The rally in equities that seemed to be gaining momentum last week was once again brought to a halt this time due to disappointment over the US Non Farm Payroll data for May. After the two previous months with good increases in private payroll numbers (218,000 in April and 158,000 in March), the last month, 41,000 suggests that the momentum has been lost. It is probably too early to make the assumption that the cycle has lost momentum but you would not expect to see these numbers starting to dip so soon and clearly this is what is worrying the market. A few commentators are already suggesting a US double dip but again it is far too soon to start speculating on this with a more likely outcome being a significant slowdown in US economic growth during the second half. The latter is something that is not necessarily priced into the market at present.


Other slightly disappointing data from the US last week were factory orders for April which came in at +1.2% month on month compared to the consensus expectations of +1.8%. However the previous data for March was revised upwards to +1.7% from +1.1%. If the recent weakness continues it could well mean that US Q2 GDP forecasts have to come down over the coming weeks. The US ISM manufacturing index dipped during May to 59.7 from 60.4 in April which may mean the peak of activity has been reached. The equivalent Non Manufacturing ISM index remained static over the last month.

There is plenty of event risk in Europe over the coming weeks with several key events that could once again pressure world markets. This evening European finance ministers are meeting to finalise the details of the €440bn special purpose vehicle which was put together as part of the €750bn rescue package announced a few weeks ago to bail out Euro zone countries in trouble. Whether there will be any wrangling or disagreement over the fine print remains to be seen.

This week the ECB meet for their usual scheduled interest rate meeting on Thursday. The market will be looking for any comments the ECB president, Jean-Claude Trichet may make after that meeting especially with reference to the bond purchase programme of which around €35bn of bonds have been purchased so far. There have been some arguments that this programme which is designed to bring greater liquidity and stability to European bond markets should be restricted.

So far the recent data coming out of Europe does not point to any significant deterioration in business/economic sentiment and most indicators continue to suggest that the recovery albeit a fragile and sub trend one is still on track.

There is not a huge amount on the economic agenda this week. The main event in the US will be retails sales for May due for publication on Friday with the consensus looking for a number around +0.3% to +0.4%. Also on Friday in the US we get the first estimate for the June University of Michigan consumer confidence index which according to the consensus is expected to show a modest improvement to 75.0 from the previous reported level of 73.6. The Federal Reserve Beige book is due for publication on Wednesday and that gives anecdotal evidence of current economic conditions in its 12 districts.

The main event in the UK this week will be the Bank of England MPC meeting due on Thursday. There will undoubtedly be no change in policy with rates to stay at 0.5%. On the same day the ECB meeting takes place and this one will be very much in focus not from the perspective of the interest rate which is very likely to remain at 1% but more due to any comments that may be made given the events that are unfolding in Europe.

Today we have already had German factory orders for April which have shown the major benefit of a weakening euro with a significant jump in export orders. Orders were up 2.8% during April whilst the consensus was expecting a modest drop.

The performance of the US market this afternoon will be key to the timing of our next trade. If we see some stability after the shakeout on Friday there may well be the opportunity to take our next position.

The US Non Farm Payroll report this afternoon underlines just how fragile the US economic recovery is and the fact that it is at present a jobless one. Expectations of a 500,000+ number were certainly out when compared to the actual figure of 431,000. As always the devil is in the detail and this number was bolstered by 411,000 temporary workers being hired for the census count. This means the underlying trend was barely into positive territory which at this stage of the cycle is way below what should be happening. Private payrolls rose by considerably less than forecast at 41,000 with the consensus expecting something closer to the 170,000 mark. This is a very disappointing number and unless we see some pick up soon in the employment cycle there is every chance this number will turn negative once again as the temporary census workers roll off the register later in the year. The market reaction in the US was an inevitable hefty decline with the US down 150 points at the time of writing. It is difficult to see sentiment in the short term improving after this data announcement.


Other economic news today was the publication of the second estimate for Euro zone Q1 GDP which remains unrevised at 0.2%. Euro zone retail sales for April published yesterday proved to be disappointing with a 1.2% month on month decline compared to expectations of a modest improvement. Economic data from May onwards for the Euro zone will be of particular interest for signs of any impact that the recent turmoil may be having on the real economy.

