We took a quick profit today on a long Unilever holding after buying in yesterday after the shares drifted back below the £14.50 level. At the time we expected to be holding the shares for a week or more to get close to our price target, but the significant market move today was particularly beneficial for the shares along with the Euro clawing back some of the lost ground against the pound. A 2% return in a day or so seemed too much to leave especially given the possibility of some profit taking tomorrow.

The economic data over the last couple of days in the US has presented a mixed bad with the ADP private payroll data worse than expected along with a big drop in US consumer confidence. The manufacturing ISM data today was actually better than what many were expecting although it remains some way off the critical 50 level that would indicated expansion within this sector. The Non Farm Payrolls tomorrow will be the main market driver and with the US closed on Friday we can expect a quiet end to the week.

Week Ahead

The economic data last week provided a somewhat mixed bag and the market certainly lacked direction. We seem to have reached a point where despite the overall picture is showing a slowdown in the rate of contraction the market is no longer responding well to this news and instead the expectation appears to have moved to a level where growth will need to be visible for the market to make any further progress. We feel that at this stage with the second quarter likely to continue showing negative GDP growth around the world the market may well start to lose the momentum and at best is likely to remain range bound. Some interesting data published last week showed that Executives at U.S. companies are taking advantage of the strong recovery in equity markets to sell their holdings at the fastest pace since credit markets seized up two years ago. S&P 500 Index Executives were net sellers for fourteen straight weeks, an indication at least that they don’t expect current prices to hold.

Last week started with the Purchasing Mangers Composite index for the Euro zone which improved slightly to 44.4 from 44.0 which was a little less than expected with the key expansion level of 50 still some way off. We are likely to see an overall decline in European GDP for the second quarter with most commentators expecting a contraction of between -0.5% and -1.5%. Interestingly the German Composite PMI for June actually deteriorated again from 44.0 to 43.4 which as the largest Euro zone economy demonstrates that if anything the Euro zone has some way to go before we can expect to see any real growth coming through. In the UK the services PMI is actually above 50 which suggests that the UK economy is recovering more quickly than the rest of Europe.

In the US existing home sales increased by 2.4% month on month in May to an annualised rate of 4.77m units. Existing stock of homes for sale stands at 9.6 months in May versus 10.1 in April. This is still some way off the level of around 6 months supply which would be consistent with price stability and it therefore looks highly likely that US home prices have further to fall.
Also in the US the Durable Goods orders were better than expected with a 1.8% month on month improvement in May which compared to consensus expectations of a decline of around -1.0%, and this initially provided a boost to markets on Wednesday. Later that same day the Federal Reserve interest rate decision of no change was accompanied by a slightly bearish statement from the Fed stating that economic activity is likely to remain weak for a time although they did acknowledge that the downturn in the economy appears to be slowing. The Fed also stated its intention to retain a low interest rate for an extended period of time which suggests low rates well into 2010.

This week we start with various confidence indices for Europe covering economic, consumer, industrial and services. Tuesday brings German unemployment data for June and the Euro zone CPI estimate for June which is expected to move from 0% year on year last month to a negative figure of -0.2% according to the consensus. Also on Tuesday we get the final estimate for Q1 GDP for the UK which is expected to remain unchanged at -1.9% quarter on quarter. On Wednesday we get the Manufacturing Purchasing Managers Index for Spain, Italy, France, Germany, Euro zone and the UK, all of which are expected to show a figure of below 50 indicating contraction. Thursday brings the May unemployment rate for the Euro zone which is expected to reach its highest level for 10 years. Also on Thursday we get the ECB interest rate decision with rates expected to remain at 1%. On Friday in Europe we get the Purchasing Managers Indices for Services in Italy, France, Germany, Euro zone and the UK with only the UK expected to achieve a figure of above 50 indicating expansion. Also in Europe, retail sales data for May will be announced with the consensus anticipating a modest decline of -0.1%.
In the US on Monday there is no major data scheduled whilst Tuesday is relatively quiet with the main economic announcement being the Conference Board consumer confidence data for June which the consensus is expecting to show a very modest improvement to around 55 from the 54.9 registered in May. However, after a strong rally in this index and the fact that long term mortgage rates in the US have been going up along with rising unemployment and an increase in gasoline prices it is not inconceivable that this index will drop over the month. On Wednesday we have the Institute for Supply Management Manufacturing Index for June. This index registered 42.8 in May and the consensus is expecting a further improvement to 45 for June. We believe this data could disappoint given that manufacturers are still in the process of de-stocking and with auto factory closures also likely to have an impact it may be a little while yet before we see this index close the gap towards the 50 level which would indicate expansion in the manufacturing sector.

