happening in the UK housing market. The latest Halifax house price index fell by a more modest -0.1% month on month. The overall picture varies according to each data series but they do have one thing in common and that is that UK house prices at present are falling.

In the US today there is no major economic news and we look to tomorrow for the first major announcement of the week. The Producer Price Index for November is due for announcement tomorrow. Expectations are for a 0.7% month on month increase with input prices boosted by an increase in gasoline and food prices. Retail sales for November are also due out tomorrow and expectations are for a +0.7% month on month increase.

2010-12-10T13:25:00.001Z

Another quiet day of trading ahead with little in the way of economic news to drive the market either way. The only economic news that could move the market this afternoon is the next reading of the University of Michigan Consumer Sentiment index for December. The final November index reading came in at 71.6 and the consensus is looking for a modest improvement to 72.0. Given the latest poor unemployment data which can have a big bearing on the sentiment indices, this number could go either way this afternoon.

In the UK today the main economic news is the Producer Price Index for November which rose by +0.3% month on month. This is basically a measure of inflation for UK manufactured goods and the annual inflation rate fell modestly to +3.9% from +4.0% with the decline due to a slight fall in the rate of petroleum price inflation. This particular measure of inflation is expected to remain at this elevated level for some time to come due to higher input costs. Given that this will feed through to final inflation we can expect the CPI to remain at elevated levels for many months to come.

In Europe, German wholesale price data for November has been published today and this rose by a strong +0.7% month on month leaving the annual rate a shade higher at +7.8%. This to a large extent reflects the recent increase in food and metal prices.

The People’s Bank of China has increased its reserve requirement once again to keep inflationary pressure under control after the most recent data for lending was above estimates. More measures will almost certainly be needed over the coming months to fight inflation and another hike in their interest rate is likely to come early next year.

2010-12-07T10:05:00.002Z

The economic calendar is very quiet this week and there is not much for markets to chew on. After the dismal employment report in the US on Friday we would have expected a negative market reaction but in fact the response was quite muted. Whether it is a case of a poor report reinforces views of more stimulus measures in the future is hard to say. What is clear at present is that the market is focusing more on policy measures that are happening or might happen than the actual data. Ben Bernanke mentioned over the weekend that QE3 was not out of the question if it is needed. Today we have news that Obama has agreed to an extension of the tax cuts from the Bush era and it now seems likely that the emergency jobless benefits paid to 2 million people in the US will also be extended. There is certainly good reason to be very cautious with this market at present. As we move into the final weeks of the year there is every chance that it will rally a little further as volumes drop off but the start of 2011 could well test investor nerves with a very rocky path ahead.

In the UK today we get the NIESR estimate for November GDP whilst the Halifax publishes their November house price index.UK Industrial and manufacturing data for October is also due for publication and both are expected to show a +0.3% month on month increase. In Europe the only data of note that is due for publication is German factory orders for October.

In the US the only data due for publication is consumer credit for October.

2010-12-03T14:30:00.003Z

The market at present is living off rescue announcements in one shape or form. The decision by the ECB to prolong their liquidity programme to support the region’s banks helped the rally in world markets yesterday. In addition the ECB has been aggressively buying peripheral euro zone debt for most of the week which has for the time being calmed investor nerves. Today we have just had the Non Farm Payroll data in the US for November and just when sentiment had turned firmly to the positive side for this data, the result has been disappointment with the headline number showing a gain of just 39,000. Within this the private payroll number was up just +50,000 compared to expectations of something closer to 150,000. The only positive was that the prior month headline number has been revised upwards to +172,000 from the previously reported level of 151,000. The rate of unemployment also unexpectedly increased to 9.8% from 9.6%. It was interesting to see that the retail sector actually shed 28,000 jobs in November at a time when they would be expected to be recruiting ahead of the holiday season. The public sector lost 11,000 jobs during November. The jobs market in the US is still far from out of the woods and we did see deterioration in the weekly initial jobless claims numbers yesterday which crept back up to 436,000 from the previous week’s reported number of 407,000 and consensus expectations of 425,000.

This afternoon the other major data set due for publication in the US is the ISM Non Manufacturing index for November. The consensus is looking for 55.0 which would be a slight improvement on the October number of 54.3. At the same time as the ISM number we get factory orders for October which is expected to show a decline month on month of -0.8% after a 2.1% increase last month.

In Europe today we have had the November Purchasing Managers Index for services for the Euro zone, Germany and the UK. The UK was the only one to show a decline over the month albeit a modest one to 53.0 from the previous reported level of 53.2. The UK service sector continues to grow but at a very modest rate. Retail sales for the Euro zone increased by +0.5% month on month during October which was slightly higher than expectations of a +0.4% increase and this follows on from a -0.1% decline during the previous month.

If the ISM data this afternoon meets expectations it may help to negate the impact of the poor unemployment data we have just had. If it doesn’t meet expectations it may well set us up for a few days of difficult trading as next week is relatively light in terms of economic announcements.

2010-12-02T10:05:00.003Z

The data in the US yesterday was again a little better than expectations and provided grounds for some enthusiasm in world equity markets after the falls of recent days. The situation in Europe rumbles on but comments from Jean-Claude Trichet yesterday were taken as a sign that further action may be taken to prevent further contagion within the Euro zone. The ECB meets today to discuss interest rate policy and all eyes will be on the accompanying statement for details of any further measures that may be used in the coming weeks such as the delayed withdrawal of unlimited liquidity support for the region’s banks and increased bond purchases. However, there is room for disappointment this afternoon if no new measures are announced especially given that market expectations of the need for further action are starting to build.

The US ADP Private Payroll report yesterday was encouraging with a rise of 93,000 in private payroll employment after an upwardly revised 82,000 increase in October. This does suggest that we can look forward to a good Non Farm Payroll report tomorrow with expectations of the headline number showing an increase of around 170,000 with private payrolls expected to show a gain of around +150,000.

The important US ISM Manufacturing Index for November declined modestly to 56.6 from the previous reported level of 56.9. Within this the constituent indices did show weakness in some areas such as new orders which fell to 56.6 from the previous reported level of 58.9 whilst the employment index fell to 57.5 from 57.7. Overall though the data suggests that the US manufacturing sector is maintaining the momentum. Other data published in the US yesterday included construction spending for October which rose +0.7% month on month.

The US Beige book which was published yesterday and this gives anecdotal evidence on economic conditions in each of the 12 Federal Reserve Districts. The data which was compiled on or before the 19th November resulted in 10 districts reporting some form of growth whilst the other 2 reported mixed conditions. Within the 10 reporting growth 5 are experiencing a stronger pace of economic activity. Manufacturing activity continued to expand in all Districts and expectations for consumer spending during the holiday season are reasonably optimistic after several Districts reported that current sales are higher when compared to the same period last year. Overall a report that suggests that whilst there has been no deterioration the recovery is not gaining any real momentum.

In the US today the main data due for announcement are the weekly initial jobless claims data. After the better than expected reading last week of 407,000 the consensus is expecting an increase to 425,000. A reading below 400,000 would be taken very positively.

In the UK yesterday the Nationwide house price index for November declined by -0.3% month on month. If UK house prices continue to slip back this will have an inevitable impact on consumer sentiment and will be another factor that weights on consumer spending next year. The UK November Purchasing Managers Index for Manufacturing was also published yesterday and that showed a useful increase to 58.0 from the previous reported level of 55.4. The overall new orders index increased to 59.1 from 54.0 which certainly indicates that domestic demand has increased which bodes well for a good quarterly gain in manufacturing output.

October retail sales for Germany were better than expected at +2.3% month on month compared to expectations of a +1.25 increase although the previous month’s figure did decline by -1.8%. The German Manufacturing Purchasing Managers Index for November was also published yesterday and this showed a healthy increase to 58.1 from the previous reported level of 56.6. Overall Germany remains one of the few bright spots in Europe.

2010-11-30T15:03:00.003Z

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%.

2010-11-29T17:55:00.001Z

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.

2010-11-25T16:23:00.001Z

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.

2010-11-22T12:47:00.001Z

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.

2010-11-18T14:45:00.001Z

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.

2010-11-16T13:23:00.002Z

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

2010-11-11T17:01:00.001Z

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.

2010-11-10T11:49:00.001Z

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.

2010-11-05T14:27:00.002Z

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.

2010-11-03T10:58:00.003Z

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.

2010-11-01T11:46:00.002Z

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.

2010-10-27T15:11:00.001+01:00

Scottish and Southern Energy is outperforming the market today (£11.10) along with most of the utility sector. This is one of the attractions of trading within this sector when the market starts to reach levels at which a sell off is due. However, we could easily see some underperformance if the market rallies strongly over the next day or so. Either way we are happy to hold for the time being. SSE has underperformed the market for some time now and whilst the fundamentals are unexciting they should be good enough to prevent the shares from suffering too much if the market does decide to sell off heavily. We will consider cutting the position if the shares drop below £10.95 but as always much depends on what is happening with the broader market. Volatility levels are likely to increase over the coming days ahead of the Fed meeting next week and this may well provide us with an opportunity to achieve a price close to our target.

2010-10-26T12:49:00.001+01:00

After a relatively quiet Monday in terms of economic data the week really kicks off today and the first announcement was the preliminary estimate for Q3 GDP in the UK which came in at 0.8%, double expectations of +0.4%. This compares to the Q2 rate of 1.2% and the more modest rate of +0.4% posted during Q1. The decline from the nine year high achieved during Q2 is not unexpected and a similar trend is likely to be seen in the rest of Europe after the initial surge earlier in the year. A more modest rate of growth is likely to continue into Q4 and early 2011. With the prospect of more quantitative easing and with interest rates likely to remain where they are well into 2011 this should help to negate the impact of the government cuts and fiscal squeeze. However, whether it is enough to stave off another period of negative growth remains uncertain.

The main event in the US this week will be the publication of the first estimate for Q3 GDP on Friday. Estimates range between 1.5% and 3% with the number likely to be towards the lower end of that spectrum and probably less than 2%. A strong number may well hit sentiment with so much expectation over the next round of quantitative easing which just about everyone expects to be announced when the Fed meets next week. However, the Fed have already made it clear that further measures are in the pipeline and it is difficult to see any data this week changing that.

Yesterday in the US the only notable data was existing home sales for September which showed a good improvement with a 10% increase to 4.53m on an annualised basis. Even after a 10% jump this number remains at a very depressed level compared to the historical norm, but it does at least suggest some stability is returning to the US housing market. The ongoing investigation into the legality of the foreclosure process in the US is likely to reduce the amount of distressed property coming onto the market in the short term which may in some respects also help to bring some stability.

The main event today in the US is the Conference Board Consumer Confidence Index for October. Most confidence and sentiment indices are oscillating around levels more consistent with recession or no growth but the market seems to accept this and as long as there is no further collapse in confidence this particular data set is unlikely to have much impact on the market. Expectations are for a slight improvement to 50.0 from the previous reported level of 48.5.

In Europe today the GfK consumer confidence index for Germany has been published and this stood at the same level as the previous month at 4.9 compared to expectations of a reading of 5.1.

The market at present is having a weak day with the FTSE100 down 46 points at the time of writing. We still lack any near term catalyst to take the market higher and the downside risks are increasing. The Fed meeting next week holds the key to the short term performance of the market. We remain nervous that if any additional stimulus measures do not meet expectations or perhaps even do not exceed expectations the market may well find reason for a bout of profit taking and perhaps even a short term correction.

2010-10-22T14:50:00.001+01:00

We have a very quiet day ahead in terms of economic announcements. Yesterday in the US the data was broadly in line with expectations and we seem to be now stuck in a situation where the US economy is still growing but at a very modest level with little sign of any improvement in the trend. The market seems happy enough to accept this at the moment but for how long is very uncertain. For the market to go higher the additional stimulus measures in the US will have to exceed expectations in our view.

