The market received a boost yesterday from Ben Bernanke’s comments that a loose monetary policy will be used for the foreseeable future. One market worry that will not go away is the timing of the start of monetary tightening. However the fact that the US rate and indeed world rates must remain low for probably all of 2010 does little to strengthen the argument that we have begun any kind of sustainable recovery. In fact a good deal of the recent economic data has been quite the contrary. The collapse in consumer confidence announced earlier in the week and the publication yesterday of stats for new home sales in the US which fell to a 10 month low suggests that as the stimulus packages and government spending is cut we are likely to see a quick drop off in consumer demand. A US housing market recovery will also be an essential element of any real economic recovery. Today we have had European confidence data which has also shown a decline against expectations of further improvement.


However for the time being the market is clearly giving the data the benefit of the doubt but we will have another big test this afternoon with the publication of US durable goods orders for January. The consensus is looking for an improvement of 1.5% over the month following on from the 1.0% change in December. Look out for revisions to previous data and any miss is likely to put the market back into reverse.

The decline in the Conference Board's consumer confidence data for February provided the catalyst for yesterdays sell-off. The decline to a 10 month low of 46.0 against the previous month’s revised figure of 56.5 goes to show that the key element of the US economic recovery is still missing. With the outlook for consumption growth being mediocre and with unemployment in the US still showing no real sign of improvement it is hard to see any significant upturn in consumer spending for some time to come. Markets are right to be concerned and once the inventory replacement and business investment factors begin to fade as the year progresses the consumer still looks to be in no shape to pick up the baton. Growth in the US still looks on course to fade significantly during the second half. On Friday we get the second estimate of Q4 GDP which may well be revised down from the initial estimate of 5.7%. A big downgrade may place further pressure on the market.


Q4 UK GDP will also be in focus on Friday with the second estimate due for publication. Most commentators are expecting an upward revision albeit a modest one from the previous estimate of 0.2%, but a move back to 0 or a negative figure cannot be ruled out.

The main data due out today is new home sales in the US and Ben Bernanke will be giving a congressional testimony which undoubtedly the market will focus on for any hints on future policy.

The impact of the cold weather is likely to weigh heavily on various sectors once Q1 figures start to come through especially for the retailers where analysts have already started to downgrade forecasts and share prices across the sector are starting to reflect this. The impact of the cold weather worldwide is likely to impact on Q1 GDP overall as well and we may well see lower growth in the US and almost nonexistent growth in the UK and Europe. This is certainly reflected in the German business confidence data for January which registered the first decline in 11 months with retail and construction suffering due to the bad weather.


This afternoon the key data is the US Conference Board consumer confidence data for February. The consensus is looking for a number around the 55 mark which would be a modest drop on the January level of 55.9. With the recent market rally any disappointment over this number could well start a bout of profit taking.

Today we have closed our long position in Reed Elsevier. This is a stock that we will look to trade again if they slip back towards the £4.80 level.

A sense of calm returned to world markets last week and the ensuing rally helped the FTSE100 to a 4% gain over the week. Sovereign debt risks have for the time being been put to one side although it is an issue that will not go away and is almost certainly going to create further swings in sentiment as the year progresses. In the UK the situation in some respects is not much better than Greece with the UK on course this year for a budget deficit close to that of the Greek 2009 figure of 12.7%. The January tax receipts, a traditionally strong surplus month posted a negative figure which was very much unexpected and does underscore the perilous state of UK public finances and the scale of the task ahead for whoever forms the next government.

The figure of 0.1% growth for the Euro zone during Q4 2010 demonstrates what a long hard slog the path to economic recovery will be. With the ongoing problems in Greece and other Euro area countries it is not difficult to see why only modest growth will be achieved this year with the risk of a slip back to negative growth in some countries a real possibility. German GDP stagnated over Q4 whilst Italy slipped back by -0.2% and the only bright spot was France which was up 0.6% quarter on quarter.


All eyes are in US retail sales this afternoon for January with the consensus expecting growth of 0.5% over the month after a -0.3% decline in December.

We have closed out our recent long position in Sainsbury’s today for a 1% gain. The market still looks very fragile and with the situation in Greece driving market sentiment at present it is difficult to see any real catalyst that will help to drive the market higher in the short term.

Please note the next blog entry will be on Monday 22nd February.

The text from Ben Bernanke's prepared speech did not throw any light on when the Fed rate is likely to start going back up. There was mention that the discount rate target is likely to be increased within the coming months but that does not necessarily mean we will then see a hike in the Fed rate. What is clear is that the removal of stimulus measures is starting to draw closer but any eventual rate hike still looks some way off. It continues to look as if the Fed will maintain the current Fed rate until late 2010 or possibly no change until the first quarter of 2011.