Unemployment data will be in focus this week in the US and we get the ADP private employment data for June that is due to be announced on Wednesday. This figure is expected to show an improving trend with a decline over the month of around -375,000 compared to the May figure of -532,000. This leads us into the Non Farm Payroll report scheduled for release on Thursday. After showing a significant and unexpected improvement in May to a decline of -345,000 the market is looking for a similar figure for June. Anything worse than -450,000 is likely to upset the market. The unemployment rate is expected to move up to 9.6% from the level of 9.4% reported last month. Finally on Thursday we get Factory Order data for May which according to the consensus is expected to show an improvement of 1.4% following an increase of 0.8% in April. The US market is closed for Independence Day on Friday.
This week we will be updating our note on Tesco.

An unexceptional week and one that I am glad I missed. The market definitely lacks direction at present and is no longer reacting well to economic data which points to a slowdown in the rate of worldwide economic contraction. What it wants to see now is growth and there isn't going to be any real news on that for at least another quarter which leads me to believe the summer will see the market range bound or it may well drift lower. With this in mind trades need to be placed very carefully as you do not want to get stuck in positions until the market starts to get some direction. The defensive areas of the market still offer good trading opportunities and we are sticking to these sectors for the time being with a view to picking up good stocks on weak days.

Week Ahead

The CFD Trader is away until the 26th June.

Last week during a speech by Lucas Papademos, the ECB Vice President, he estimated that write-downs for the euro area banking sector over the rest of this year and into 2010 will reach somewhere in the region of $283bn which compares to their total estimate for losses of $649bn for the period 2007-2010. He felt that Euro banks are sufficiently well capitalised to withstand this and did not mention any need for a general bank stress test. Within the ECB’s semi annual Financial Stability Report which was released last week, there was acknowledgement that GDP growth for the euro area will only move back into positive territory from around mid 2010 onwards. The consensus seems to be moving toward the view that the Euro area is likely to lag the recovery in the rest of the world especially given the more substantial decline in GDP they have experienced. This is undoubtedly in part due to the ECB’s reluctance to cut rates during the early part of the credit crisis and recession and the resulting strength in the euro has hurt the Euro-zone during recent months.

The first economic data of last week was euro-zone unemployment for Q1 which was particularly bad with the number of people employed declining by -0.8% quarter on quarter with a downward revision to Q4 2008 from -0.3% to -0.4% quarter on quarter. The worst affected areas are Spain and Greece with the former seeing a -3.1% decline quarter on quarter whilst Greece experienced a -1.8% decline quarter on quarter. Spain is clearly seeing the aftermath of a massive property boom which has turned into a very significant bust and this has impacted heavily on the construction sector.
The German ZEW sentiment index showed a strong advance during June reaching a 3 year high. Given the poor state of the German economy it is hard to reconcile why expectations have risen quite so markedly and if you look back at the history of this index it does have a habit of getting ahead of the game and it is not a particularly good indicator of future economic performance.

In the US last week the housing starts data beat consensus expectations by a significant margin with a 17% month on month increase in May to an annualised rate of 532,000 units which compared to 454,000 in April. This jump was certainly encouraging, but we have to bear in mind that the annual rate is still substantially below the norm and with rising unemployment it is difficult to see demand pushing new starts much further ahead in the coming months.

The Producer Price Index PPI data in the US last week showed a distinct lack of inflation in goods and services and with growing capacity in the economy it is difficult to see much in the way of pricing pressure for some time to come. The US CPI month on month rate fell to +0.1% against expectations of a +0.3% gain and that brought the year on year rate down to a negative -1.3%. Given that unemployment is increasing at a significant rate and wage growth in the US is in decline it is hard to see end demand being anywhere near sufficient to bring inflation back onto the scene just yet.