We will go into the economic calendar for next week on Monday but with a relatively quiet week ahead in terms of economic announcements the market may well find it difficult to make much headway.

Yesterday we closed out a long position in Reed Elsevier taken a day earlier. The strength in the market yesterday morning provided a good opportunity to lock in a profit and with the way the market is moving this afternoon there may well be another opportunity next week.

The economic data in the US today was broadly as expected with the ISM Non Manufacturing Index for May staying at exactly the same level it achieved the prior month at 55.4. The employment element of the index moved above 50 for the first time during the recovery phase which is encouraging although it is barely above the key level of 50 which would indicate net hiring in the sector. Staying on the employment front the ADP private payrolls for May came in at 55,000 which was a little less than consensus expectations which stood at around the 75000 mark. Tomorrow all eyes will be on the Non Farm Payrolls where there is considerable room for deviation around consensus expectations of +500,000.


Fears over Europe came back to the fore today this time in terms of the real economy impact of the recent financial turmoil. It is difficult to say to what extent if any the more recent developments had on the retail sales data for April but the reported -1.2% month on month decline for April was way below the consensus which was looking for a 0.1% gain.

A relatively quiet day in terms of economic announcements with US pending home sales for April published this afternoon showing a 6% increase month on month ahead of the April tax credit expiry, so little to get excited about with this data. Whilst in the UK M4 money supply growth is starting to show some signs of an increase. This will please the Bank of England and demonstrates that at least some of the quantitative easing which was ended in February is now starting to filter through to the economy which was the overall objective of this policy. However, lending growth remains subdued and it may be some time yet before net lending starts to pick up. Lending to business must expand if economic growth is to pick up momentum over the coming months.


Tomorrow look out for the ADP private payroll data in the US which should set the tone for the Non Farm Payrolls on Friday. The consensus is looking for a positive number of around 60,000 for the ADP payrolls for May whilst expectations of a large 500,000+ number are set for the May Non Farm Payrolls on Friday although a good chunk of this will be due to temporary hiring for the census count. Also tomorrow look out for the US ISM Non Manufacturing Index which is expected to remain close to the previous reported level of 55.4.

In Europe tomorrow we get the May Purchasing Managers Index for Services and April retail sales data.

At the time of writing the US has closed up 211 points with FTSE100 futures at present looking for a 50+ point opening tomorrow morning.

After a 14% decline in the UK market which was reached on Tuesday of last week world equity markets have rebounded strongly partially no doubt due to the technical aspect of any significant decline resulting in strong one day gains over Wednesday and Thursday with a modest decline on Friday. Whether the last few days mark the end of the turmoil remains to be seen and it pays at such times to exercise an even greater degree of caution when entering trades. The event that caused the recent sell off namely the European sovereign debt crisis has not changed and it may well be an absence of any further major headlines on this issue which has helped to bring a degree of calm over the last two trading days. However, the news after the market close on Friday that the ratings agency, Fitch have downgraded their long terms rating on Spain from triple A to double A highlights the ongoing risk of further negative news flow relating to sovereign debt in Europe.


The real issue is of course what impact the austerity measures and the recent increases may be having on the real economy. We said last week that a prolonged period of turmoil in the financial markets was the real risk that could then impact on business sentiment and the knock on effect on hiring intentions and general business investment. At this stage it seems unlikely that the recovery will be heavily impacted but undoubtedly growth will be lower and considerable uncertainty remains over the longer term impact. The next likely candidate for deficit worries will undoubtedly be the US and the recent concerns over Europe could easily shift to the US where the deficit also remains uncomfortably high and fiscal tightening will be required sooner rather than later. The new fiscal year for the US starts on the 1st July and measures to combat their own budget deficit are likely to constrain growth over the coming 12 months.