The weekly initial jobless claims in the US announced yesterday were an improvement on the week before at 452,000 but this was tarnished somewhat by the revision to the previous week’s data which was increased to 475,000. The running four week average is now down to 458,000 but with little sign of any real improvement in the trend the outlook for US employment remains poor and it is difficult to see any meaningful improvement for many months to come.

The US Leading Indicator data for September was as expected at +0.3% but the August data was revised down to +0.1% from +0.3%. The Philadelphia Fed Manufacturing Index for October was also in line with expectations at +1.0 but the increase from the -0.7 reported previously is unconvincing. Based on the regional reports there is a good possibility that the ISM number is going to trend lower in the short term.

The German IFO Expectations and Business Climate Index for October have been published this morning and both have shown improvement on the last reported reading against expectations of a modest fall. Having reached a three year high last month most commentators were expecting a decline this month, and the latest readings at least demonstrate that conditions are still comfortably within growth territory.

2010-10-21T13:41:00.001+01:00

The Fed’s Beige Book was published yesterday and the overall picture it provided is one of modest recovery but with little in the way of evidence to suggest that any momentum is being gathered. 8 out of the 12 Districts reported some growth with 3 others suggesting a more mixed performance and one stating that conditions “remain slow”. Overall very little to get excited about but the market has taken that as yet another sign that additional stimulus measures will be required.

Today in the US we have three main economic data announcements. The first is the usual initial weekly jobless claims. Last week the claims level rose to 462000, a 13,000 increase on the week. This week the market is looking for an improvement to 455,000. The Leading Indicators (a composite index of 10 lead economic indicators) for September are also due out with the consensus expecting a gain of +0.3%, the same gain as was achieved during August. After the better than expected Empire State Manufacturing Index last Friday the market will be focusing on the Philadelphia Fed Manufacturing Index this afternoon for confirmation that the manufacturing sector is showing signs of once again building some momentum. The Philadelphia Fed reading last month was just into negative territory at -0.7 and the consensus for October is looking for a very modest improvement to +1.0.

Today we have had the October Purchasing Managers Index for manufacturing for Europe and Germany. The former increased to 54.1 from the previous reported level of 53.7 whilst Germany posted a reading of 56.1 against the last reported level of 55.1 and against expectations of a modest drop to 54.6. Manufacturing in Europe appears to be holding its ground at present and is not showing any sign of an imminent slowdown. We also had the equivalent figures for services and in the case of Europe the number did show a modest decline to 53.2 from 54.1 last month whilst Germany once again showed improvement with a move up to 56.6 from the last reported level of 54.9.

In the UK retail sales for September have proved to be disappointing with a month on month decline of -0.2% against expectations of a modest improvement of +0.3%. The August data was revised down to a drop of -0.7%. After the announced cuts in the comprehensive spending review yesterday it is quite likely that consumers will be nervous of the fiscal squeeze that lies ahead and may already be reacting to that. This could well be the start of a prolonged period of subdued consumer spending in the UK.

2010-10-20T13:58:00.003+01:00

Today we will hear from George Osborne on the extent of the planned spending cuts and for a change the press will be focusing very much on the UK rather than what is happening in the US. There is no doubt that the severity of the cuts will hold back growth over the coming years but it is widely considered to be a necessary evil to bring the UK deficit back into line. It will be many months before the real impact begins to show although spending habits and intentions will almost certainly start to change immediately once the headlines start to come through. What the UK and most of the developed world face is a prolonged period of sub trend growth with significant uncertainty over the sustainability of recovery and an ongoing risk that the economy loses enough momentum to fall back into periods of negative growth.

A good deal of the recent equity market rally has been founded on a lot of hope and expectation that the US recovery will be kept on track with additional stimulus measures. The same may also be said of the UK with a now increasing likelihood that the Bank of England will soon start a next tranche of quantitative easing. Arguably a good deal of this is now priced in and unless the policy announcements follow the expected path or are indeed greater than expectations, then we have to consider the possibility of a period of range bound trading at best and more likely a period of consolidation.

Yesterday the market was spooked by the unexpected policy action in China after the People’s Bank of China raised the benchmark interest rate(the one year lending and deposit rate was increased by 0.25%). This looks to have been in response to the surge in bank lending during recent weeks. The market was expecting a rate rise but not until next year and this was the reason for the sharp reaction yesterday in equity markets. The overall impact of a modest increase such as this is unlikely to be significant, but it does now raise the question of when the next increase will come.

In the US on Monday the only significant economic announcement was Industrial Production for September which declined by -0.2% against expectations of a +0.2% increase. This is the first decline in Industrial Production this year and looks to be a reflection of the inventory replacement cycle which is slowly coming to an end. Yesterday in the US we had Housing Start data for September which increased to 610,000 on an annualised basis from the 598,000 reported for the previous month. Starts are now 13% above the June low but remain at a very depressed level and the US housing market looks set to remain in the doldrums for many months and possibly years to come.

Today in the UK we have had the publication of the last Bank of England MPC meeting which gives clear indication that we are moving closer to the second round of quantitative easing. In the US today the Fed’s Beige Book will be published which gives a snapshot of current economic conditions in the 12 Federal Reserve Districts.

2010-10-18T12:29:00.001+01:00

The economic data published on Friday in the US was generally quite positive. Retail sales for September were a little ahead of the consensus at +0.6% month on month compared to consensus expectations of +0.5%. The previous month was revised upwards to +0.7% compared to the previous estimate of +0.4%. The gains were broadly based as well including the more discretionary areas such as furniture. We also had the Empire State Manufacturing Index for October which showed that general conditions within the New York manufacturing sector actually improved to 15.73 from the previous reported level of 4.14 and against expectations of an increase to 8.0. Whilst only a regional report, this does at least show that the manufacturing sector has not fallen off a cliff as some had feared and if anything growth may again be picking up a little more momentum.

Inflation in the US remains almost nonexistent according to the CPI inflation data published on Friday with the core rate of inflation which excludes food and energy showing no change over the month. The headline rate gained by just +0.1% leaving the year on year rate for headline inflation at +1.1% whilst the core rate is now at just +0.8%.

Ben Bernanke’s speech on Friday received plenty of press attention and with the recent market strength down to expectations of the next round of quantitative easing in the US, the market was looking for any sign as to the size and methods likely to be used. Bernanke didn’t really add any new information apart from reiterating the fact that more action now looks necessary. He did go on to use words that suggest the Fed is likely to utilise a gradual policy response rather than utilise an all out policy response which may well disappoint some market participants. The figure of a $500bn asset purchase programme seems to be the base line for current expectations and a probable starting point for the Fed, with the likelihood that more will follow if the initial response proves to be insufficient. An announcement will almost certainly be made when the Fed next meets on the 2nd/3rd November and up to that time we can expect the speculation and anticipation to keep the market relatively range bound.

The disappointing data on Friday was yet again the University of Michigan Consumer Sentiment number which remain at levels more consistent with no growth/recession. The latest estimate for October came in at 67.9 compared to expectations of 69.0 and the last reported number of 68.2.

In the US today the economic calendar is relatively light with just Industrial Production for September due for announcement. Expectations are for a +0.2% increase. There is no major economic data due out in Europe today.

The UK will be very much in focus on Wednesday with the results of the coalition government’s spending review due for publication. With so much debate as to whether the severity of the cuts will tip the UK economy back into recession there will be plenty of analysis doing the rounds later this week. Some sectors that are more reliant on government spending could well be volatile over the next few days.

2010-10-11T14:08:00.001+01:00

A brief note today and with Columbus Day in the US it is relatively quiet on the economic front with world markets ticking modestly higher. The Non Farm Payroll employment report in the US on Friday was poor to say the least. The market reaction was a little baffling and once again it would seem to be hope over the next round of quantitative easing that is saving the day. The headline number for the September Non Farm Payrolls declined by -95,000 compared to consensus expectations of a more modest fall of -8,000. The private payroll number did increase by 64,000 which was enough to keep the market happy. However, one aspect that was surprising was the loss of 83,000 government jobs in addition to the 77,000 Census workers that came off the register. The decline in the number of government workers would have resulted in a negative headline number of -18,000 despite the impact of the Census workers. It will be interesting to see if this is the start of a trend within the public sector given the pressure which State budgets are currently under.

There wasn’t any good news from the US average hourly earnings data either which remained flat month on month. The unemployment rate remained flat at 9.6% but if you look at the broader U6 unemployment rate (includes all unemployed plus those that are working in some form or capacity, for example part time workers that want to be full time and also workers that have become discouraged and given up looking for a job) and this increased to 17.1%, a +0.4% increase on last month.

The economic data in the US more recently has been enough to dampen down double dip fears and this has helped to sustain the recent market rally. Data such as the Non Manufacturing ISM was better than expectations, but without a sustainable improvement in the jobs market it is difficult to see much GDP momentum going into 2011. The debate over when the next round of quantitative easing will come in the US will undoubtedly continue and how effective it will be remains to be seen, but more policy action now seems inevitable and an announcement before the year-end is looking increasingly likely.

There is no major data scheduled for today and we will cover the economic data due out this week in our report tomorrow.

2010-10-08T12:30:00.003+01:00

All eyes are on the Non Farm Payroll data due out this afternoon. With the US closed on Monday for a public holiday and little in the US economic calendar until Friday of next week this report is likely to set the tone for trading over the next few trading days. The ADP private payroll number on Friday was disappointing with a decline of -39,000, although the previous month’s figure was revised upwards to a gain of 10,000 compared to the previous reported number of -10,000. Whichever way you cut it these numbers are poor to say the least although more recently the ADP data has not been a particularly good indicator of what the Non Farm Payroll number may contain. The consensus is looking for a modest drop in the headline Non Farm number of -8000 due in part to the remaining census workers falling off the register. The important number will again be the private payrolls with the consensus looking for a gain of around 75,000 although the forecast range is relatively broad at between 0 and 100,000. The market will almost certainly react badly to any negative number.

Yesterday both the Bank of England the European Central banks held their usual interest rate meetings and as expected there was no change in policy. The NIESR estimated yesterday that UK growth during the third quarter has slowed to +0.5%. This morning in the UK we have had Producer Price Input data for September which came in a little ahead of expectations at +0.7% month on month against the consensus which was expecting +0.4%. There is no doubt that inflationary pressures within the UK are remaining stubbornly high and this may well be a constraining factor when it comes to the decision over whether to implement additional quantitative easing.

2010-10-07T10:54:00.002+01:00

The market has rallied strongly over the last couple of trading days after better than expected US Non Manufacturing ISM data and the Bank of Japan decision to engage further quantitative easing (QE). The debate seems to have shifted from whether or not a further slug of QE should be utilised in the US to a question of when QE2 starts. The economic data continues to indicate that the recovery is not picking up steam and GDP growth is likely to remain sluggish for the foreseeable future, and therefore the argument for additional measures is strong. However, the market reaction to the prospect of renewed quantitative easing is difficult to rationalise bearing in mind that the fact that more measures may be needed suggests the first round of policy action has failed to deliver the required result. It was interesting to see that the ADP Private Payroll data in the US published yesterday received no attention when the number for September actually declined by 39,000. Whilst the ADP number is not a particularly good guide to what the Non Farm Payrolls have in store it is hard to ignore the trend that it suggests. Overall, the recent market action should be treated with caution but as we have said before markets have a habit of becoming divorced from reality and the current rally may well have further to go yet. A lot will now depend on the US third quarter earnings season.