In the UK the CPI data published last week showed that inflation is remaining quite stubborn and the year on year decline to 2.2% was above the consensus expectation of a decline to around 2%. Inflation has overshot the consensus on several occasions during the credit crunch and despite the ongoing recession it remains above the Bank of England target rate of 2%. Predictions of negative CPI now look very unlikely although we would still expect the year on year rate to continue declining especially given that sterling is now finding some strength which should reduce import prices.
Staying in the UK, unemployment data for May was not as bad as feared with a claimant count increase of 39,300 for May against consensus expectations of a 60,000 increase. However, given the rate at which unemployment tends to lag GDP growth it is unlikely that unemployment will stop rising until later in 2010. Finally, in the UK we had the minutes of the last Bank of England MPC meeting and not unexpectedly the vote was 9-0 in favour of keeping rates at 0.5% with an ongoing commitment to the quantitative easing policy.

We start the week with a very quiet Monday and the only data of note that is due for publication is the IFO business climate and expectations survey for Germany which is always of interest given that Germany is the largest economy in the Euro-zone. Tuesday brings Purchasing Managers Index data for Germany, France and the Euro-zone. This basically gives an assessment of business conditions within the manufacturing sector which represents around 25% of Euro-zone GDP. A figure of 50 or above would indicate expansion, but all three numbers are expected to remain below 50.

On Tuesday in the US we get existing home sales data which is expected to rise to 4.85m units on an annualised based from 4.68m the previous month. Attractive tax incentives are certainly increasing activity in the US housing market. However, the level of unsold inventory as reported last month at 10.2 months worth of stock is still far above a level consistent with stable prices.

The significant data of the week comes with the publication of the US Durable Goods orders for May. Having improved by 1.7% in April the consensus is anticipating a modest decline of -0.5% for May with lower demand for autos likely to hold orders back. Also on Wednesday in the US we get new home sales data which is expected to show an improvement to 365,000 on an annualised basis for May compared to the April figure of 352,000. Demand for existing home stock where distressed sales are creating the most interest is taking demand away from new home sales and this trend is likely to continue. Finally on Wednesday we get the results of the FOMC interest rate meeting. Interest rates are expected to remain as they are close to the targeted level of 0.25%, but the market will be looking at the accompanying statement for any guidance on when the Fed may start to raise the interest rate. There was a lot of speculation last week concerning the possibility of a hike in the interest rate before the end of this year especially with 10 year treasury yields jumping higher. This led to comments that perhaps the Fed will use the interest rate meeting this week to reduce expectations of Fed tightening before the end of the year.  In the UK the CBI retails sales data for June will be published on Wednesday.

On Thursday in the US we get the final estimate for Q1 GDP which is expected to remain unrevised at -5.7%. On Friday we get US personal income data for May which is expected to show a 0.4% improvement on the previous month boosted by one off social security payments although the underlying trend is likely to remain down whilst consumer spending may show a very modest increase over the month according to the consensus expectation of +0.3%. Finally on Friday in the US we get University of Michigan Consumer Sentiment data for June.

We have not been very active this week with the market showing little in the way of direction. It is always easier to trade on days with big market movements and Monday provided that. Our methodology is very different to that of our competitors in that we do not trade very frequently but instead focus on a few quality trades every month. So often we have clients come to us that have traded with brokers where they have literally traded every day and usually more than once per day. We take the view that a few trades each month that each generate a small return adds up to a large return over a long time frame and it does work. Of course you cannot get it right every time, but by focusing only on a few trades where the probabilities are far more in your favour can generate a very successful outcome. If you are going to trade day in day out it is far more difficult and dare I say almost impossible to find a high number of winning trades.

The market does now look to be range bound as to whether that will remain the case is difficult to tell, but I still feel there is more chance of a break on the downside than the upside at the moment. The key question is what can drive the market higher now that the financials have really had their recovery for the time being with most other big sectors having had a reasonable run. The miners are always the unknown and clearly any sign of an economic recovery that is starting to look sustainable could see this sector moving ahead strongly.

Apart from trading Unilever this week in my personal portfolio I also traded some National Grid. It was a holding that I actually bought a little too early last week as they moved back below £5.50, but a strong rally today left me with a comfortable profit and I decided to take it. National Grid certainly has good yield attractions which to my mind leaves limited downside at around the £5.30 level.

We are still focusing on the more defensive areas for our trading with particular interest in Unilever, BAT and Imperial Tobacco. Vodafone had a strong run this week and whilst we have actively traded it in the past I am a little concerned about the pressures they face within their mature European markets and with the Euro starting to fall back it is going to be very difficult for Vodafone to achieve top line growth which could result in some changes to forecasts over the coming months. There isn't much room for disappointment and although the focus is much more on free cash flow now where they are likely to make progress, it does depend to a certain extent on how successful they are with cutting costs.