US equity valuations were looking high with the Dow over 11,000 and a quick recovery in equity markets back towards the highs of the year would in many respects be unwelcome and we need to see a more orderly and gradual rise to prevent another significant correction and that is not to say that the current one is over. More often than not history has shown 10% corrections to turn into 20% and given the meteoric rise in equity markets over the last 14 months or so it is not inconceivable that a correction much greater than 20% could occur but much depends on how financial markets respond to the measures currently being taken to counter the immediate problems in Europe.

On Thursday of last week we had the second revision to US Q1 GDP which was not as expected with a modest downgrade to growth with the second estimate coming in at 3.0% compared to the preliminary estimate of 3.2%. Most commentators were looking for a modest improvement.

On Friday afternoon in the US the University of Michigan Consumer confidence data for May was published which did show a modest improvement to 73.6 from the previous reported level of 73.3. The equivalent Conference Board indicator published earlier last week showed a useful jump suggesting that the US consumer is becoming more confident about the outlook. Nevertheless when you look at the historical data for the sentiment indices they all stood considerably higher than now at the cycle points where growth is well established suggesting that we are some way off a point of sustainable trend growth.

The first week of the month is always a busy one in the US economic calendar with both sets of ISM data and the all important Non Farm Payrolls. We kick off today with the ISM Manufacturing Index for May. This index has been very strong during recent months although data more recently concerning the US manufacturing does suggest that perhaps the peak has been reached which is why most commentators were expecting the index this month to show a modest decline to 59.5 from the previous reported level of 60.4 and in fact the actual reading was not far off this at 59.7. The ISM Non Manufacturing Index is due for publication on Thursday and the May reading is expected to be little changed from the April level of 55.4. Thursday also brings the ADP employment report for May which gives details of the private payroll picture and sets the tone for the Non Farm Payrolls on Friday. The latter is expected to deliver a very big positive number of close to +500,000 although a significant part of this may well be due to temporary hiring for the census count. The unemployment rate is expected to show a modest decline to 9.8% from 9.9%.

In Europe today we have had publication of German unemployment for May which showed a continued improvement in the overall unemployment trend with a fall of 45,000 in the number of unemployed workers. Euro zone unemployment data for April was not so good with a rise of 25,000 in the number unemployed taking the unemployment rate up to 10.1%. The main European data for the week comes with the publication of the second estimate for Q1 GDP which is expected to remain unchanged at 0.2%.

European markets are on track at present to deliver two consecutive days of gains although given how fragile sentiment is this is by no means certain but at the time of writing most European markets are up by the best part of 2% today. The US rally yesterday in typical fashion lost all of its gains in the last hour or so of trading. This time the culprit was rumours that the Chinese are considering selling their European bond holdings although they have since dismissed this rumour.


On the economic front the US did come out with some relatively positive economic data yesterday which demonstrates that the economic recovery is still on course. The durable goods numbers for April surprised on the upside with a gain of 2.9% compared to consensus expectations of a gain of around 1.5%. On the negative side the gain was solely down to a big gain in transportation orders which when stripped out leaves a negative number of -1.0%. However the equivalent number for the previous month was +2.8% and overall given the volatility in this data some comfort can be taken from these figures.

Also yesterday we had the existing home sales report for April which were up 14.8% at 504,000 on an annualised basis compared to expectations of a number around the 425,000 level. With the expiry of tax credits on the 30th April not a lot can be read into this surge and the key will be the May data which will almost certainly show a drop but to what extent is unclear. Home prices in the US fell during the first quarter which may well be the start of a longer term trend in the absence of any government support.

It is worth mentioning the US Conference Board consumer confidence index for May published on Tuesday which was ahead of expectations at 63.3 compared to the consensus which expected a figure of closer to 59.0. Clearly the US consumer is responding to the apparent improvement in the jobs outlook although the more recent declines in the stockmarket may well reverse this.

A further support to the market came with the OECD world growth forecasts for 2010 and 2011 published yesterday. They continue to expect good growth this year driven on by Asia with 4.6% forecast and 4.5% for 2011. They have even increased their forecast for Europe from 0.9% to 1.2% for 2010 with 1.8% forecast for 2011. The US is expected to achieve growth of 3.2% in 2010. Overall a mixed bag with sub trend growth outside of Asia expected but nevertheless growth should still be achieved.