The main data announcement due for publication today in the US is the Weekly Initial Jobless Claims with the consensus looking for 450,000 compared to the number last week of 453,000. In Europe the European Central Bank and the Bank of England have their interest rate meetings today although we can expect no change in policy. The arguments for the second round of quantitative easing in the UK seem to be growing by the day and with so much press coverage of the forthcoming cuts, the pressure to engage QE2 in the UK will grow quickly.

The UK Halifax house price index for September has been published this morning and this showed a -3.6% month on month drop which is the largest on record. With consumer confidence due to take a significant battering over the coming months there is every chance that house prices are due for a prolonged period of declines.

Other data due for announcement today is industrial and manufacturing for August for the UK. We also get the NIESR UK GDP estimate for the 3rd quarter.

2010-10-05T13:29:00.001+01:00

A brief update today as the focus today is on the US ISM Non Manufacturing Index due out this afternoon. The last reported level for this index was 51.5 and the consensus is looking for September to show a modest improvement to 52.0. This number could go either way given the momentum the US economy is losing and a dip below 50 would certainly be taken badly. The US economic recovery has been driven on by inventory replacement and there is no doubt that this element of the recovery is slowly but surely ebbing away leaving the US economy exposed to a weak consumer and an economy that has been broadly propped up by government use of stimulus measures. The next quarter could be a decisive one for the US stock market and the risks remain that as the stimulus measures are replaced by fiscal tightening we may yet see the onset of another recession. For the time being the market has maintained its ground given that most data measures have shown no imminent threat of a second recession but in our view the risks remain and it may only take one poor data announcement to set off another reversal in sentiment.

In Europe today we have had Purchasing Managers Index data for services for Germany, Europe and the UK. All three have shown a modest improvement over the month against expectations of a modest decline. The numbers are still well down on the peaks hit earlier in the year and growth during Q3 and especially Q4 looks set to be down on the Q2 numbers.

2010-10-04T12:24:00.001+01:00

This week will be all about the US unemployment report due out on Friday. The Non Farm Payrolls last month registered a -54,000 decline, but this still reflects the impact of the temporary census workers falling off the register. The important number is the private payroll constituent and this gained by 67,000 in August. Expectations for private payrolls this month are for a gain of around 75,000 and the top line number is expected to show a modest 5,000 improvement, as the last of the census workers roll off the register. Also this week both the European Central Bank and Bank of England Monetary Policy Committee meet to discuss interest rate policy. Given the relatively benign inflation outlook and the undoubted slowdown in momentum in Europe and the UK, no change in policy is expected.

Today is a relatively quiet one in Europe with the Producer Price Index for August already published this morning showing a modest +0.1% month on month increase confirming that there is currently little in the way of inflationary pressure. We have two pieces of data in the US due for publication this afternoon with factory orders for August expected to show a modest -0.3% decline after a +0.1% gain in July. Pending home sales data for August is also due out and is expected to show a modest +2% gain on the month which would leave sales at very depressed levels but at least showing some signs of stability.

Arguably the second most important data announcement in the US comes tomorrow with the publication of the Non Manufacturing ISM for September. The last report showed the index declining by 3 points to 51.5, leaving it just above the key level of 50 which indicates growth. The consensus is expecting the index to remain very close to the last reported level. However, a dip below 50 will be taken badly by the market and would almost certainly result in a sell off tomorrow afternoon. In the UK and Europe tomorrow the main event is the publication of the Purchasing Managers Index for services for the UK, Germany, France, Italy and the Euro zone. All are expected to fall from the previous reported levels but remain comfortably above 50 confirming that expansion is still happening, but also showing that some of the momentum is still being lost.

On Wednesday we get the final estimate for European Q2 GDP which is expected to remain unchanged from the previous reported level of 1%. In the US on Wednesday the ADP private payroll report for September will be announced. This is a useful guide for where the private payroll number within the Non Farm report is headed and this month the consensus is expecting a 20,000 increase.

Thursday brings the interest rate meetings for the Bank of England and the European Central Bank with no change in policy expected. In the UK, manufacturing and industrial production data for August will be published. In the US the weekly initial jobless claims will be under scrutiny and after two weeks of improvement the market is looking for a continuation of this trend with a number of 450,000 expected compared to the last report of 453,000.

Friday brings the key Non Farm Payroll number in the US and we round the week off in the UK with the Producer Price Index for September.

2010-09-17T12:55:00.001+01:00

The economic data in Europe at present is certainly indicating a relatively sharp slowdown from the strong growth levels achieved during Q2. Europe appears to be following a similar path to that of the US and after an initial growth spurt driven on by inventory replacement and for Europe a favourable currency movement earlier in the year, we are now starting to see growth return back to sub trend. In the UK yesterday we had further confirmation of this trend with the poor retail sales data for August which declined by -0.5% compared to consensus expectations of a +0.3% improvement.

In Europe today we have had the German Producer Price Index for August which was unchanged month on month compared to expectations of a +0.3% increase. The year on year rate fell from +3.7% to +3.2%.

The main data for announcement in the US today is the CPI data for August with the consensus looking for a +0.3% increase in the headline rate whilst the core rate (excluding food and energy) is expected to show a more modest +0.1% improvement. The main possible market moving event of the day will be the publication of the US University of Michigan Consumer Sentiment Survey for September. The consensus is looking for a modest improvement to around 70.0 from the previous reported level of 68.9 and any miss could well place markets under pressure this afternoon.

2010-09-16T18:12:00.003+01:00

The economic data in the US this afternoon has once again provided very little to get excited about. As with yesterday it was not sufficiently bad to create a sell off but also not good enough to create the foundation for a rally. We are in a situation in which the market is now struggling for direction and it is unclear as to where the next significant move will be.

The US weekly initial jobless claims came in at 450,000 which were broadly in line with expectations and there will be some relief that the figure did not increase on last week’s level of 450,000. However, it should still be remembered that claims remain at elevated levels.

The Philadelphia Fed manufacturing index just failed to make it into positive territory with a decline of -0.7 compared to the previous reported level of -7.7 and consensus expectations of an improvement to 3.8.

Other US data published today was the Producer Price Index for August. The headline rate showed a +0.4% month on month improvement whilst the core rate (excluding food and energy) showed a more modest improvement of +0.1% month on month. Overall there is still little in the way of inflationary pressure in the US economy and we should get confirmation of this tomorrow with the publication of the August CPI.

Tomorrow in Europe the German Producer Price Index for August is due for publication and in the US apart from the CPI we also get the next reading for the University of Michigan Consumer Sentiment for September. The last reading was 68.9 and the consensus is expecting an increase to around 70.0.

2010-09-15T16:12:00.003+01:00

The US data today has not provided any reason for major disappointment but at the same time there is little reason for optimism. The Empire State Manufacturing Index came in at 4.14 compared to consensus expectations of 5.0. The new orders element of the index moved back into positive territory from the -2.7 reported last time to +4.3 whilst the employment element remained relatively static at 14.9. Whilst this report only covers New York State it is clear that the manufacturing sector in the US has slowed down considerably during recent weeks. Tomorrow the report for Philadelphia is due for publication. This index declined last month to -7.7 indicating contraction and the consensus is looking for an improvement during September to around +4.0.

Other data that has been published in the US today is Industrial Production for August which was in line with expectations with a +0.2% month on month improvement. The July figure was revised down a little to +0.6% from +1.0%.

UK unemployment published today for the 3 months to July fell by 8,000 to 2.47 million which was less than what analysts had expected. There is no major economic data due for announcement in Europe today.

Tomorrow the initial weekly jobless claims will be in focus in the US. After the partially estimated reading last week analysts will be keen to see what this week holds. The consensus is looking for a number around the 450,000 mark. Other data due out in the US tomorrow is the Producer Price Index for August. In the UK retail sales for August will be published tomorrow with the consensus looking for +0.3%.

2010-09-14T15:47:00.001+01:00

The UK CPI not unexpectedly remained unchanged year on year at 3.1% due to the impact of higher food and clothing prices. The core rate which excludes food and energy actually increased year on year from +2.6% to +2.8%. There is still a good deal of uncertainty as to where prices are going short term although most continue to expect a gradual decline. The impact of the VAT hike at the beginning of next year may well delay further a move in the CPI to closer to the Bank of England targeted rate of 2%.

This morning we have had further evidence of slowdown in Europe with the publication of the German ZEW Economic Sentiment survey for September. The consensus was expecting it to fall to +10.0 from the previous reported level of +14.0. However, the actual number came out at -4.3, substantially below expectations. A negative number indicates that more investors now expect deterioration in economic conditions compared to those that expect conditions to improve.

We have also had Industrial Production numbers for Europe this morning which showed no changed month on month, perhaps again evidence that economic conditions in Europe are slowing down after the strong Q2 growth.

In the US today the much awaited retail sales data for August was a little better than expected. If you strip out the impact of auto sales the gain month on month was +0.6% compared o expectations of +0.3%. The back-to-school season will have no doubt played a part in the strength last month but once again the data is good enough at least to suggest that a recession is not imminent.

Look out tomorrow for the US Empire State Manufacturing Index for September. The market will want to see this number remaining in positive territory and further confirmation that the manufacturing sector is not falling off a cliff will be well received. A negative number will be taken badly especially given the more recent rally on the back of the better than expected ISM data.

2010-09-13T12:50:00.002+01:00

The economic data is again likely to drive the market this week. World markets have opened in good shape this morning following completion of the Basel III agreement on minimum capital ratios. The required amounts are towards the lower end of expectations and are seen as achievable by most European banks which is why the sector has rallied this morning. We have also had Chinese Industrial Production numbers for August which was up 13.9% year on year, a little ahead of expectations and this has also helped sentiment this morning.

We have noticed that some brokers have started to tweak up their estimates for US Q3 GDP following the better than expected trade data for the US last week. Estimates are now closing in on +2%.

There is plenty in the economic calendar this week although today there is relatively little to focus on. The week really kicks off tomorrow with the publication of US retail sales for August. The consensus is looking for a +0.3% month on month improvement. The other US data due for publication tomorrow is business inventories for July with a +0.6% month on month gain expected.

In Europe, Tuesday brings the German ZEW Economic sentiment index for September. Expectations are for a drop to +10.0 from the previous reported level of +14.0. Given the slowdown indicated in recent data there is downside risk to this number in our view. Tomorrow we also get Eurozone Industrial Production for July with the consensus looking for a +0.2% improvement after the -0.1% drop the previous month. Finally, tomorrow the UK CPI for August is due for publication. The CPI has stayed stubbornly high during recent months and with concerns that food price inflation is starting to tick up there is a real risk that the UK CPI is going to remain well above target for longer than expected.

What will be of significant interest this week will be the two manufacturing reports due for publication in the US. On Wednesday we get the Empire State Manufacturing report for September. This measures manufacturing activity in New York State and this index did improve by 2 points last month to 7.0, but the new orders element fell into negative territory. The market will want to see this index remain in positive territory indicating growth and the consensus is looking for +5.0 for September. A negative number will be taken badly given the concerns over the manufacturing sector, although these were allayed to some extent with the better than expected ISM number at the beginning of the month. The second manufacturing report is for Philadelphia and that is due for publication on Thursday. The index for the previous month did actually decline to -7.7 from +4.1 which indicates contraction. The market is looking for this index to bounce back to around +4.0, but another negative number cannot be ruled out. If we do get gloomy manufacturing reports this week it may well prove to be the catalyst for at least some profit taking after the recent rally.

We will comment more on the rest of the data due out this week in the next Daily Briefing.

2010-09-03T13:05:00.002+01:00

The market is awaiting the US employment data and the ISM Non Manufacturing Index this afternoon. After the ISM manufacturing index on Wednesday defied expectations with an increase over the month there has been a sudden shift in sentiment towards the bulls. Expectations for private payroll growth within the nonfarm payrolls currently stand at +40,000 which hasn’t changed since earlier in the week and that’s despite the poor showing from the ADP number on Wednesday. Undoubtedly a negative private payroll number today will be taken badly but anything positive may well be greeted with relief giving the market a further excuse to rally after the market decline in August. The headline nonfarm payroll figure will still be negative as the census workers roll off the register with expectations of a drop of around -100,000.