The market certainly does not feel good today with the miners dragging us down and sentiment in general starting to feel more negative. With the FTSE100 now standing at 4278 we are a good 5% from the recent high and it will be interesting to see if we continue back towards the 4000 level. From a trading stand point having traded successfully in Unilever on Monday/Tuesday we are happy to watch and await developments.

This morning we have closed out long positions which we took in Unilever yesterday. The entry price yesterday morning was £14.55 and we made an exit this morning at £14.75, not a huge gain, but ungeared it is 1.1% after costs and a few of these type of trades soon add up to a good overall monthly return. We have reduced our target gains significantly during recent weeks given where the market currently stands.

Week Ahead

Whilst there was not a huge amount of economic data published last week, what there was continued to paint a picture of an improving outlook. We are certainly seeing less bearish comment at the moment and the debate seems to have moved from no sign of green shoots to a plethora of green shoots, but uncertainty as to whether the momentum can be sustained. We certainly remain sceptical that the momentum can be maintained. Given the amount of money being pumped into the world economy some form of recovery is inevitable, but for it to be sustained we need a consumer in good financial health and in the UK we are still far from that point given rising unemployment, high levels of debt, and a housing market that may yet have further to fall. At the moment a lot of the green shoots are attributable to industry restocking and restarting having run inventory down since the end of last year, but unless the end demand is there it is difficult to see a sustainable recovery and certainly sub-trend growth is the best we can hope for at present. The CBI today forecasted that a recovery will not begin until early next year and even then they are only forecasting growth of +0.7% for 2010. Their GDP forecast includes growth of -0.1% during Q3 2009 and 0% for Q4 2009 with Q1 2010 starting with +0.1% and Q2 2010 providing +0.3%. This kind of growth is close to recessionary conditions and the economy is unlikely to feel any discernible difference to conditions now. Without a V shaped recovery which many still expect we could easily see the market coming under further pressure later this year.

Last week in the UK the British Retail Consortium published retail sales data for May which was up 0.8%. This was primarily due to new space which added 1.6% in sales whilst like for like growth was down -0.8%. Within the non food data which was down -4% like for like it was interesting to see that clothing and footwear were the worst performing categories. The UK consumer in our eyes remains a significant risk to any sustainable recovery. At the moment data suggests that the UK consumer is still funding spending to a certain extent from increased credit. At some point we expect this trend to reverse as it has done in the US and 2010/11 could easily see much reduced consumer expenditure as debt is paid down and consumers start to save, which at some point they will have to do. As of yet we are not seeing any increase in the UK savings rate which compares to a significant increase that is happening in the US, and it is something that will have to happen in the UK at some point.

Also in the UK we had the RICS house price survey last week which showed that confidence is definitely improving. The balance of surveyors reporting that house prices increased in the last 3 months rose to -44% in May and this compares to -59% in April and -72% in March. Whilst the net balance remains negative, expectations for further house price falls appear to be diminishing and judging by sales at the moment it seems likely that we will move closer over the coming months to a point of price stability.

In the US, retails sales during the month of May improved by +0.5% whilst the core figure excluding auto sales and gasoline was flat over the month and this was broadly in line with the consensus. US consumer expenditure is likely to remain subdued for many months with rising unemployment and an increasing savings rate. The University of Michigan consumer confidence index reported last week increased to 69.0 from 68.7 the previous month which was a little less than what the market was expecting. Also in the US, business inventories fell by 1.1% in April with destocking very much an ongoing situation although the rate is expected to decline and ultimately reverse which should provide a boost to economic activity during the second half of 2009. Finally in the US, the release of the Beige Book provided a not unexpected view that economic activity across all of the Federal States remains subdued at best although expectations have increased for some improvement before the year end.

