The CPI inflation data for February helped to allay any fears of resurgence in inflation at least in the short term with no change month on month during February whilst the year on year rate fell from 2.7% to 2.2%. The initial weekly jobless claims in the US were broadly in line with expectations with a fall of 5,000 to 457,000 compared to last week.


In the UK, the government's finances received a shot of relatively good news with the PSNBR for February coming in lower than expectations at £12.4bn whilst the disastrous January figure was revised from £4.3bn to just £43m (January is typically the strongest month of the year and normally generates a healthy surplus). Total borrowing for the year lies at £132bn which is double the amount of last year. The UK's deficit remains very significant and no matter what government is formed in May they will have to make significant cuts. Nevertheless this is unlikely to stop the current Chancellor from using today's news to offer some election boosting incentives in his forthcoming budget.

We have today closed out our long position in GlaxoSmithkline taken earlier this week.

The Fed continued with the same language last night with rates set to remain ‘exceptionally low’ for an ‘extended period’. The tone of the statement was a little more upbeat with comments that ‘economic activity has continued to strengthen’ and that ‘the labour market stabilising’. There was also mention of the fact that bank lending is continuing to contract although business spending on equipment and software is showing good signs of recovery. The debate over when the first rate hike will come continues to rage amongst the investing community but what is clear is that any move in stance is a long way off and it is not impossible that rates will remain where they are for all of 2010 and possibly even 2011.


The Fed mentioned yesterday that with a significant amount of resource slack there is little in the way of inflationary pressures in the system and this was confirmed yet again today with a 0.6% decline in producer prices during February, primarily due to lower fuel costs.

In the UK unemployment over the last 3 months has again fallen with a drop of 33,000 in the number out of work over the last 3 months which was the fastest decline in unemployment since 1997.

The minutes from the latest Bank of England interest rate meeting were published today with as expected a unanimous vote in favour of keeping rates at 0.5%. The Committee stated that inflation is expected to remain above target for several months to come (the January CPI was 3.5%). With the weakening pound there was some concern however that further inflationary pressure may enter the system.

Economic data is light on the ground today with housing starts for February due in the US this afternoon. Expectations are for a dip to around 560,000 units on an annualised basis from the January level of 590,000 units. We also have the US FOMC meeting today and investors will be looking at the detail in the accompanying statement. In Europe CPI data and the German ZEW Economic Sentiment index will be the main talking points.


The market is struggling to make much progress above the 5,600 level and it is difficult to see what the catalyst will be to take it much higher. A period of consolidation and range bound trading seems a more likely outcome in the short term.

AstraZeneca is holding an investor’s day today where there will be much focus on the growth opportunities in the emerging markets. This may well provide a boost to the pharmaceutical sector during today's trading.

This week inflation will be dominating the headlines with the Eurozone CPI data for February due tomorrow along with CPI for Italy and France. Overall in Europe prices are expected to have risen during February although the year on year rate is likely to remain under 1%. The US CPI for February is due to be announced on Thursday with prices expected to be unchanged month on month. The German ZEW economic sentiment index for March will also be published tomorrow and this is expected to show a modest improvement on the previous report of 45.1.


In the US we have had the Empire State Manufacturing index for March today which basically gives a snap shot of manufacturing activity in New York State. Expectations were around the 22.0 level and the actual result was 22.86 which suggest that the bounce in the manufacturing sector has continued. We have also had Industrial Production data today for February which grew by 0.1% against expectations of no change. Overall there has been nothing in the data today to upset the market. The FOMC are meeting tomorrow and as always all eyes will be on the accompanying statement and reiteration of recent statements that the funds rate will ‘remain low for an extended period’.

In the UK on Wednesday look out for the publication of the minutes from the latest Bank of England MPC meeting. Quantitative Easing remains on hold but a weak recovery may yet prompt the Bank of England to turn on the taps yet again.

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.