The ISM Non Manufacturing data due out this afternoon is very important indeed given that it covers around 90% of the US economy. Expectations for July are for a reading of 53.0 from the previous reported level of 54.3. Given recent economic indicators we would certainly expect a decline although we would have said the same of the manufacturing report earlier in the week. There is the potential for a surprise but more likely a modest decline in line with expectations.

Overall a lot rests on the data this afternoon and if at the very least the numbers are no worse than expectations we would expect to see the market continue its rally. However, we would not read too much into this and it is more likely to be short lived. The US recovery is far from out of the woods and Q3 GDP is still lining up to be worse than Q2. Based upon recent data such as the bad construction numbers announced for July and the downward revision to the June number we may yet see a further downward revision to Q2 US GDP and a very low Q3 number with some commentators still suggesting Q3 could be negative.

The European data we have had today is the August Services Purchasing Managers Index for Germany, the EuroZone and the UK. The Eurozone was a little above expectations whilst Germany and the UK showed declines over the month. Euro Zone retail sales have also been published for July and the number was slightly below expectations with a month on month increase of +0.1% compared to expectations of +0.2%.

2010-09-02T11:38:00.002+01:00

The ISM manufacturing report in the US yesterday afternoon changed the market mood completely and all of a sudden there was a rush to buy risky assets pushing world markets up by well over 2%. The ISM reading came in at 56.3 against expectation of a fall to 53.0 from the previous monthly level of 55.5. However, the new orders and unfilled orders element of the index declined to their lowest level in many months. More recent data relating to the US manufacturing industry has pointed to quite a sharp slowdown in activity and it is difficult to see this index making any more progress from here. In fact yesterday’s data was almost a little deceptive in terms of what the underlying picture currently is.

The US ADP private payroll data was dire, bearing in mind that we are supposed to be in a stage of economic recovery. To lose a further 10,000 private payrolls when the US should in fact be creating 100,000+ at this time is not an indication that all is well. Also yesterday, US construction spending for July was announced and this fell by -1.0% compared to expectations of a -0.6% fall. The June level was revised to a decline of -0.8%, which is a reflection of the poor state of the US housing market. However, yesterday the market chose to focus on the positives and we now look to the Non Farm Payrolls and the ISM Non manufacturing data due out tomorrow. If both of these please the market we may well see markets push further ahead over the coming week, but conversely to that we may get a reality check instead.

This afternoon keep an eye out for the US weekly initial jobless claims. After the significant improvement last week to 473,000 from the terrible 504,000 posted the week before the market will at the very least be looking for claims to be hovering around the 470,000 mark. A shift back up towards 500,000 will not be taken well, but if we see further improvement that is likely to give the market a further boost this afternoon. Other data due out in the US today are factory orders for July with the consensus looking for a modest +0.3% gain following the -1.2% drop during the previous month.

In the UK today we have had further confirmation that the housing market is in decline with the Nationwide house price index falling by -0.9% during August. In Europe the estimate for Q2 European GDP was unrevised at 1.0%. The European Central Bank is meeting today to decide on interest rate policy. We can expect no change and realistically any rate increase is unlikely to come until well into 2011.

2010-09-01T13:08:00.001+01:00

The first of the employment data in the US is due for publication today with the ADP private payrolls for August due shortly. With clear deterioration in the US employment picture during recent weeks expectations have fallen and the consensus is expecting private payrolls to show a figure of just +20,000 last month. This compares to the July number of +42,000. However, there is considerable uncertainty as to what the figure will be today and it is not inconceivable that no private payroll jobs have been created. Either way the ADP number today will give some indication of where the Non Farm Payroll number is heading on Friday.

Today in the US we also get the ISM Manufacturing Index for August. More recent manufacturing data has suggested a rather rapid slowdown in conditions within the US manufacturing sector and the ISM number today will reflect that. The consensus is expecting a figure of 53.0 after 55.5 last month but given the recent weakness there is in our view some downside risk to this number.

Other US data due for publication is construction spending for July with the consensus expecting a drop of -0.6% after the +0.1% gain in June.

In Europe today we have had the August Manufacturing Purchasing Managers Index for the Euro zone and Germany which were broadly in line with expectations. The equivalent figure for the UK published today was a little less than expected at 54.3 compared to expectations of 57.0 after the July figure of 56.9. Overall, so far economic activity in Europe and the UK seems to be holding up a lot better than most feared although it is still early days given that the austerity measures and general fiscal squeeze are in the main yet to be felt.

The market is strong today after better than expected manufacturing data in China. The US economic data due out over the next couple of days will be crucial if the momentum is to be maintained.

2010-08-31T10:49:00.001+01:00

This week presents us with a minefield of economic data, with the major ISM indices and the all important unemployment data in the US due for announcement.

We ended last week on a positive note with world markets rallying after the second estimate for Q2 US GDP was no worse than feared at +1.6%. Fed chairman, Ben Bernanke made comments in his speech on Friday at the Fed’s Jackson Hole retreat that the Fed is prepared to do whatever it takes to keep the recovery on track. However, he stopped far short of suggesting that any new measures were imminent and instead said additional measures would be used if “the outlook were to deteriorate significantly”. This does suggest that the Fed is not in any rush to address the ongoing US slowdown and in fact he believes that the preconditions are in place for a more vigorous recovery next year. The market will certainly be looking for more action sooner rather than later if the data this week provides more evidence of a rapid slowdown.

World markets this morning have opened in negative territory after the Dow slipped back last night following slightly disappointing personal income data although volumes in the US yesterday were very light.

Today in Europe the main economic data that has already been announced is German and European unemployment for August. Both were static with German unemployment at 7.6% and European at 10%. In the UK, July mortgage approvals have been announced and they were slightly higher than expectations although this does not change the short term outlook for declining house prices. The latest Home Track house price index was published over the weekend and that showed prices fell by -0.3% during August.

In the US today the main data announcement will be the Conference Board Consumer Sentiment index for August. The consensus is looking for 51.0 after the 50.4 registered in July. If the University of Michigan data is to serve as any guide it would seem that more recent sentiment data has stabilised and the risks of a miss do appear lower at present.

Also in the US today we get the latest FOMC meeting minutes. Given the recent comments from Fed members there are unlikely to be any surprises within this announcement.

2010-08-23T11:55:00.001+01:00

After the market declines of last week world markets have today opened stronger and with little in the way of economic data due for publication the strength we are seeing this morning may well last into the afternoon trading session. The economic calendar is relatively busy after today and there will be plenty of data for the market to get its teeth into, especially in the US.

There is no economic data scheduled in the US today whilst in Europe we have had the August Purchasing Managers Index for Services and Manufacturing, both of which have come out a little lower than expectations.

Tomorrow we get June Industrial New Orders for the Euro zone and the main event will be the US existing home sales data for July. With the US economy already clearly in trouble, a collapsing property market will only compound the problem. The consensus is already expecting a significant decline on the last month’s figure of 5.37m units on an annualised basis to closer to 4.7m units. Given the impact that high unemployment is already having on US consumer sentiment, a poor housing market will only add to the US consumers’ woes and it is difficult at present to see any light at the end of the tunnel. Without healthy consumer spending the US economy has no hope of building the foundations for a sustainable recovery.

On Wednesday in the US we get more housing data with new home sales for July. The consensus is looking for a figure of around 340,000 annualised compared to the prior level of 330,000. Durable Goods orders for July are also due for publication on Wednesday with the consensus looking for a 2.5% increase after the -1.0% decline in June. In Europe on Wednesday the IFO Business Climate index is due for publication.

After the disastrous weekly initial jobless claims in the US last week, the market will be looking for a number lower than 500,000 on Thursday. If we see yet more deterioration in this data the market reaction will be very negative. If the 4 week moving average starts to close up on the 500,000 level the probability of a US double dip will increase significantly.

Friday is arguably the big data day this week. We get the second estimate for UK Q2 GDP which is expected to be unchanged on the first estimate of +1.1%. We also get the second estimate for Q2 US GDP. After the first estimate of +2.4%, expectations for the second reading have fallen quite dramatically with the consensus now looking for just +1.4%, although we feel if anything there is some downside risk to even that number. With so much US data now rolling over it is not inconceivable that the Q3 GDP will be a negative number.

We round the week off with the next dosage of US University of Michigan Consumer Sentiment data. The last reading was 69.6 and the consensus is looking for no change in the report this week. Under normal circumstances this index would be around the 90 mark under the conditions of economic recovery which does demonstrate just how far away we are from what could be considered to be a normal economic recovery.

2010-08-20T12:44:00.003+01:00

With no major economic news due for publication in the US or Europe today, the market is still chewing on the dire US weekly initial jobless claims published yesterday. This was followed by an equally poor Philadelphia Fed Manufacturing index which fell into negative territory, signifying contraction in the manufacturing sector in the Philadelphia Fed area during August. This index was expected to show a modest improvement to 7 from the previous reported level of 5.1. In fact it declined to -7.7 and as with the equivalent Empire State Index earlier in the week the new orders part of the index fell over the month. The manufacturing sector during recent months has been one of the bright spots of the US economy which has helped to keep at least some of the momentum going in GDP growth. It is now clear that the peak in manufacturing has been reached and the momentum is being lost rapidly. The issue now is whether the slowdown in growth in the manufacturing sector is going to turn into a broad based contraction. The next ISM manufacturing index reading is undoubtedly going to show a further decline although we are unlikely to be at a point of outright contraction.

Next week could contain the catalyst for a further downward move in world equity markets when the second estimate for US Q2 GDP is published on Friday. Given that only a few weeks ago the consensus was expecting second half GDP growth of around 3%, we may already be faced with a Q2 revision that takes it below 2%, the first estimate was 2.4%. Some commentators are already considering the possibility of less than 1% growth during Q3 with an outside chance of a negative print. A move to less than 1% or even negative growth before the end of the year would almost certainly prompt a potentially significant market sell-off.

2010-08-19T14:52:00.001+01:00

The main economic news of today has already been published in the form of dismal weekly initial jobless claims in the US. The number was 500,000 which does suggest that the employment situation in the US is starting to deteriorate yet again. If claims were to remain at or above this level for the next few weeks it is quite likely to result in a negative Non Farm Payroll figure the following month, and more importantly the risks of a US double dip will start to rise significantly.

Other data due for publication in the US today include the July Leading Indicator which is expected according to the consensus to show a 0.1% increase after a -0.2% drop last month. The Philadelphia Fed Manufacturing Index for August is also due out this afternoon with the consensus looking for a small improvement to 7.0 from the July level of 5.1. This would be consistent with the equivalent Empire State Manufacturing index published earlier in the week.

In the UK the Public Sector Borrowing requirement for July was less than expectation at £3.8bn compared to expectations closer to £5bn. This is encouraging but the Chancellor has some way to go to bring the public finances under control. The results of the spending review will be completed sometime in October and with budget cuts of up to 25%, the real impact of the austerity measures is yet to be felt by the economy.

On a more positive note UK retail sales for July were better than expected at 1.1% compared to consensus expectations of +0.4% and the June figure of +0.7%.