This week starts with employment data for the Euro zone on Monday and the US Empire State Manufacturing Index which is a monthly survey of manufacturers in New York. The latter increased to -4.6 in May from -14.7 in April and expectations are for a similar figure for June. Inflation data is very much on the agenda this week with May CPI data for the UK due to be published on Tuesday and the expectation is for a further decline in the year on year rate to 2.1% from the 2.3% registered in the previous month. The RPI seems to grab the headline having already moved to a negative year on year rate of -1.2% and is expected to decline a little further to -1.3%. On the same day we also get CPI data for Europe with the year on year rate expected to fall to close to 0% from the rate of 0.6% registered last month. Also Tuesday brings the German ZEW Consumer Sentiment Index which is expected to show an improvement for the month of June. On Tuesday in the US we get Industrial Production for May which the consensus is expecting to have declined by -1% during May after a -0.5% drop in April which will in part be due to ongoing reductions to auto production. Also in the US on Tuesday we get the Producer Price Index which the consensus is expecting to have increased by 0.7% during May with input prices being impacted by the higher oil price. Finally on Tuesday in the US we get the Housing Starts for May which is expected to show a modest improvement on the annualised rate of 458,000 registered last month.

On Wednesday in the UK we get unemployment data which is expected to show a further deterioration in the claimant count during May. The minutes of the last Bank of England MPC meeting will be published on Wednesday with another unanimous vote expected in favour of keeping rates at 0.5% with a commitment to continuing quantitative easing. In the US on Wednesday we get CPI data for May with a month on month increase expected by the consensus of +0.3%. Thursday brings us more UK retail sales data for May with a month on month decline of around -0.5% expected after a strong March and April. Also on Thursday the UK public sector finances will be in focus with publication of the debt requirement for May which is expected to show a sharp increase. On Thursday in the US we get the Leading Indicators data which is expected according to the consensus to show a 1% improvement during the month of May. The Philadelphia Fed manufacturing survey for June is due for publication on the same day which according to the consensus is expected to remain in negative territory at -15 compared to the previous figure of -22.6 for May which is still some way off a positive figure which would indicate expansion rather than contraction in the manufacturing sector. There is no major data scheduled for Friday.

This week we will be updating our note on Home Retail.

With the market showing no clear direction at the moment we are sitting on the sidelines having closed our BAT and Vodafone positions earlier in the week. BAT has been a good trading stock over the last couple of weeks, but we noticed a slight change in the strength of the share price when we came to sell the last holding at a lower price than the previous trade exit price and for that reason combined with a market that looked as if it was unlikely to race ahead we have stayed away from what would have been a fourth trade in the same stock in two weeks. So far it has been the right decision as the shares are trading below £16.50. What we are looking for at the moment is another -1% daily decline in the market to bring a couple of stocks within range. The stock that at the moment looks interesting is Unilever, it has good relative strength and with a strong fundamental case we believe there should be a good trading opportunity or two if the markets weakens from current levels.

We have traded BAT again successfully today. After buying in at £16.69 yesterday we took a quick profit this morning when the shares hit £16.90. The timing was good as the shares have sold off this afternoon. It is difficult to tell where this market is going at the moment so we may well sit back and see how things develop over the next couple of days.

The Week Ahead

The last week certainly provided more fuel for the bulls especially with better than expected data in the US. As always world markets take their lead from the US and at the moment at least the momentum seems to be being maintained with what appears to be at a stabilisation in economic conditions.

In the US we had a heavy week of economic data with pending home sales starting the week off with a much better than expected 6.7% month on month increase during April compared to consensus expectations of a 0.5% increase. Home buyers are being attracted by substantially improved affordability and tax credits which should help to keep the momentum going. It does seem that we are moving closer to a point of recovery in the US housing market which will be a prerequisite of any consumer led US economic recovery.

Both sets of Institute for Supply Management data announced last week in the US showed an improvement on the previous month. The Manufacturing index improved to 42.8 in May from 40.1 in April. Looking at the breakdown of this index, the new orders element provided the best news with a move to 51.2 from 47.2 which is the first time this figure has been above 50 since late 2007 and does therefore suggest that the sector is at least starting to pick up. At the very least this provides further evidence that the worst stage of the recession is over, but the main index remains some way off the key 50 level which would indicate expansion. The Non Manufacturing ISM Index increased to 44 in May from the April level of 43.7. It was interesting to see that the new orders element of this index actually declined to 44 from 47.
Growth when it does come will be very slow and very modest and this was confirmed by the congressional testimony given by Ben Bernanke last week when he acknowledged that the recession is easing with growth expected to resume later this year and stated “it will only gradually gain momentum”. He also said that growth will remain below its longer run potential for a while. What he means by “a while” is difficult to say, but it is not inconceivable that we are talking about a period that could easily exceed one year and potentially a lot longer. It is this fact that could eventually cause a serious market correction if it does become clear that growth is going to be at modest at best for a prolonged period of time and not the strong V shaped recovery that a lot of commentators still expect.