This afternoon we have the second estimate for US Q1 GDP with most forecasters predicting a small upward revision to the previous number of 3.2%.

The decline in world stock markets continues with little sign of a catalyst to bring a return of stability. Worries over developments between North and South Korea have unsettled Asian markets overnight and with inter-bank lending rates now on the rise, fears of a second liquidity crisis are making the headlines once again. Spanish banks continue to hit the headiness with the news this morning that four savings banks have been forced to merge following on from the rescue of the Spanish bank, CajaSur at the weekend. All of these headlines bring back memories of 2008 and clearly sentiment for the time being is likely to remain firmly in negative territory. Financial markets do need to stabilise soon to prevent this current crisis from damaging an already fragile European economic recovery which would have serious implications for the world economic recovery.


The second revision to UK Q1 GDP data was published this morning with a modest upward revision to +0.3% from +0.2%. This afternoon in the US we get the Conference Board consumer confidence index for May which may well have some bearing on trading this afternoon. The consensus is looking for a figure close to 59.0 which would be a modest improvement on the previous reported level of 57.9. Disappointment may well exacerbate the falls we are currently seeing in the Dow futures which currently stand at down 200 points.

We enter another trading week that is likely to be dominated by yet more volatility. After the roller coaster ride on Friday markets did initially make some progress today but all have slipped back into negative territory at the time of writing and some European markets are closed today for a bank holiday. The overriding factor is fear rather than fact at present. The volatility and turbulence in world markets may well soon start to impact heavily on business confidence which would impact on business investment and hiring decisions at a crucial point in the economic recovery. Uncertainty over whether the austerity measures needed in Europe will push us back into recession have driven expectations for growth lower and whilst as this stage it is unlikely to bring about a second recession, the risk remains and the longer the turbulence continues the greater the risk to growth.


This week we have several economic announcements that will be in focus. In the US Last week we had several data announcements all of which were relatively soft suggesting that the outlook for growth and unemployment in the US remains uncertain. It does seem likely that US growth during the second half of 2010 will tail off considerably. The main event in the US this week will be the durable goods orders for April which is due for publication on Wednesday. Most forecasts are for a gain of between 1.3% and 1.5% after the -1.2% drop in March.

Today in the US the only major data is existing home sales for April which is expected to show an improvement to an annualised rate of around 5.6m from the March level of 5.35m. Very little can be read into this number given the boost to sales that will have occurred from the expiry of the home buyers’ tax credit. Tuesday in the US brings the Conference Board’s consumer confidence index for May which is expected to show a modest rise to around the 59.0 level from the previous report of 57.9 for April. On Thursday we get the second stab at Q1 US GDP. The first estimate came in at 3.2% annualised and the market is looking for a modest upward revision to around 3.5%. Also on Thursday keep a look out for the usual weekly initial jobless claims which rose unexpectedly by 25,000 last week to 471,000 and a similar number this week will throw serious doubt over the idea that the employment picture in the US is showing a sustainable improvement. Another strong economic indicator due this week is personal spending with the data for April due out on Friday. In the US we end Friday with the University of Michigan consumer confidence data for May with the level expected to remain close to the previous reported level of 73.3 although a decline cannot be ruled out in view of recent events.

Tomorrow in the UK we get the second estimate for Q1 UK GDP. The first estimate was 0.2% and most commentators are looking for a slight upward revision to 0.4%. Confidence data for Europe will be much in focus over the coming weeks for any sign of a significant deterioration. Tomorrow GFK publish their latest index reading. On Thursday German CPI data for May will be published with the annualised rate expected to show a modest increase to 1.2% from the previous reported level of 1.0%. Inflation is currently not a threat in Europe and in fact we have quite the opposite situation with deflationary pressures building.