2010-08-18T16:16:00.002+01:00

A very quiet day ahead on the economic front. In the US there is no major data due for publication. In the UK the main event is the publication of the Bank of England meeting minutes and as expected the lone Hawk, Andrew Sentance has pushed for an interest rate hike to +0.75%, leaving the vote at 8-1 in favour of keeping interest rates where they are. Inflation in the UK is undoubtedly remaining stubbornly high and whilst the trend appears to be a slowing in the inflation rate it is likely to remain above target for some time to come. The July CPI published yesterday showed a modest decline to 3.1% annualised from 3.2% the previous month. With a vat hike due early next year and signs of some food price inflation starting to return there is a risk that inflation will not fall as expected. The Bank of England is taking the view that with so much spare capacity in the economy inflation will gradually return to target, but with the pace of decline incredibly slow and other shocks that may yet impact, concerns may soon start to increase.

The only data of note in Europe is construction output for June with the month on month rate coming in at a very healthy +2.7% compared to the May level of -0.7%. Spain was actually the star performer with a 7.2% jump after a -0.2% decline in May.

All eyes tomorrow will be on the weekly initial jobless claims in the US. After another bad number of 484,000 last week the market consensus has moved up to 480,000. A move above 500,000 would be significant especially if it were to remain above that level for more than a week or so.

2010-08-17T14:06:00.001+01:00

A brief update today. The German economic sentiment index for August produced a lower reading than expected at 14.0 compared to consensus expectations of 20.6. This index is based upon the expectations of financial analysts and investors rather than a consumer driven index and the decline reflects the fact that most of the financial services industry is now expecting a slowing in the rate of growth we have seen over the last quarter in Europe.

The rest of the data due out today will be US based. We have already had housing starts which not unexpectedly were lower than expectations at 546,000 annualised compared to consensus expectations of 570,000 and 549,000 last time. The impact of the expiry of the stimulus package for the housing market is still being felt and a sustainable housing market recovery in the US still looks a long way off. The housing market index published yesterday fell for a third month in a row.

The US Producer Price Index for July has been published today and was broadly in line with expectations at +0.2% and the final major data of today which is due out later on is Industrial Production for July. Expectations are for an increase of +0.6% after a +0.1% increase last month.

The US manufacturing sector appears to still be in slowdown mode judging by the Empire State Manufacturing index yesterday. The headline number did increase modestly to 7.10 (consensus was looking for 8), but the major components of this index such as new orders continue to decline. The equivalent number for the August Philadelphia Fed Survey on Thursday will make interesting reading to see if the slowdown is broadly based.

2010-08-16T13:20:00.001+01:00

World markets are rightly becoming increasingly nervous of the data emanating from the US. On Friday US retail sales disappointed. On the face of it the headline number of +0.4% for July was okay, but if you strip out gasoline and auto sales the number actually dipped by -0.1%. This is not the data you would expect from an economy on a sustainable path to recovery. The reality is very much different. We have already started to see some commentators talk of a revision to US Q2 GDP data to below 2% and some are already talking of flat to very modest Q3 GDP. Given that only a few weeks ago the consensus was talking about second half US GDP at 3%, times have changed rather rapidly and the risks that the slowdown turns into something worse remain material.

The economic data this week kicks off in the US with publication of the Empire State Manufacturing Index for Aug which is a monthly survey of manufacturers in New York State. This will make very interesting reading because of the rapid slowdown in the growth rate we have been seeing in the manufacturing sector. This index declined by 15 points to 5.08 last month and it was the start of several data sets that disappointed the market. The consensus is expecting the data this month to recover a little to 8.0 and whatever the number it will be looking for signs of stabilisation. A negative number suggesting contraction will not be taken well. We have the equivalent number for the Philadelphia Federal Reserve district on Thursday. This also declined last month to the level of 5.1 and the consensus is looking for 7.0 for August. Any suggestion that the US manufacturing sector is heading into a phase of contraction will not bode well for growth over the coming months.

The decline in the UK housing market appears to be picking up some momentum. According to the Right Move house price index published today, prices fell by 1.7% during August. In London, prices fell by a significant 4.1% during August which is the largest decline in 2 years. The UK housing market is undoubtedly overvalued. With the impact of low interest rates starting to fade as short term deals start to expire, and with the self certification market now non-existent, a lot of the recent supports are starting to disappear fast. We may well now be at the start of a prolonged downturn in the UK property market.

In Europe today we have had CPI data for July. The core rate excluding energy and food rose to 1% year on year compared to the 0.9% reported in June. The headline rate rose to 1.7% from 1.4%. Inflation pressures are still likely to remain relatively subdued due to the spare capacity in the Euro zone. However, the rise in the headline rate may start to raise some concerns that perhaps inflation over the near term could gather a little more momentum due to higher energy and food costs.

2010-08-13T13:20:00.002+01:00

After a strong start world markets have slipped back into negative territory and the reason is fear over the data due for publication in the US this afternoon. After the poor initial weekly jobless numbers in the US yesterday which increased from to 484,000 from 479,000 last week, market fears over a growth relapse/double dip have increased, and they have every reason to. Given that the employment situation appears to again be deteriorating there is a good chance of disappointment from the retail sales numbers for July and the final July reading for the University of Michigan Consumer sentiment index due out later today. Retail sales for July according to the consensus are expected to show a modest 0.5% improvement during July compared to a -0.5% decline during June. Most confidence indicators have fallen back during recent weeks and the last reading for the University of Michigan series was 67.8 compared to 76.0 at the end of June. Expectations are for it to rise modestly to 69.0 but after more recent data, especially relating to the employment picture, a decline cannot be ruled out.

The good news of the day has come from Europe where Q2 GDP was +1% compared to the first quarter of just +0.2%. The consensus was looking for +0.5%. The same data for Germany has also been published confirming that Germany was the major powerhouse during Q2 with growth of +2.2% compared to +0.5% during Q1 whilst the consensus was looking for +1.3%. The weakness in the Euro will have certainly been to the benefit of the Euro zone during Q2 boosting external demand. With austerity measure yet to really bite and a slowdown in the US already underway this may well be as good as it gets this year.

2010-08-09T13:13:00.003+01:00

After the poor Non Farm payrolls on Monday markets have bounced on the expectation that the Federal Reserve will announce additional stimulus measures when it meets tomorrow to decide on monetary policy. Once again we have a situation where markets view bad news as good news. The reality is very different and the fact that the Fed has to even consider additional stimulus measures at this point in the recovery is a reflection of the fact that the US has a jobless recovery and a very fragile one at that.

The Non Farm payrolls came in with a decline of -131,000 compared to the consensus which was looking for a decline of around -70,000 which was due to Census workers coming off the register. The key elements of this report were firstly the private payrolls which generated an improvement of 71,000 although the consensus was looking for a figure closer to 100,000. The previous headline number for June was revised from a drop of -125,000 to a significant decline of -221,000. The private payroll element of the June number was revised from a +83,000 gain to a much smaller gain of just +31,000. The unemployment rate remained steady at 9.5% but this was only because 181,000 people gave up looking for work. One interesting statistic we have seen quoted is that the number of unemployed, discouraged or involuntarily part-time workers is now more than 25 million or 16.5% of the labour force, which represents one in six Americans. Any idea that the road to recovery without any double dip or growth relapse is far from reality at present.

The next couple of trading days could well see some significant volatility. The market is expecting some form of announcement from the Fed about additional stimulus measures. This is certainly not a given and there is a significant possibility that they will opt for no action until the picture becomes clear of ongoing weakening in the recovery. Market reaction to a no action policy is likely to result in a sell off.

There is no major economic news scheduled for today in Europe or the US with all eyes focused on the Fed meeting result tomorrow.

2010-08-06T11:08:00.003+01:00

In the US on Wednesday the ADP private payrolls report was a little better than expected with 42,000 jobs created compared to expectations of 35,000. All eyes will now be on the Non Farm Payrolls this afternoon with the consensus looking for a decline in the headline rate of 100,000 due to census workers falling off the register, but the important number will be the private payrolls with the consensus looking for a number of around +100,000 to +125,000.

After deterioration in the US initial weekly jobless numbers yesterday with an increase of 19,000 to 479,000, there are real fears that we are approaching a point at which there will be net job losses on the Non Farm Payrolls. The key level for the weekly initial jobless claims is 500,000, and if we breach that over the coming weeks the risks to the economic recovery in the US will increase significantly.

Both the MPC and ECB met yesterday to decide on interest rate policy and not unexpectedly both left rates where they are. Inflation in the Euro zone looks to be under control with the main upside risks now likely to emanate from commodity price inflation, with the downside coming from so much spare economic capacity and weak demand. Inflation in the UK looks set to remain above target for some time to come especially given the influence the VAT increase will have at the beginning of next year. The first interest rate hike may well be in the UK although it is debatable as to whether it will happen in 2010.

Remaining on the subject of inflation we have had the UK Producer Price Index (inputs and output) for July today. Inputs declined by a more than expected 1.0% month on month whilst outputs rose by a modest 0.1% again confirming that there is little in the way of inflation pressures at present in the UK economy. Industrial Production and Manufacturing production for the UK has also been published this morning. The former declined by -0.5% (consensus +0.3%) month on month whilst the latter rose by +0.3% (consensus +0.6%). Industrial production data for Germany is also due out today.

2010-08-04T12:09:00.002+01:00

The market has jitters this morning about the results of the Non Manufacturing ISM data due out this afternoon in the US. Having fallen to 53.8 in June the market is expecting a further decline to 53.0 for July. The manufacturing equivalent on Monday fell by less than expectations and a similar result with the Non Manufacturing index will help world markets this afternoon. With so much concern over US GDP growth during the second half, any disappointment with this data is likely to result in sell-off. We shouldn’t forget the ADP private payroll data due out today with the consensus looking for a number around the 30,000 mark.

The trading update from Next today has put the retail sector under pressure. The comment ‘ a noticeable cooling in retail demand in recent months’ does suggest that the UK consumer might well be reigning in the purse strings. Next does have a habit of being overly cautious with their outlook statements but this certainly suggests that retail sales are slowing. It seems a very likely scenario given the cuts and taxation that are ahead, but this is the first real tangible evidence from one of the big retailers. Carpetright have made similar comments today.

In the UK today the Halifax house price index showed a 0.6% gain for last month which has reversed the same decline over the previous month. We have also had the July Purchasing Managers Index for services which fell to 53.1 from the June level of 54.4. The consensus was actually looking for a modest increase. Germany, Spain, Italy, France and the Eurozone July PMI Services were all reported today and all show declines on the previous month. The rate of growth appears to have peaked and the real issue is whether we continue to see a slow-down or whether we will see this data start to stabilise over the coming months. Finally, we have had June retail sales for the Eurozone today which registered no change month on month.

2010-08-03T11:47:00.001+01:00

The July ISM manufacturing report yesterday was better than expected with a decline to 55.5 from 56.2 in June. Expectations were for a decline to 54.0, and given the more recent manufacturing surveys the risks of a lower figure seemed quite high. The relief helped the Dow to keep most of its gains for the day with a 200+ point gain. We also had better than expected US construction spending for June with a 0.1% gain compared to consensus expectations of a -0.1% decline, although the figure for May was revised down from -0.2% to a -1.0% decline.

Today in the US we get personal income and consumer spending for June with the consensus expecting a 0.1% month on month gain. This data can move the market given its implications for GDP especially given that growth can only be achieved during the latter part of the year if the US consumer continues to spend. We also have factory orders for June and the pending homes sales index for June in the US today.

In the UK today we have had the July Purchasing Managers Index for construction which was worse than expectations declining to 54.1 from 58.2 in June. This sharp deterioration in business conditions within the construction sector may well be a reflection of the outlook for UK house prices.

In Europe today we have already had the June Producer Price Index which was broadly as expected with a 0.3% month on month increase.

After the sharp rally in world markets yesterday we can expect a degree of consolidation today. The economic data seems to be holding up reasonably well especially in Europe and this may well provide further support to equity markets over the coming days.

