The direction of trading this afternoon will be dependent on the February retail sales data and consumer sentiment numbers due out in the US. An upset looks unlikely given that expectations for retail sales are for a drop following the bad weather and the consumer sentiment number looks likely to show a modest bounce after the unexpected decline in the previous reading. Sentiment is likely to show some improvement with employment expectations starting to improve and the recent rally in the stock market will have undoubtedly helped.

The weekly initial jobless claims in the US have confirmed what appears to be an improving trend in the jobs market and we are certainly getting closer to the point at which we start to see net job creation in the US. However, this news has been overshadowed by concerns over inflation in China with the CPI having moved up to 2.7% on an annualised rate during February from an annualised rate of 1.5% during January. Inflation has started to impact on service prices due to wage pressures amid higher inflation expectations. Industrial Production growth in China remained strong at an annualised rate of 20.7% during January- February although the rate of growth fell to 12.8% year on year in February. China remains an engine of growth for the world economy but at some point that growth will need to be reigned in if inflation is to be contained. The implications of this are that interest rates will be hiked sooner rather than later in China and this is something that may well unsettle world equity markets especially if inflation starts to be exported to the rest of the world.


Tomorrow the market moving data due out in America is retail sales for February with the consensus expecting a drop of around -0.2% with a negative figure likely due to the impact of the bad weather. Next month we should see a reasonable rebound as consumers start to make up for lost ground over the last month or so. We also get the University of Michigan Consumer sentiment data for March tomorrow. After a decline in this index and other comparable indices over the last month or so expectations are for a modest improvement on the last reported number of 73.6.

Another directionless day with little in the way of economic announcements to provide any form of direction. In the UK the Industrial Production numbers for January were disappointing with a month on month decline of -0.4%. Manufacturing production during January declined by 0.9%. Both numbers were far off what the consensus was expecting but not a great deal can be read into these numbers given the impact of the harsh weather during January. However, what it does mean is that the Q1 GDP number will be held back and it is unlikely that we will see much if any improvement on the Q4 GDP number of +0.3%.


In the US today wholesale inventories declined in January by 0.2%. This has been taken as a positive sign that suppliers are failing to keep up with demand. It will also mean that inventories will have to be replaced at a faster rate which has positive implications for GDP growth over the near term.

Yesterday we did a quick trade in Sainsbury’s which came about due to the 40 point decline in the market during the day which provided a swing trade opportunity after Sainsbury’s fell by over 1%. The subsequent rally late in the day provided a good opportunity to take a quick profit.

The UK trade deficit widened during January to £3.8bn from £2.6bn in December. The economic recovery will certainly need to benefit from export growth which is yet to show up based upon these figures. Total exported goods volume dropped by 8% over the month.

The retail sector looked a little healthier during February according to the BRC retail sales figures for February which showed a 2.2% gain against the -0.7% registered during January. However the better than expected figure may well be down to delayed purchases from the previous month due to the bad weather.

With little in the way of major economic data in the US today and tomorrow we may have to wait until Thursday and the publication of the weekly initial jobless claims before the market starts to find some direction.

A quiet day today and with the market at its high for the year investors and traders are likely to exercise a good degree of caution. As always when markets rally to new highs it becomes a good deal more difficult finding trades where the downside risk is limited in the event of a market selloff.

The US economic calendar this week is very quiet this week. The weekly initial jobless claims on Thursday always attract attention but with the employment situation starting to show an improving trend they are unlikely to provide an upset. The main data for the week will be US retail sales for February due out on Friday. The consensus is expecting a modest weather induced decline of -0.2%. The University of Michigan Consumer Sentiment index for March will be published on Friday. The more recent consumer sentiment data has been a little disappointing and the market will be looking for an improvement on the February level of 73.6.


In the UK look out for the NIESR GDP estimate for the 3 months to February which is due out on Wednesday. The January data showed a GDP run rate of 0.4% and with the recent upward revision to Q4 GDP this data will make for interesting reading.

Monetary policy in Europe was in focus yesterday with both the MPC and the ECB meeting to discuss interest rate policy and quantitative easing/liquidity measures. The Bank of England is continuing with the suspension of its QE policy and with rates on hold there is still considerable uncertainty as to whether any new measures will be taken. With growth likely to remain sluggish at best and with the prospect of fiscal tightening from a new government there is a real possibility that further measures may yet be required to keep the economic recovery on course. The ECB has started to limit some of its liquidity measures and has kept its interest rate on hold. They upgraded their growth forecast for 2011 to 1.5% and left their 2010 forecast unchanged at 0.8%. Interest rates look set to remain on hold for most if not all of 2010 in Europe.