A degree of stability returned to world stock markets this afternoon after european markets all opened heavily down. The recovery looks to be more down to the oversold position of the market from a technical perspective rather than any sudden change in sentiment and we can expect further volatility next week. When a degree of calm is going to return is difficult to answer but some stability in the euro would be a good start and we have certainly seen that this afternoon.The German lower parliament has agreed today to its contribution (up to 148bn euros) to the 750bn euro package which has also helped sentiment a little.


Yesterday we had three economic data announcements for the US all of which were a little disappointing and place some uncertainty yet again over the strength of the US economic recovery, and the risk that growth during the second half is likely to slow considerably. First off we had the publication of the usual weekly initial jobless claims which are generally a good pointer to employment trends and where the non farm payroll data is headed. During recent weeks the trend has been improving which is why most commentators were surprised to see the data jump by 25,000 to 471,000 from the previous weekly level of 444,000. Another high figure next week and there will be real doubt as to whether the trend in employment is sustainable. The second disappointment yesterday was the publication of the lead indicators for April (a composite index of ten indicators that should lead economic activity) which fell by 0.1%, the first decline in over a year. The consensus was looking for a further improvement of +0.2%. Whilst this does not mean a sudden reversal in growth, it does suggest that growth is likely to tail off as the year progresses. An interesting statistic quoted by a market commentator today is that after the last recession ended in November 2001 the lead indicator did not show a decline for 4 years.

The last data announcement yesterday was the Philadelphia Fed Manufacturing survey for May which was broadly in line with expectations at 21.4. The headline data did however mask a softer picture with the new orders element of the index up by 6.1 in May considerably slower than the April reading of 13.9. Further evidence of a possible weakening employment picture was in the employment element of this index which fell to a 6 month low of 3.2 from 7.3.

With so much attention focused on Europe the German lfo confidence index published today showed little in the way of impact from recent developments. It fell from 101.6 in April to 101.5 for May.

The German move to ban naked short selling on equities, government bonds and CDS has only exacerbated the fear factor and equities remain under significant pressure with all major world markets selling off heavily yesterday. Given the fact that the problems the euro zone faces are very much long terms makes it all the more difficult to identify the catalyst that will arrest the ongoing decline in markets. If European markets continue to sell off it will inevitably start to impact on investor sentiment and it is at that point when investors start to redeem their fund holdings and more medium terms trades that we could see markets capitulate. We are not there yet and it very much depends on whether European markets start to stabilise over the coming days.


Spanish Q1 GDP was announced yesterday and as expected it only just managed a positive reading at 0.1%. Given the outlook for Spain and the austerity measures required to address their budget deficit it is difficult to see it staying out of recession for very long. This is a theme we are likely to see across several European countries over the coming months, there will be a very fine line between growth and recession for a long time to come.

UK retail sales data this morning for April was a little better than expected with a 0.3% gain against the consensus expectation of 0.2%. In Europe this afternoon we have consumer confidence data and in the US the state of the manufacturing sector in the Philadelphia Federal Reserve District will be under scrutiny with the publication of the May data. It will be interesting to see if this index mirrors the equivalent data for New York published earlier in the week which actually fell against expectations from 31.86 to 19.1. This could indicate the start of a slowdown in the US manufacturing sector.

Today we have closed out another long position in GlaxoSmithkline. The shares rallied against the market yesterday providing us with a close out opportunity this morning with the strong market opening. Again we will be looking to see how US trading develops this afternoon before entering our next trade. Markets are so fragile at present and with sentiment changing very rapidly it is increasingly important to get entry levels as correct as possible to provide intra-day trading opportunities rather than holding trades for more than one day.

The UK Consumer Price Index (CPI) for April produced a headline grabbing number of 3.7% which was above expectations of the index remaining static at 3.4% with food and energy the main drivers of this increase. The more important core index rose slightly to 3.1% from 3.0%. The MPC is still firmly of the view that the recent rise is down to temporary factors such as delayed increases from the VAT rise and also a weak pound increasing import prices and finally higher oil prices. With so much spare capacity in the economy it is difficult to envisage the CPI increasing much further but with a possible VAT rise due in the forthcoming budget there may be additional upward pressure before we start to see a meaningful drop. The first rate rise in the UK still looks unlikely until 2011 at the earliest.