2010-07-28T13:23:00.002+01:00

The technical analysts voices appear to be in the ascendency at the moment with the S&P 500 now trading close to its 200 day moving average once again whilst the Dow is now close to break even for the year as is the FTSE100 and most major European indices. In the US the earnings season has made a difference given the ongoing disappointing economic data, although we must bear in mind that the earnings reports are historical whilst much of the economic data is a forward looking indicator.

The outlook remains very clouded and with the European austerity measures yet to really bite it is far too soon to consider the current rally in world equity markets as sustainable. US unemployment remains stubbornly high and the US economy is still benefitting from a massive fiscal stimulus, a good deal of which is now starting to fade which is why the more forward looking indicators point to a slowdown. We remain very uncertain as to the direction of world equity markets and it is difficult to believe yet that the fundamental picture is showing any real signs of improvement given the headwinds we face over the coming months.

The major US data announcement yesterday was the Conference Board’s Consumer Confidence index for July which declined to 50.4 from 52.9 against the consensus which was expecting a figure of 51.0. Consumer confidence in the US has slipped back significantly during recent weeks and if it remains at these depressed levels we can expect to see that reflected in spending patterns over the coming months which again does not bode well for US growth during the second half.

One glimmer of hope in the US is the housing market with activity appearing to show some signs of reaching a floor after the withdrawal of the tax credit stimulus measures. On Monday we had new home sales which after a 36.7% decline in May did at least rebound by just under 24% during June to 330,000 on an annualised basis. Other housing data relating to existing home sales and housing starts has been better than expectations this month.

The Bank of England Governor, Mervyn King has stated this morning that interest rates in the UK are set to stay low for the foreseeable future. Looking at GDP estimates and inflationary expectations we could be facing low interest rates for years rather than months. Despite the first estimate for UK Q2 GDP being substantially ahead of expectations it is difficult to see much more progress being made from this level over the coming months, and growth in the UK is still forecast by most commentators to be around the 1.3% mark for 2010. Estimates for 2011 show a little improvement on this level but not much with growth during 2011 likely to remain below 2%. These are levels that are unlikely to warrant any change in interest rates for a long time to come.

In the US today look out for the durable goods orders data for June. After a -0.6% decline last month the market is looking for a 1% improvement. The Beige book is also due for publication today and that gives some of the most up to date evidence of economic conditions in the 12 Federal Reserve districts.

2010-07-16T16:49:00.001+01:00

Today has been all about the US again and the economic data continues to drive the market which over the last two days has put world markets back into reverse. Yesterday we had a plethora of data all of which points yet again to a slowdown in US economic growth. The Empire State manufacturing index for July was considerably worse than expected with a reading of just 5.08 (the lowest reading since Dec 2009) compared to expectations of a modest drop to 18.0 from the previous reported level of 19.57. The equivalent figure for Philadelphia only confirmed a weakening picture with the index for July dropping to 5.1 whilst the consensus was expecting a rise to 12.0. The constituents of the Philadelphia index paint a rather bleak picture with the new orders index moving into negative territory at -4.3 from 9.0 whilst current shipments declined to 4.0 from 14.2. This almost certainly means we are on course for a weaker ISM manufacturing reading next month.

One slight positive yesterday was that industrial production managed a modest gain of 0.1% during June whilst the consensus was expecting a slight decline of -0.2%. Within the same report manufacturing declined during June by -0.4% following on from a 1% improvement in May. Capacity utilisation remains very slack at just 74.1%.

With unemployment in the US continuing to be very much in focus it was interesting to see the weekly initial jobless claims data being largely ignored with a much better than expected reading yesterday of 429,000 against consensus expectations of 445,000. The reason the market chose not to look at this data was partly due to the bad manufacturing surveys. However, seasonal factors primarily related to delayed layoffs in the auto industry for re-tooling and the July 4th holiday will have distorted the picture making the reading this week unreliable.

In the US today we have had CPI data for June with the headline number showing a decline for a third month in a row of -0.1% month on month whilst the core index (less food and energy rose by 0.2%). Overall inflationary pressure remains very subdued in the US, a trend which is expected to continue over the coming months.

The week in the US has been rounded off with a poor University of Michigan consumer sentiment index reading for July which fell from 76.0 to 66.5, against expectations of a modest decline to 75.0.

After yet another glut of poor US data the Dow is down 150 points at the time of writing whilst the FTSE100 has fallen by 50 points on the day. Next week in the US the economic data is primarily focused on the housing market which we already know is in deep trouble again and we kick off on Monday with the National Association of Home Builders housing market index.

2010-07-15T12:47:00.001+01:00

The minutes of the most recent FOMC meeting published yesterday revealed what most were expecting which was a downgrade to their growth outlook for 2010 from a range of 3.2% to 3.7% to a range of 3.0% to 3.5% and for 2011 from a range of 3.4% to 4.5% to 3.5% to 4.2%. In the grand scheme of things the downgrade is not that significant, and if the US does achieve these lower forecasts the market will have the basis to move further ahead. However, there is still considerable uncertainty around the market as to whether growth of over 3% is achievable this year. Given the Q1 figure of 2.7% and some estimates already doing the rounds of under 3% for Q2 there is a possibility that the Fed forecasts are going to need a further downward revision in the not too distant future. What we don’t want to see is a significant second half growth relapse in the US which is a real risk at present and is an event that is not priced into the market. At present most forecasters are not expecting any change in US interest rates until the latter part of 2011 at the earliest with many now predicting no change until well in 2012.

Other data news in the US published yesterday were retail sales for June which came in below expectations with a month on month decline of -0.5%. Most of this was due to a dip in auto sales which when stripped out showed a fall of -0.1% which follows on from a decline of 1.1% in May. Whichever way you cut it consumer trends in the US remain weak and it is difficult to see how the consumer will be able to pick up the baton and keep the momentum going over the coming months.

The US has a lot of data due for publication this afternoon. We start with the weekly initial jobless claims with the market looking for a number of 445,000 (last week 454,000). The Empire State Manufacturing report for New York State is due out at the same time. The market is looking for the index to drop back modestly to around 18.0 for July from the previous reported level of 19.57. Later in the day Industrial Production is due for June with the consensus looking for a month on month decline of -0.2% after the 1.2% increase reported for May. The final data of the day is the Philadelphia Fed manufacturing survey which is expected to show an improvement to 12.0 in July from the previous reported level of 8.0.

There was some relatively good news on UK unemployment yesterday with a drop of 34,000 in the number unemployed in the 3 months to May. Employment rose by 160,000 (although 148,000 of this was part time workers) over the same period but the number of people starting to look for work also increased significantly which held back the overall drop in the unemployment number. The outlook for the employment market remains clouded at present especially given the planned government cuts which according to the Office for Budget Responsibility will result in around 600,000 public sector job cuts by 2015/16.

The economic calendar for Europe is relatively quiet today with just the ECB monthly report on current economic trends due for publication.

2010-07-13T12:13:00.001+01:00

The core UK inflation rate (excluding food and energy) remains stubbornly high and actually increased to an annualised rate of 3.1% in June from the previous level of 2.9% in May. The headline rate which does include food and energy moved down slightly to 3.2% from 3.4%. These figures remain well above the Bank of England’s target rate of 2%, but expectations are firmly in the camp of gradually declining prices over the coming months driven on by excess capacity in the economy. With a VAT hike due at the start of 2011, the Bank of England will no doubt want to see the CPI much closer to target before the inflationary impact of the VAT increase. Expectations for the timing of the first interest rate increase in the UK are still well into 2011, but this may change if the trend does not start to show a more meaningful decline.

In Europe the Centre for European Economic Research (ZEW) said that its German economic sentiment index fell to 21.2 in July from 28.7 in June. The European equivalent also fell during July to 10.8 after a reading of 18.8 in June. Both were below expectations and perhaps show the lagged impact of the European sovereign debt crisis. It is still too early to assess the impact of the austerity measures in Europe and again the lack of news flow more recently is helping the market to recover recent losses but that doesn’t mean the problem has gone away.

At the moment optimism has grasped the market and the US Q2 earnings season has every chance of keeping the momentum going in the short term. Most commentators appear to have dismissed the idea of a double dip recession as a low probability event. The next few weeks will be crucial given the fact that the economic data has in the main rolled over and to what extent the slowdown becomes something more is still an unknown and we do not believe that the idea of a double dip can be dismissed at this stage.

2010-07-12T15:29:00.001+01:00

World markets managed a strong rally last week despite having digested a plethora of US economic data the week before which points to a slowdown in US economic activity over the second half of this year. The absence of any bad news last week undoubtedly helped the rally along, but as we move into the Q2 earnings reporting season this week attention will focus on company results and in particular outlook statements. The first report in the US comes from Alcoa after the market close today, but the real action won’t start until later in the week when the banks start to report with many of the technology companies and industrials scheduled for next week. A healthy reporting season may well help to instil confidence that a double dip is not on the horizon and possibly market expectations will start to adapt to slower growth paving the way for stability in the equity market. We remain very cautious about the market at present and although a good reporting season in the US may well help markets to recover some of the recent losses, there is still considerable uncertainty over whether the market is priced for low US growth over the second half.

In the UK today the ONS has published its final estimate of Q1 GDP which shows growth at 0.3%. More recent data suggest that the run rate during Q2 may have improved to +0.5% or +0.6%. However, that is still very small especially when you consider that according to the ONS GDP fell by 6.4% from peak to trough leaving a significant amount of lost output to make up.

This week is all about inflation with data due in the USA and Europe. In the US we get the Producer Price Index for June due for publication on Thursday with the Consumer Price Index for June due out on Friday. Both measures are expected to show modest declines of around 0.1% month on month. With so much spare capacity in the US economy and relatively weak demand it is difficult to see inflation becoming much of a threat for many months to come. Other notable US economic reports this week are retail sales for June due out on Wednesday which is expected to fall by around 0.2% following on from a 1.2% decline in May. The health of the US consumer is still very much in question and it is difficult to see consumer spending making much of a contribution to growth during the second half of this year. Also on Wednesday we get the minutes of the latest FOMC meeting which will make interesting reading. The market will be increasingly focusing on where policy makers see interest rates heading and the minutes will throw some light on any rifts occurring between the voters on how monetary policy should move over the coming months.

Thursday in the US brings the usual weekly initial jobless claims. After the decline last week to 454,000, the market is looking for a further fall to 445,000 this week. Also on Thursday we get another snapshot of the US manufacturing sector with the Empire State Manufacturing report for July. This index, which measures activity within the New York State manufacturing sector has remained comfortably within growth territory during recent months having registered 19.57 last month, with a reading of around 18 expected for July. A notable decline would almost certainly set the market back into worry mode over growth expectations for the second half. We also get the equivalent figure for Philadelphia on Thursday. The Philadelphia index surprised the market last month with a decline to just 8.0 and the market is expecting a bounce back for July to 12.0.

The week in the US ends with a dose of consumer confidence with publication of the first estimate for July of the University of Michigan Consumer Sentiment index. The last reading for June was 76.0 but with the recent decline in equity markets and ongoing weakness in the labour market a decline looks very likely. The consensus is looking for 75.0 but there is downside risk to this in our view.

In the UK tomorrow the CPI for June will be published. The month on month rate is expected to show no change bringing the year on year rate down to 3.2% from the 3.4% registered last time. The core annual rate is expected to dip to 2.8% from 2.9%. In Germany tomorrow the ZEW economic sentiment survey for July will be published. On Wednesday we get UK unemployment data and the European CPI for June as well as European industrial production for May. Thursday brings the ECB monthly economic report. Friday is relatively quiet on the economic front in Europe.