Unemployment was also a high light of the week in the US. The ADP Private payroll figure showed further significant job losses during May of -532000 jobs lost across the manufacturing and service sector which was a little worse than the consensus expectation. This led commentators to expect another bad non-farm payroll figure on Friday, but instead the market was surprised with a better than expected decline of -345,000 jobs lost during May (April -504,000) compared to the consensus expectation of -520,000. The unemployment rate reached a very significant 9.4% and looks set to comfortably exceed 10% by the end of the year. The encouraging part of the non-farm payroll data was that the improvement was down to private payrolls which declined by -338,000 compared to a fall of -596,000 in April whilst government payrolls declined by just 7,000 and this time there was no positive contribution which we saw last month due to the hiring of temporary government workers for the 2010 census. This actually reduced the overall decline in the unemployment number by 92,000 during April. It remains to be seem if the Non Farm Payrolls will continue to improve, but now that we have at least seen a significant drop in the rate of decline next month will be a very important figure as the market is unlikely to react well to any significant deterioration from the May number.
Last week also brought interest rate decisions in Europe and the UK. As expected in both cases interest rates were kept on hold with the UK at 0.5% and Europe at 1%. The ECB made it clear that 1% is likely to be the low and we can expect no more cuts unless there is a further marked deterioration in the economic outlook.

The coming week contains less in the way of market moving data. Monday is relatively quiet with just German factory orders for April due. Tuesday brings the UK RICS house price survey which we expect to still show that house prices in the UK are falling. Also on Tuesday we get Industrial Production figures for Germany which is expected to show a decline of 0.5% during April and it now seems likely that we are close to a bottom after such a dire first quarter. On Wednesday we get the publication of the Beige book in the US which does normally get some interest. The Beige book gives an overview of recent economic conditions across the 12 Federal Reserve districts and we would expect to see an improvement in conditions among at least some of the districts. Wednesday is a very busy day for economic data in Europe and the UK with Industrial and Manufacturing Production data for April in France, UK, and Italy together with May CPI data for Germany and Spain. The main data to be published on Thursday are US retail sales for May with a month on month improvement of +0.6% anticipated by the market. We also get US business inventory data for April which will be in focus. With inventory draw down being a key feature of the first quarter the market is anticipating a reversal of this trend as manufacturers begin to replace stock, which should provide a boost to GDP during the second half. To finish the week on Friday we get the June US University of Michigan Consumer sentiment index and April Industrial Production data for the EuroZone.

BAT provided us with another trade today which makes it three in a row with this one. Sometimes stocks can become very range bound and if the market is behaving in a way that seems to help keep it there it does provide good trading opportunities. We are only taking 1.5-2% out of each trade, but it does all add up.

The US ADP employment figures yesterday were not particularly good and this does suggest that the non farm payrolls tomorrow have the potential to cause an upset. Most are anticipating a decline of around 520,000 and anything close to -600,000 is likely to have a negative impact on the market.

Another good trade in BAT today having opened positions at £16.77 yesterday we have benefited from the defensive stocks being in favour this morning and closed out positions at £17.07.

A difficult day for the FTSE100 despite a strong end to trading in the US yesterday. A number of factors have impacted on trading today with Barclays share price depressed by the sale of the Abu Dhabi investors stake. The unemployment data for the EU made grim reading reaching a 10 year high of 9.2% However, overall the economic data this week has so far been reasonably positive. The ISM Manufacturing Index improved last month to 42.8 from 40.1 in the previous month, a level that is still some way off the critical 50 level which would indicate expansion, but an improvement nevertheless. The pending home sales data in the US today was also above expectations and it seems that we are moving closer to a point at which the US housing market will start to stabilise.

It will be interesting to see now if the market does surge higher with investors now becoming concerned that a pull-back is looking unlikely and therefore start to put more cash into stocks. It is usually at this point that a pull-back does happen and certainly if nothing else we would expect a period in which markets range trade with 4200-4500 still looking like a sensible range. However, markets generally overshoot and a further move up during the summer could well be on the cards.