In the US yesterday housing starts data for April was published and this was at the top end of expectations with a number of 672,000 on an annualised basis compared to consensus expectations of 650,000. The spurt in construction activity is primarily down to a spike in housing demand with the expiry of the special tax credits for homebuyers in April. The real test comes in the months ahead with the housing market likely to soften significantly without the stimulus measures that have kept it stable at best.

Also in the US yesterday the Producer Price Index data for April was published and this actually fell over the month by 0.1%. Not that significant but it does demonstrate that deflationary pressures are in the system. The year on year rate fell to 5.4% from 6.1%.

The market has been spooked today by news that the German regulator has banner short selling on certain bond trades and equities. With confidence already low this has not helped sentiment or the euro.

In the US today the Consumer Price Index for April is due to be published. In the UK the minutes from the latest MPC meeting will be published and we also get the FOMC meeting minutes. Given the problems in Europe all eyes are likely to be on what Jean Claude Trichet, the European Central Bank’s president has to say about the economic situation and the value of the euro this afternoon.

The fear factor is back with global worries over what impact the necessary austerity measures on European growth will have. Concerns over sovereign debt default are not going away and worries over what impact that could have on the banks has caused inter-bank lending rates go up which has brought back all of the old credit crisis headlines. At this stage with a bail-out package in place and with the peripheral countries that are in trouble now taking measures to cut their deficits, it is too early to be assuming that defaults are on the way. The risk remains but as always market concerns can become elevated to levels that create extreme volatility as we experienced once again on Friday. This volatility is unlikely to go away in the very short term.


Salvation may be on the way later in the week when the first estimates for the European Purchasing Manager Index (PMI) data for May is published on Friday. Any sign that the recent concerns are impacting on sentiment may well give the bears further ammunition but conversely to this, if we get data that suggests there are no early signs that the European recovery is being de-railed, this may well be what is needed to establish a degree of calm. The PMI Manufacturing data according to the consensus will be looking for a very modest decline to 57.4 from the last reading of 57.6 whilst the equivalent number for services is expected to give a reading of 55.6, which would be the same as the last number for April. A slightly larger decline in both numbers would not be unexpected but a significant fall would certainly be taken badly by the market. We will also get the same data broken down for France and Germany on the same day.

Other major economic data to look out for this week will be the UK CPI estimate for April due for publication tomorrow. March data for the core rate was 3.0% annualised with the consensus expecting a modest decline to an annualised rate of 2.8% for last month. The same data will also be published for the euro zone tomorrow with their core rate expected to remain close to the annualised 1.0% reported for March. Interest rate policy in the UK and euro zone is unlikely to change until early next year.

With Germany still considered to be the powerhouse behind European economic recovery and with recent developments the May ZEW economic sentiment survey due for publication tomorrow will make interesting reading. The April reading stood at 53.0 but with recent worries a decline in this number is inevitable, but to what extent is difficult to say.

On Wednesday attention will focus on the US with publication of their CPI data for April. Inflation after stripping out the impact of food and energy prices remains relatively subdued in the US with the rate expected to remain close to the March level of 1.1% on an annualised basis. Also on Wednesday we see the publication of the minutes from the latest FOMC meeting.

Thursday brings the publication of the US Philadelphia Fed manufacturing survey for May, the usual US weekly initial jobless claims data and April retail sales for the UK. Friday will be all about the euro zone PMI data.

Concerns over a euro area break up are once again dominating the headlines and the ongoing debt crisis is seen as a potentially significant drag on what is already a fragile economic recovery. These concerns are likely to linger and we will not know the impact on the economic recovery for some time to come. Possible disintegration of the euro area remains a possibility but certainly not an immediate threat given the bail-out package announced earlier this week. The austerity packages being announced by the problem countries will inevitably hamper economic growth but most forecasters are still anticipating growth for the euro zone to still exceed 1% this year with a move to over 2% for 2011.