2010-07-08T12:19:00.001+01:00

With little in the way of economic news world markets have continued to rally and this has helped the FTSE100 make its way back above the 5,000 level. What happens next is very difficult to say and the weekly initial jobless claims in the US this afternoon are likely to have a major bearing on where markets move by the close of business on Friday. After another elevated reading last week of 472,000 the market will be looking for a lower number with the consensus currently standing around the 465,000 level. A higher reading will not be taken well and after the strong market moves of the last 2 days disappointment will surely result in a sell off on the Dow this afternoon.

The US Non Manufacturing ISM data for June published on Tuesday provided further evidence that economic activity in the US has already peaked and the question now is at what level is GDP growth going to fall to. Expectations of 3% GDP growth for the remainder of the year in the US could well be optimistic especially given that the spurt in growth during Q4 2009 and Q1 2010 was primarily inventory driven which is now coming to an end leaving the US consumer to now pick up the baton.

Keeping with the US consumer the Red Book report on June retail sales published yesterday provided the market with some confidence that perhaps the US consumer isn’t dead. The report showed that retail sales increase by 3% compared to the same period last year. What the market didn’t focus on was the fact that month on month retail sales were down 0.5%. The debate over whether the US consumer will be able to maintain the momentum is likely to continue for some time and for the time being at least sentiment appears to be a little more positive than negative.

In Europe today we have both central banks meeting to discuss interest rate policy with the UK set to remain on hold at 0.5% whilst no change is expected in the European rate at 1%. Also today we have already had German industrial production for May which showed a healthy 2.6% month on month increase compared to the April number of 1.2%. In the UK we have already had manufacturing and industrial production for May. The former was up 0.3% (4.3% year on year) whilst the latter showed an improvement of 0.7% (2.6% year on year). This certainly suggests that UK GDP for Q2 is on track to show an improvement on Q1.

2010-07-06T13:42:00.002+01:00

The economic data is driving the market far more than any other factor at present and today’s US data in the form of the Non Manufacturing ISM data is certainly in the top 3 of monthly announcements. The reading for May was 55.4 and the market will be looking for a figure close to this. A drop back to 53 or lower will almost certainly be viewed as further evidence of a slowdown in the US.

From a technical perspective the market is probably a little oversold but as we stated yesterday we would be cautious about any significant one day rallies as we have today with the FTSE100 up by the best part of 3%. If the US ISM this afternoon is broadly in line with expectations we may see the market stabilise a little but it is too soon to expect much more than this.

Yesterday in the UK we had publication of the UK CIPS/Markit report on services for June. The index fell from 55.4 to 54.4 which is the lowest level since August 2009. The business expectations element of this index suffered a big drop which is no doubt in part due to the impact of the budget. Overall the decline in this index suggests that activity is slowing and this is raising concerns over growth for the second half of the year. There is no major data scheduled for publication in Europe today.

2010-07-05T10:20:00.002+01:00

A quiet day of trading in prospect with the US closed for the Independence Day holiday. After poor Non Farm Payroll data on Friday in the US there is very little in the way of catalysts to get any form of sustainable rally under way and any strong one day movements must be treated with suspicion at present. The market needs a reason to believe that growth in the US is sustainable at or around current levels in order to make progress. Sadly the data at present is suggesting the US is undergoing a growth relapse and possibly even a double dip although the latter is still a low probability event at the moment.

Looking through the fine details of the Non Farm Payroll data on Friday did not really provide any crumbs of comfort. The market did initially rally on the drop in the unemployment rate to 9.5% from 9.7% but the truth of the matter is that this was purely due to a drop in the labour force as people gave up looking for a job and took themselves off the register. The fact that average hourly earnings declined during May by 0.1% is a little concerning especially as aggregate hours worked dropped by 0.2% as well. If we start to see sustained pressure on wages over the coming months this could well be the catalyst for deflation in the US.

With the manufacturing sector in the US seemingly having peaked and activity across the board starting to slow, all eyes will this week be focused on the ISM Non Manufacturing index due for publication tomorrow. Over the last few months this index has remained comfortably above the key level of 50 which indicates growth. Expectations for the June reading stand at around 55 which compares to the May level of 55.4.

The US unemployment data will continue to be a critical indicator of what is happening in the US economy which makes the weekly initial jobless claims an invaluable indicator of what is going on. After last week’s disappointment over yet another high reading of 472,000, the next reading due on Thursday will be very important. If we see a further increase it will raise the possibility of the private payrolls number heading closer to a situation of very little if any job creation.

Today in Europe we have already had the Purchasing Managers Index for services for the Euro zone and Germany, both of which showed a modest improvement. Recent economic sentiment data has not shown any sudden collapse in confidence so far and overall the Euro zone does appear to be holding up relatively well against the back drop of the sovereign debt crisis. We are due to get the June Purchasing Managers Index for services for the UK today as well as May retail sales for the Euro zone. The main event of the week although some would argue it more of a non event will be the two central bank meetings on Thursday. Both the ECB and Bank of England are expected to keep rates where they currently stand and any change is unlikely to come until well in 2011. Other data worth looking out for this week is May manufacturing production in the UK and German industrial production for May both scheduled for release on Thursday. French and Italian industrial production for May will be announced on Friday.

2010-07-02T15:06:00.001+01:00

A brief report this afternoon as today was all about the Non Farm Payroll announcement in the US. The overall decline of 125,000 was broadly as expected due to the temporary census workers coming off payrolls but the key number was the number of private payroll jobs created which was 83,000 (the consensus was looking for something over 100,000 and many were nearer to the 150,000 mark). It was interesting to see that the private payroll number of 41,000 reported last month was revised down to 33,000. The number for June is probably just enough to prevent a significant sell off this afternoon but realistically it is still very disappointing and certainly not a catalyst for any marked improvement in sentiment.

America is closed on Monday for Independence Day. Next week in the US is relatively quiet on the data front with the key data being the ISM Non Manufacturing Index for June due for announcement on Tuesday.

2010-07-01T12:59:00.002+01:00

Investor sentiment is firmly into negative territory at present and markets are likely to creep lower ahead of the Non Farm Payroll data in the US tomorrow. The devil will be in the detail and this time all eyes will be focused on the private payroll element of the announcement. The ADP private payroll data yesterday was very disappointing with an increase of only 13,000 in June compared to expectations of 60,000, and this does not bode well for the employment report tomorrow. A Non Farm private payroll figure of less than 50,000 (May was 41,000) for June is likely to be viewed negatively but anything above 100,000 might just save the day. The headline number is likely to be negative due to the slow-down in hiring for the census work.

Chinese economic data is now grabbing the headlines. One area of the world viewed as the engine for world economic growth is starting to show signs of slowdown which is compounding the recovery fears raised by recent US data. Today in China we had the manufacturing Purchasing Managers Index for June. It fell to 52.1 from 53.9 in May. The new orders element of this index declined to 52.1 from 54.8 and the finished goods inventory rose to 51.3 in June from 49.8 in May reflecting the slow-down in new orders relative to production. Whilst growth does seem to be slowing in China it is not wholly unexpected for an economy expected to grow at an annualised pace of around 10% in 2010. This is especially so given the economic headwinds of the European debt crisis and a property bubble in China that the Chinese government is now attempting to slow. Despite these factors growth is still likely to remain at close to current levels. The greatest risk to the world economic recovery remains the possibility of a growth relapse/double dip in the US with a similar situation in Europe.

Today we have already had Purchasing Managers Index data for manufacturing in Germany, UK and Europe, all of which were broadly as expected and did not present any surprises which has helped markets to stabilise a little as the morning session has progressed. The next key numbers today will be in the US with the usual weekly initial jobless claims expected to give a number of 460,000 compared to the number last week of 457,000. We also have the important ISM manufacturing index for June. The reported figure for May was 59.7 and we can expect a fall for June judging by all of the recent manufacturing US data that has been declining from recent highs. Expectations are for a decline to 59.0, but the fall could easily exceed this.

2010-06-29T16:42:00.001+01:00

Another poor day for world equity markets which started with disappointment over economic data in China suggesting slower growth and sentiment has been dented further this afternoon following publication of the US Conference Board’s Consumer Confidence index for June which suffered a significant decline to 52.9 from the previous reported level of 63.3 and the consensus was looking for a similar figure this month. The market is in no mood for bad news and with a several major economic data announcements starting to show real cracks appearing in the US economic recovery there is every chance that markets are going to move lower from here.

2010-06-28T17:50:00.002+01:00

With markets again under pressure today the string of economic data scheduled for publication this week especially in the US is likely to have a significant impact on world equity markets. Confidence is extremely fragile and the US employment report is what everyone will be waiting for on Friday. The Non Farm Payrolls during recent months have benefitted from the hiring of temporary workers for the US census count, the pace of which will have slowed during the last month. The last payroll report after stripping out census hiring was very disappointing with private payrolls showing a gain of 41,000, much below what analysts were expecting. This month will be very important and another weak private payroll number will be taken very badly by the market. The consensus appears to be expecting a positive private payroll number of around +100,000 to +150,000. The slow-down in census hiring may well create a negative headline number but that in itself will not worry the market, but a poor private payroll number will. We will get a fair indication of where the Non Farm payroll report is headed when the ADP private payroll numbers are published on Wednesday. The market is expecting an ADP number of around +80,000.

In Europe today we have had German CPI data that was broadly as expected with a month on month rate of 0.1% whilst the annualised rate fell to 0.9% from 1.2%. Deflation rather than inflation is a greater threat at present.

In the US today the main data for publication was personal consumption expenditure which is viewed as a barometer of the state of the consumer and showed a 0.2% increase during May. Perhaps more importantly, incomes increased by 0.4% over the month providing consumers with the opportunity to increase their savings rate. This is trend that is likely to continue as the long process of deleveraging plays out.

It is interesting to see that several of the major brokerages are starting to review their GDP growth expectations for the US over the second half. Most expectations seems to be around the 3% level but after the final revision to the Q1 GDP data down to 2.7% from 3.0% forecasts for the rest of the year are likely to be revised. It is certainly difficult to see much momentum building from here given the poor state of the US jobs and housing market which is likely to create a drag on consumer expenditure. The real issue is to what extend expectations are out. If we see a significant slowdown in the rate of growth it may well create the conditions for a further decline in the equity market as we move closer to the final quarter of the year.

There is one particular economic indicator that is getting more press at present and that is generated by the Economic Cycle Research Institute. The particular index does have a very good history of predicting US recessions with only one occasion when it predicted a recession that didn’t occur. At present this particular data set is again suggesting a recession in the US is not far away, although most commentators seem yet to be convinced. If nothing else it may well be pointing to a significant decline in the rate of growth.

2010-06-24T16:49:00.002+01:00

We have had two pieces of economic data today in the US. The weekly initial jobless claims were a little better than expected with the number coming in at 457,000 compared to the consensus expectation of around 465,000 and the number last week of 472,000. The number is still very elevated for this point in the economic cycle and there remains a real risk of significant disappointment over the non-farm payroll data scheduled for a week tomorrow. The other data in the US we have had today are durable goods orders for May which slipped y 1.1% against the consensus which was expecting a lightly more modest decline of 0.5%. If you strip out the impact of transportation orders the May figure shows a 0.9% improvement over the month compared to a decline of 0.8% in April.

We had strong evidence earlier this week that the US housing market is on the verge of a double dip. Existing home sales during May declined by 2.2%. The consensus was expecting an annualised rate of 6.2m when in fact the figure came in at 5.66m. The next day new home sales for May were reported and this figure came in substantially below expectations at 300,000 on an annualised basis compared to expectations of around 400,000. The decline during May was a record breaking 33%. The May decline is not quite so serious when you consider the increase in the two month period to April was 28.5% as homebuyers rushed to buy before the expiry of the homebuyers’ tax credits. Nevertheless in the absence of stimulus measures the outlook for the US housing market is looking increasingly gloomy. It certainly demonstrates the potential for a slowdown in economic activity as stimulus measures are withdrawn in the US as the year progresses. If we do see a further decline in US house prices it will inevitably impact on consumer confidence which has the potential to hold back GDP growth during the second half of the year.