European Commission President, Jose Barroso, stated today that an agreement has been reached on how to deal with the Greek budget deficit with further details to follow later.

The Bank of England February Inflation report published yesterday set a dovish tone with risks to inflation viewed as very much to the downside despite an expected spike in the CPI to over 3.0% over the coming months. The Bank of England has downgraded its growth expectations for the coming year following the poor Q4 GDP performance and they now expect UK growth of just 1.5% compared to their previous expectation of 2.2%. The decidely dovish tone of the report does bring into question why the Bank of England decided to cease it asset purchase purchases last week. Whatever the outcome it looks very unlikley that rates will start to move upwards anytime soon and as in the US the first rate hike may well not be before the start of 2011.

The market has received a boost today from hints that Germany may be considering a bailout for Greece with stringent conditions attached. What looks likely is that the EU/Germany are considering some form of assistance although it would seem that nothing concrete as been concluded. The implications of a bail out are significant for markets as it will help to allay fears over the possibility of default of any European country even if such a risk remains very small. We should get further details from the EU summit scheduled for tomorrow.


A statement will today be issued on behalf of Ben Bernanke concerning the removal of some stimulus measures under the Federal Reserve Liquidity Program, which will be in focus this afternoon. The Hearing itself has been postponed due to the poor weather conditions.

There is very little economic data today and the main focus will be on the initial weekly jobless due out tomorrow. The surprising increase last week provided further fuel to the argument that the US is facing a jobless recovery. This week the consensus is looking for a claimant count of 467,000 compared to the previous figure of 480,000.

Soveriegn risk concerns continue to weigh on the market and comments today from Fitch about the UK's deficit have not helped sentiment. Greece will be in the spotlight once again on Thursday when European leaders meet to discuss how its deficit will be cut.

Sentiment at the moment is incredibly fragile and the market has the feel that it could just as easily slump as rally. We are looking for some direction before committing to another trade.

On the economic front UK retail sales for January have proved to be disappointing with a 0.7% decline compared to the same period last year. However, undoubtedly the VAT increase and the bleak snowy weather will have kept people at home and this will have impacted on the figure.

British Land reported third quarter results today which were very satisfactory and we will shortly be placing the shares on our monitored list with a note due for publication later this week.

The US unemployment data on Friday did little to allay concern about the strength of recovery in the US. The fact that previous jobs reports were revised down by a massive 1,390,000 more jobs lost than previously thought goes to show just how deep and devastating the recession has been. There were some big revisions to data for the end of 2009 which is clearly a concern given that an improving trend would be expected at this stage of the economic cycle. Looking at the figures for last month only 20,000 jobs were lost following on from 150,000 lost in December which is encouraging. Within this number, retail added 48,000 jobs whilst construction continued to shed jobs with a further 75,000 lost. The government added 33,000 jobs and only 9,000 of these were for the census work. This number will increase significantly over the next 3 months or so due to census hiring of temporary workers. The unemployment rate unexpectedly declined from 10% to 9.7% which was the main positive from this data announcement.


In the UK the Producer Price Input figure for January was considerably stronger than expected with a 2.8% jump in input prices. Given that oil has hardly risen over the period makes this something of a surprise. The core figure excluding food and energy was up by 1.8%. This figure is a little concerning but most economists still expect the energy impact to fall away over the coming months and there should not be any significant inflationary pressures within the input process to create a problem for the MPC.

A very quiet week ahead with economic data. In the US look out for retail sales data for January due out on Thursday. The consensus is looking out for a 0.5% increase following on from the -0.3% decline in December. Also on Thursday we get the usual initial jobless claims which at present have market moving significance. On Friday in the US we get the University of Michigan consumer confidence data. In the UK, France and Italy we get Industrial Production data for December which is due for publication on Wednesday. On Friday Eurozone Industrial Production for December will be published. There will be Q4 GDP data for Germany and France out on Friday with the consensus looking for growth of 0.2% and 0.5% respectively.

Worries over the Greek/European sovereign credit crisis have unnerved markets and the added negative yesterday of poor job data in the US provided the final tipping point for a big sell off. The key issues over European government debt are not going to go away and a lot today now rests with the Non Farm Payroll data in the US due for publication at 1:30. The ADP employment data for private payrolls published this week was relatively encouraging with the trend improving to just 22,000 jobs lost last month. There is a possibility that the Non Farm Payrolls will surprise on the upside with a boost from temporary employment but this will not necessarily be viewed as particularly positive.