In the US today we have had retail sales data for April which was stronger than expected at 0.4% compared to consensus expectations of a 0.2% gain. This follows on from an upwardly revised 2.1% gain in March. US Industrial Production for April was also announced today which was slightly ahead of forecasts at 0.8% compared to consensus expectations of 0.6%. Keep a look out for the University of Michigan consumer sentiment data for May due out at 2:55 with the consensus expecting a slight improvement to 73.6 from the final April level of 72.2.

We closed out a long position in GlaxoSmithkline yesterday which we had entered at the start of the trading day. The shares had underperformed the previous day when the market was strong and with a strong start to trading yesterday morning an opportunity arose to pick the shares up before they played catch up as the day wore on. With the FTSE100 down almost 2% on the day we will await to see how markets open on Monday before entering our next trade.

A quiet day in terms of economic announcements and political wrangling. In the absence of this markets have drifted higher with some good company reports from the likes of Sainsbury and BT today helping momentum.


In the US today we have had the usual weekly jobless claims number which was broadly as expected at 444,000, a modest decline of 4,000 on the previous week. Whilst the Non Farm Payrolls for last month showed an improving trend in the jobs market, we are unlikely to see major gains if the weekly numbers are anything to go by and if you strip out the impact of recruitment for the US census count the numbers are still relatively low at this stage of the economic recovery.

An interesting article in the Wall Street Journal yesterday made mention of the fact that 12% of mortgage defaults in the US are now strategic in the sense that home owners are defaulting out of “anger, fear or despair despite” being in a position to pay. The savings from this are actually being spent which does not bode well for a sustainable US recovery and leaves the US property market in a very precarious position with further price falls likely.

The main US data of the week is due for publication tomorrow with retail sales for April expected to show an improvement according to the consensus of +0.2%. We also get industrial production data for April with the consensus expecting a gain of around +0.5% after a 0.1% gain March. The University of Michigan Consumer sentiment index always has the power to move the market and tomorrow the first estimate for May is due and is expected to show an improvement to around 74.0 from the April number of 72.2.

A number of stocks have been brought back by the shakeout over the last week or so and some have yet to really participate in the rally over the last couple of days providing opportunities for long positions. This is an area where we are currently focusing our trading attention.

With investor confidence very fragile especially with recent developments in Europe we can expect to see wild swings in sentiment over the coming weeks with markets likely to remain very volatile.


Following the completion of negotiations the UK now has a new government in place although given the serious nature of the immediate problems the Conservative/Lib Dem coalition face they are unlikely to enjoy the traditional honeymoon period that a new incoming government would normally experience.

UK data this morning relating to unemployment underlines the problems the UK faces with unemployment rising by 53,000 to a 16 year high of 2.51 million whilst the unemployment rate remained at 8%.

The deficit issues will come to the fore in a few weeks time when the new Chancellor, George Osborne, outlines the first concrete details of how the deficit will be addressed. Speculation over bank levies and other taxation issues will undoubtedly give the market plenty to fret about over the coming weeks.

The question of what happens next following the euro zone bail out is a difficult one to answer. The reality of what impact concerns over sovereign debt default and the ability of this package to prevent a collapse in confidence will only come apparent as various economic indicators come out over the coming weeks. The collapse of Lehman had a massive impact on confidence resulting in world recession as firms cut employment and consumption/investment was restrained. If worries in Europe persist that sovereign debt risk and the resulting impact from major expenditure cuts will impact on economic activity, we may well see a similar reaction. This could easily raise the spectre of a double dip recession which is the worst case scenario for world stock markets. Exactly what the outcome will be remains an unknown and for this reason it seems realistic to assume that market confidence will remain extremely fragile until there is concrete evidence that the European recovery has not been derailed.

There was some good news for Europe this morning with the preliminary estimate for Q1 GDP coming in at 0.2% which was broadly in line with the consensus. It is encouraging to see some growth after a flat Q4, but it remains to be seen with recent developments if this trend will continue. March industrial production data for the euro zone reported today was as expected at +1.3%.

We traded yesterday in Reed Elsevier given that a degree of calm seemed to be returning during the afternoon session and having closed that position this morning we are waiting for the market to show some direction before entering our next trade.