Tomorrow in the US we get the final estimate for Q1 GDP growth which the consensus expects to remain at 3.0%. Expectations are for US growth to remain at this level throughout 2010. However, there is a real possibility that growth will tail off in the US during the second half of the year. The consumer still does not look to be in a position to take the reigns as the inventory replacement cycle that has boosted growth during recent months comes to an end. Also a lot of the stimulus measures in the US will have been used up by the start of the fourth quarter leaving a real risk of a raid slowdown in the rate of economic growth. This is a significant risk for equity markets as we enter second half. Also tomorrow we have the latest University of Michigan Consumer sentiment data for June which is expected to remain close to the previous reported level of 75.5.

Finally, the UK Budget was certainly tough in terms of the fiscal squeeze it will create but in order for UK plc to retain its AAA status it does go a long way to achieving this. The level of spending cuts and taxation are undoubtedly a risk to the recovery and there is a fine line between maintaining growth and stifling recovery but what is clear is that the size of the fiscal squeeze will almost certainly mean interest rates in the UK will stay very low for years rather than months. The jury will remain out for some time over whether the budget will achieve its objectives especially given the uncertainty over exactly what spending cuts will be made, something that will not be known until later in the year.

2010-06-21T16:01:00.001+01:00

World markets have started the week with good strength following comments over the weekend from the Chinese central bank about its renminbi policy. They stated that they intend to relax the two year dollar peg put in place at the time of the global economic crisis to protect their exporters and will now allow their exchange rate to be more flexible. Just how flexible is not known but the move is seen as one that will reduce fears of a trade war with the US. A more flexible exchange rate policy should help to reduce inflationary pressures in China as well and overall this move should be beneficial for the world economic recovery. However any benefit is likely to remain relatively limited given the likelihood of the currency remaining very much managed with a significant move in the currency unlikely.

This week in the US we have the FOMC interest rate meeting which starts on Tuesday with their decision scheduled for Wednesday. There is still no reason to change the fed funds target rate and the focus will once again be on the accompanying statement with market watchers looking for signs of any future changes to policy. Also on Tuesday in the US we get existing home sales data for May. With the April expiry of the special tax credits incentive this number could easily disappoint with the consensus expecting an annualised rate of around 6.2m units. We get more home sales data on Wednesday with new home sales for May which are expected to fall by up to 20% to an annualised rate of around 400,000 units.

The major US data this week will be durable goods orders for May which after a 2.8% increase in April are expected to show a modest decline during May. The weekly initial jobless claims continue to make interesting reading and after the unexpected 12,000 increase last week to 472,000 a further rise this week will really stoke fears of a bad nonfarm payroll figure a week on Friday. In the US on Friday we get the third and final estimate for Q1 GDP which is expected to remain unchanged at 3.0% on an annualised basis. Friday also brings the next dosage of consumer sentiment data which always has the power to move the market during the final hours of trading on a Friday afternoon. The University of Michigan data provided a mid June reading of 75.5 with a similar figure expected this time. The more recent stabilisation of equity markets will no doubt help.

This week in the UK is all about the emergency budget tomorrow. There is plenty of press speculation/leaks on what is going to be announced and whilst most of it is probably already priced into market expectations there is still scope for surprise announcements and vat will be of particular interest. The extent of any hike and timing is very much unknown but it will have implications for retailers and the inflation rate.

In Europe tomorrow there will be further clarity of whether business expectations are changing in Europe with publication of the IFO business climate index for June. We also get the European Commission Consumer Confidence index for June. Wednesday brings the latest Gfk consumer confidence data and also due for publication are the European Purchasing Managers Index for Services and Manufacturing. The former registered 56.2 in May and a similar figure is expected for June whilst the latter was 55.8 and again a similar figure is expected for June. Look out for any material miss which could well dampen equity market sentiment.

On Wednesday in the UK the minutes from the latest Bank of England MPC meeting are due for publication. The rest of the week is relatively quiet in terms of European and UK announcements.

The next Daily Comments will be sent on Thursday.

2010-06-18T16:24:00.001+01:00

We had more disappointing jobs data in the US yesterday with the weekly initial jobless claims rising by 12,000 to 472,000. Some of this may well be due to the economic impact of the BP oil spill, but nevertheless the level of claims looks set to remain elevated for far longer than many predicted. The US economy is still experiencing a recovery with very modest job creation at a time when we should be seeing a significant fall in the number of unemployed. If as many expect the economic recovery softens later in the year we may well see US unemployment remaining close to 10% for a long time to come.

Other US economic data published yesterday were the leading indicators for May which remained in positive territory at 0.4% although a little lower than the consensus expectation of 0.6%. The Philadelphia Fed Manufacturing Index for June was published yesterday and that showed a decline to 8.0 from the previous reported level of 21.4. There has most definitely been a slowdown in the pace of US manufacturing activity over the last couple of months with the ISM seemingly having peaked and the more recent New York survey and Philadelphia surveys starting to come back from their recent highs. This may well be more due to the inventory cycle coming to an end as firms have now replenished diminished stock levels and we may well see the data level out but remain in positive territory over the coming months.

We have no major data due for release in the US today. In the UK today we get a further insight into the finances of UK plc with the public sector net borrowing for May. We also get UK mortgage approval data for May today. In Europe the main announcement scheduled for today will be the German Producer Price Index for May. We will comment on this data on Monday.

The main event for next week will be the UK emergency budget on Tuesday.

2010-06-17T13:51:00.002+01:00

The world cup has provided a short term fillip to UK retail sales during May as consumers stocked up on big televisions. The end result was a 0.6% gain compared to the consensus which was looking for a modest 0.1%. Sales for April were revised down from a 0.3% increase to unchanged. Next week the emergency budget is likely to bring significant cuts and increased taxation making life very difficult for consumer expenditure over the coming months and years. The outlook for retail in general looks to be very difficult indeed.

During recent days there has been a lot of market speculation about how deep the Spanish problem is. The Spanish government has been selling bonds this morning and has comfortably raised €3.5bn although at a significantly higher rate to what they had to pay in May. Today’s 10 years bonds were sold at 4.86% compared to the May level of 4.045%. The fact that they got the sale away comfortably has provided a degree of relief this morning and it almost feels as if the European debt crisis is now being ignored by the market and is considered old news. The truth of the matter is that it is a problem here to stay and the real impact may yet be felt by the real economy. Attention is now very much focused on Spain and Spanish banks which are having to borrow significant amounts from the ECB due to a squeeze in the private funding market. There were several headlines doing the rounds yesterday that Spain may need emergency funding although the Spanish finance minister refuted this. It will not take much to create a second wave of panic selling especially if the worries start to move to Italy. Despite the equity market rally of recent days there is still good reason to remain very cautious.

In the US yesterday we had further confirmation that the housing market is going into reverse following the expiry of the tax credit program. House builders are taking a cautious attitude to where the market is going with a 10% decline in housing starts following on from the 3.9% gain during April. The consensus was expecting an annualised housing start rate of 650,000 but the actual figure fell well short at 593,000. A weak housing market will not help a recovery that will become increasingly reliant on the consumer taking up the reigns as the various stimulus measures are gradually withdrawn over the coming months.

Turning to the US consumer, earlier in the week we had the Johnson Red Book retail sale report. The report stated “General merchandise and apparel sales in general underperformed basic goods, but retailers said weather fluctuations were less of a factor than a general decline in customer traffic and a lower propensity for spending, suggesting consumers were reducing discretionary purchases and being more defensive in their buying pattern” which does show the general strain consumers find themselves under at present. According to the report month on month sales declined by 0.5%.

Other US data we had yesterday was Industrial Production for May which came in a little ahead of expectations with a 1.2% month on month gain compared to the consensus which was expecting a 1% gain. Also in the US we got the Producer Price Index for May which fell by 0.3% month on month, a little less than the decline expected due to lower energy costs. At present there is very little in the way of inflationary pressures in the US. The US CPI data for May published today was broadly as expected with a month on month decline of -0.2%.

Today in the US the reported weekly initial jobless claims number has risen to 472,000 (the consensus was expecting around 450,000). It is possible some of this will be due to the fallout from the BP oil spill, but they way the trend is going private payroll job creation will be almost non-existent leaving us vulnerable to another poor non-farm payroll number next month.

2010-06-15T18:20:00.001+01:00

Possibly the first signs of cracks appearing in the European economic recovery came today with a slump in German investor confidence. The ZEW German investor confidence index for June fell to 28.7 from 45.8 in May whilst the consensus was expecting a more moderate decline to 42.0. Undoubtedly the recent and ongoing sovereign debt problems in Europe are the cause of the decline and the real question is whether a decline in confidence will be temporary or sufficient to cause economic activity to slow down. We also had the ZEW European economic sentiment survey for June today which showed a steep decline to 18.8 from the previous reported level of 37.6.

The UK inflation report was broadly as expected with a decline to 3.4% year on year from the previous level of 3.7%.

In the US today we have had the Empire State Manufacturing index for June which was broadly as expected coming in at 19.57 compared to the May figure of 19.1. This does help to alleviate concerns over a slowdown in manufacturing activity. Tomorrow in the US we get Industrial Production for May as well as the May Producer Price Index and housing starts for May.

After the Dow gave up all of its gains yesterday, it has again rallied which has helped the UK market to another positive close. The appetite for risky assets certainly seems to be coming back but for how long is more difficult to gauge.

2010-06-14T13:46:00.002+01:00

A busy week ahead in terms of economic announcements although today is relatively quiet with just April industrial production data for the Euro zone which came in a little ahead of expectations at 0.8% month on month compared to the consensus expectation of 0.7%. We are still getting a lot of data for the period prior to the fallout over Europe but even so most of the more forward looking indicators do not suggest that there has been any sudden reversal in current trends.

Tomorrow we get the UK May CPI data. Inflation in the UK has remained stubbornly high during recent months. The Bank of England has taken the view that with so much excess capacity in the economy we will see the more recent inflationary pressures ebb away with the CPI expected to fall back over the coming months. One fly in the ointment may well be the emergency budget next week and if the VAT rate is moved higher it will almost certainly result in the CPI remaining well above the target rate for some time to come. An interesting article in the Times yesterday quoted Andrew Sentance, a current MPC meeting member who suggested that the amount of spare capacity in the economy may not be as great as is currently assumed. This could well result in interest rates moving higher much earlier than expected. The data tomorrow is expected to show a small drop in the current annualised headline rate of 3.7%, but uncertainty does seem to be growing as to whether inflation will fall as much as expected. It is still difficult to envisage an interest rate hike this year unless the broader economy starts to show greater strength.

The newly formed Office for Budget Responsibility has produced revised forecasts for UK GDP growth today for the next 4 years bringing the previous Chancellor’s rather ambitious outlook down to more realistic levels. The new data forecasts growth this year of 1.3% (previously 1.0% to 1.5%), whilst next year has been reduced to 2.6% (previously 3.0% to 3.5%). This data has been published ahead of the emergency budget which will take centre stage next week and whilst expectations are already set for significant cuts it may still contain new policies that could upset the market.

The economic calendar in the US kicks off tomorrow with the Empire State Manufacturing index for May. This is a monthly survey of manufacturers in New York State. The April data did fall somewhat against expectations to 19.1 from the previous reported level of 31.86. The consensus is expecting the number for May to show a modest improvement on the April number. A further decline would certainly raise worries over a slowdown.

In the absence of any market moving news today the market is ticking higher with the FTSE100 up 25 points at the time of writing. The Dow futures are pointing to a 50 point gain.