I have been reading an interesting article today about the state of the UK consumer which unlike their US counterparts are still borrowing to fund consumption rather than use funds to rebuild their own balance sheets and reduce debt as has been happening in the US. This does suggest that eventually the consumer will have to wake up to their debt especially when taxes start to rise and other factors start to reduce disposable income such as a reversal of the interest rate cuts. The end result could well mean that consumer expenditure during 2010/11 could well fall sharply.

Week Ahead

The last week provided further evidence that the rate of decline in the US economy seems to have reduced. Tuesday provided the big boost to the market with the publication of US consumer confidence numbers which were way ahead of expectations although we suspect a good deal of the strength in this index was due to the strong bounce in stock markets. We are always cautious of the confidence numbers which are notoriously volatile although the latest figures do suggest that the worst may well be over. The Durable Goods orders in the US showed an improvement of 1.9% during April although yet again the previous month was subject to a big revision with a -0.8% decline in March being revised down to -2.1%. More concerning is the fact that when you look at the individual constituents of this data, capital spending from companies continues to decline with orders for non defence goods down 2% in April. Data for home sales in the US was broadly in line with expectations although the levels of unsold inventory are still too high to make a housing market recovery a prospect in the short term. Finally, the second estimate for US Q1 GDP was revised upwards a little to -5.7% from the initial estimate of -6.1%.
In the UK the Nationwide House Price Index showed an improvement during the month of May although it remains to be seen whether this is simply a short term blip.

This week provides the heaviest week of the month for economic data and as always all eyes are on the US. On Monday we get the Institute for Supply Management Manufacturing Index for May. During April it recovered to 40.1 from 36.3. What the market will not be happy with is a reversal of the recent trend and if it does slip much from the level seen last month we can expect a negative impact on Monday afternoon trading. The consensus is expecting a continuation of the recent trend with expectations of a figure of around 42.0.

On Wednesday in the US we get the Non Manufacturing ISM data. In April this index rose 3 points to 43.7 and the consensus is expecting a further improvement for May to 45.0. Again we are at a critical stage where a significant move backwards will not be taken well by the market. Also look out on Wednesday for the ADP employment report in the US. This is often viewed as a forward indicator of where the Non Farm Payrolls are heading (due to be published Friday). The ADP report is likely to show between -400,000 and -500,000 job losses in the private sector over the last month. A figure closer to -300,000 would probably be taken well by the market as a further sign of at least an improvement in the rate of deterioration in the job market. The figure for factory orders during April will also be in focus on Wednesday with the consensus expecting a modest improvement of 1.1%. Given the improvement in durable goods orders announced for the last month it seems likely that the consensus has this number about right.
On Thursday the usual weekly jobless claims number will get some attention and that leads us into Friday when we have the big number of the week, the Non Farm Payroll figures. Given the improving trend in the jobless numbers (-699,000 March and -539,000 for April) the market will be looking and hoping for a better number again. At this stage a decline of 450,000 to 500,000 looks possible, but a bigger number is likely to have a negative impact on the market. With the ongoing disaster in the US Auto industry it seems quite plausible that the unemployment numbers will start to deteriorate again over the coming months. Finally, Ben Bernanke is speaking on Thursday at a Fed Conference in Washington and it is always worth looking out for what is said as his comments can move the market.

In the UK we have the Halifax house price index to be published this week for May. This index has not proven itself to be a particularly good indicator and does not hold much strength with analysts. On Tuesday in Europe we get Euro-Zone unemployment data. The second estimate for Euro-Zone GDP data for the first quarter is due to be announced on Wednesday and is not expected to be revised from the initial estimate of -2.5%. Also on Wednesday we get Euro-Zone Producer Price Index figures for April which is always of interest in seeing whether inflationary pressures are building in the system. Consensus is expecting a month on month decline of -0.7%. On Thursday we get Euro-Zone retail sales figures for April with the consensus expecting a modest improvement of 0.2%.

We get the Bank of England MPC interest rate decision on Thursday along with European Central Bank Interest rate decision. Both are expected to leave interest rates on hold with the UK at 0.5% and Europe currently standing at 1%.

Finally, on Friday keep a look out for the UK Producer Price Index data for May. Analysts will focus on this data which does give a useful insight into inflationary trends within the manufacturing sector. The consensus is expecting a modest month on month improvement of 0.4%.