The main event this afternoon are the Non Farm Payroll figures. The consensus was expecting a decline of 50,000 and the actual loss was 36,000 jobs. The unemployment rate remained at 9.7%. Construction continued to lose jobs but as expected the number of temporary jobs increased no doubted boosted by hiring for the census count. The market reaction has been generally positive and with trends showing signs of improvement some forecasters are expecting a positive number next month.

Yesterday we closed our long position in GlaxoSmithkline that was taken earlier in the week. The shares have fallen back today but we are holding off from taking a further position for the time being with two FDA meetings scheduled for next week that could result in headlines that impact on the share price.

The US service sector has surprised on the upside today with the Non Manufacturing ISM Index coming in above expectations at 53.0 against the consensus which was expecting a figure of around 51.0. The constituent parts provide grounds for optimism. In particular the employment index registered a 4 point improvement to 48.6 which suggests that we are not far short of job creation in the US. In fact the ADP private payroll data published today confirmed that with 20,000 jobs lost last month in the private sector. The trend certainly appears to be shifting and whilst a negative number for the Non Farm Payrolls is still likely when published on Friday (the bad weather during January may actually create a worse than expected figure) we should start to see positive numbers coming through over the coming months.


In Europe retail sales data for January was broadly as expected with a -0.3% decline. Inflation for the Euro-Zone reported yesterday for February was relatively soft with the annualised rate dropping from 1.0% to 0.9%.

The market is continuing to rally this afternoon and with the better than expected ISM data today this should provide further short term support to valuations.

The market is staging another comeback and it will be interesting to see if it has the legs to push on past the highs reached in January. This week so far the economic data has been okay but we have yet to see the big data due tomorrow (ISM Non Manufacturing) and Friday (Non Farm Payrolls). The Manufacturing ISM for February reported yesterday was a little less than expected at 56.5 but still firmly in growth territory.

Today there is little on the agenda with the market more interested in the PRU deal than the economy. Tomorrow if the ISM Non Mnaufacturing data creeps further above 50 we may yet see more from the current rally.

This week is all about the economic data in the US. The data last week was disappointing and the only positive if you can call it that was the fact that Q4 US GDP was revised upwards a little to 5.9% from the initial estimate of 5.7%. With the poor durable goods orders announced last week for January (-0.6% excluding transportation) it looks likely that Q1 GDP will be lower than the Q4 inventory restocking driven figure.


This week we start with the Non Manufacturing ISM data for February. The index has been firmly in positive territory with the manufacturing sector showing good signs of recovery. The index read 58.4 in January and the consensus is looking for a slight decline from this level to 57.5.

Wednesday brings us the Non Manufacturing ISM Index for February which is the important element of the ISM data given that the service industry makes up around 90% of overall economic output. The index has been struggling to get far above the 50 level and last month registered just 50.5 with the consensus expecting 51.0 for February.

Unemployment will be very much in focus in the US this week with the all important non farm payrolls due out on Friday for February. With the initial weekly jobless numbers showing no real sign of improvement and in fact deteriorating during the last two weeks we can again expect a negative number. The consensus is expecting a further decline in employment of -50,000 but the figure could be as high as -100,000. Any significant further decline will only add to the worry of an ongoing jobless recovery which has real implications if the economic recovery is going to have any sustainability later in the year. We will have an indication of where the non farm payrolls are headed with the publication of the ADP private payroll data for February on Wednesday.

The UK Q4 GDP figure has been revised upwards to 0.3% from the previous level of 0.1%. This is slightly better than the expected 0.2% but nothing to shout about.


Today we get a raft of data in the US all of which has the ability to create some volatility in trading this afternoon. The major data is the second stab at Q4 GDP. After the strong 5.7% initial reading some commentators are expecting a downward revision although most are expecting a similar figure. An upside shock will help the market after yesterdays poor initial weekly jobless numbers but any disappointment could lead to a rapid sell off. We also have existing home sales data for January due for publication. After the terrible new home sales data this week the market will be looking for a number at least similar to the 545000 annualised rate published in December. Without a housing market recovery the US will struggle to maintain the economic recovery. Finally, consumer confidence data will again be in focus this time with the University of Michigan consumer confidence data for February. The last reading was 73.7 and it will be interesting to see if we get a decline that mirrors some of the other data published this week. The market has had to digest quite a lot of poor data this week and further disappointment this afternoon will not be taken well.

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.