The Non Manufacturing ISM data yesterday did little to allay fears over the strength or sustainability of the US economic recovery. The 50.5 achieved for January just kept the index within growth territory and whilst the GDP data for Q4 2009 suggests that growth is at a respectable level, this index confirms just how weak the underlying picture is if you strip out inventory replacement. Many economists are predicting a significant slowdown in the rate of growth later this year and this to us still looks a very probable outcome. The US ADP employment report published yesterday for private payrolls for January fell 22,000. With the all important Non Farm Payrolls due tomorrow the probability of a positive figure is quite high although this is more than likely to be due to a boost from the hiring of temporary workers.

Yesterday we closed our long position in Sainsbury and a nil gain/loss position purely because of where the market is and the prospect of being able to buy the shares back at a lower level.

The US Manufacturing ISM data published yesterday for January was the strongest figure for nearly 6 years at 58.4 from the previous December figure of 54.9. This helps to support the idea of respectable GDP growth during Q1 although with manufacturing making up only a relatively small proportion of the US economy the focus reamins on the Non Manufacturing data due out tomorrow. This index only just managed to remain in positive growth territory in December at 50.1 with expectations for January standing at around 51.

With the all important non farm payrolls due out on Friday keep an eye out for the ADP employment number for private payrolls due out tomorrow. This is always a reasonable indicator of what to expect from the the non farm payrolls.

Following weakness in the Tobacco stocks yesterday after government comments on packaging and reducing the number of smokers by 2020 we took advantage of share price weakness in BAT this morning and took a quick 1% out of the share price. We may well look to do so again if the sector falls back from current levels.

The headline US GDP figure for Q4 2009 proved to be a big number at 5.7% annualised compared to expectations of around 4.7%. On the face of it this was a pleasing number for the markets to see and initially US stocks rose on optimism about growth for the coming year. However concerns in America over recent company trading reports and possibly some scepticism over the GDP data brought the US market back into negative territory on Friday. Looking at the GDP data the devil is in the detail. The primary concern is that in fact out of 5.7%, a massive 3.39% is due to inventory replacement and not what some would consider to be the start of a new inventory cycle. It has been merely replacement of stocks after such a significant rundown of existing stocks, not inventory build up in anticipation of stronger growth. So if we strip out the impact of inventory replacement the GDP number is a little over 2%, which is still sub trend growth. Underlying demand in the US remains very weak and this may well show up in Q1 2010 GDP which may well drop back once the inventory factor starts to fall away revealing a weaker recovery than many expect.


This week the Non Farm payrolls and ISM data in the US take centre stage. The payroll data could actually show a positive result although this may well be due to a temporary boost from the hiring of temporary workers for the decennial census count. The ISM Manufacturing Index is due today with expectations of a number around the 55 mark for January having reached 55.9 in December. The more important Non Manufacturing Index is due out on Wednesday. This index represents the service sector which accounts for the majority of the US economy and having struggled to stay in positive growth territory in December at 50.1, the January figure is expected to show a modest improvement to 51.0.

Today is all about the Q4 GDP data for the US due at 1:30pm. The consensus is looking for around 4.5% to 4.75 annualised which is a big number. A figure much less than this is quite likely to disappoint and result in a further sell off but if expectations are met it may well bring some confidence back into the market and we could easily see a rally off the back of this news today. Either way expect some volatility this afternoon.

The durable goods orders data for December were unexciting with a 0.9% increase excluding transportation. With transportation the figure was up only 0.3% and this was against expectations of around 1.6%.  This data is notoriously volatile and therefore not a number that should be taken too seriously until any final revisions have been made. The November figure was revised from a -0.7% decline to -0.3%. A lot of the more recent data has been uninspiring and until we see something more substantial to suggest recovery is gaining a firm footing it is difficult to see the US market making much head way and clearly this will impact on the rest of world markets. Tomorrow we may well see market moving data with the publication of the first estimate for Q4 US GDP growth. The consensus is looking for a figure to show annualised growth of around 4.5%. There is plenty of room for error either side of this so do expect some market volatility around lunch time tomorrow. It seems likely that a figure starting with a 2 will disappoint and push the market lower, but anything above that is likely to at least keep some stability and perhaps a high number may well start a rally tomorrow afternoon. Given that the 3rd quarter number started at 3.5% but was eventually revised down to 2.2% does show the room for error in this data.

European Economic Sentiment data published today showed a modest increase on the previous monthly figure. Sentiment data is again another data set that can be volatile and doesn't prove a huge amount but it does at least give some idea of where an economy is heading. Based on this data series which is below its long run average there is still some way to go before we start to see any significant improvement in European GDP with a modest increase still looking highly likely during 2010.

The market is again floundering with the US pulling the FTSE into negative territory once more. A market which is very difficult to trade and one where we believe trading defensives are far safer than some of the more volatile stocks which can move by several percentage points very quickly in the wrong direction if your timing is out.