The main economic news of today has already been published in the form of dismal weekly initial jobless claims in the US. The number was 500,000 which does suggest that the employment situation in the US is starting to deteriorate yet again. If claims were to remain at or above this level for the next few weeks it is quite likely to result in a negative Non Farm Payroll figure the following month, and more importantly the risks of a US double dip will start to rise significantly.


Other data due for publication in the US today include the July Leading Indicator which is expected according to the consensus to show a 0.1% increase after a -0.2% drop last month. The Philadelphia Fed Manufacturing Index for August is also due out this afternoon with the consensus looking for a small improvement to 7.0 from the July level of 5.1. This would be consistent with the equivalent Empire State Manufacturing index published earlier in the week.

In the UK the Public Sector Borrowing requirement for July was less than expectation at £3.8bn compared to expectations closer to £5bn. This is encouraging but the Chancellor has some way to go to bring the public finances under control. The results of the spending review will be completed sometime in October and with budget cuts of up to 25%, the real impact of the austerity measures is yet to be felt by the economy.

On a more positive note UK retail sales for July were better than expected at 1.1% compared to consensus expectations of +0.4% and the June figure of +0.7%.

A very quiet day ahead on the economic front. In the US there is no major data due for publication. In the UK the main event is the publication of the Bank of England meeting minutes and as expected the lone Hawk, Andrew Sentance has pushed for an interest rate hike to +0.75%, leaving the vote at 8-1 in favour of keeping interest rates where they are. Inflation in the UK is undoubtedly remaining stubbornly high and whilst the trend appears to be a slowing in the inflation rate it is likely to remain above target for some time to come. The July CPI published yesterday showed a modest decline to 3.1% annualised from 3.2% the previous month. With a vat hike due early next year and signs of some food price inflation starting to return there is a risk that inflation will not fall as expected. The Bank of England is taking the view that with so much spare capacity in the economy inflation will gradually return to target, but with the pace of decline incredibly slow and other shocks that may yet impact, concerns may soon start to increase.


The only data of note in Europe is construction output for June with the month on month rate coming in at a very healthy +2.7% compared to the May level of -0.7%. Spain was actually the star performer with a 7.2% jump after a -0.2% decline in May.

All eyes tomorrow will be on the weekly initial jobless claims in the US. After another bad number of 484,000 last week the market consensus has moved up to 480,000. A move above 500,000 would be significant especially if it were to remain above that level for more than a week or so.

A brief update today. The German economic sentiment index for August produced a lower reading than expected at 14.0 compared to consensus expectations of 20.6. This index is based upon the expectations of financial analysts and investors rather than a consumer driven index and the decline reflects the fact that most of the financial services industry is now expecting a slowing in the rate of growth we have seen over the last quarter in Europe.


The rest of the data due out today will be US based. We have already had housing starts which not unexpectedly were lower than expectations at 546,000 annualised compared to consensus expectations of 570,000 and 549,000 last time. The impact of the expiry of the stimulus package for the housing market is still being felt and a sustainable housing market recovery in the US still looks a long way off. The housing market index published yesterday fell for a third month in a row.

The US Producer Price Index for July has been published today and was broadly in line with expectations at +0.2% and the final major data of today which is due out later on is Industrial Production for July. Expectations are for an increase of +0.6% after a +0.1% increase last month.

The US manufacturing sector appears to still be in slowdown mode judging by the Empire State Manufacturing index yesterday. The headline number did increase modestly to 7.10 (consensus was looking for 8), but the major components of this index such as new orders continue to decline. The equivalent number for the August Philadelphia Fed Survey on Thursday will make interesting reading to see if the slowdown is broadly based.

World markets are rightly becoming increasingly nervous of the data emanating from the US. On Friday US retail sales disappointed. On the face of it the headline number of +0.4% for July was okay, but if you strip out gasoline and auto sales the number actually dipped by -0.1%. This is not the data you would expect from an economy on a sustainable path to recovery. The reality is very much different. We have already started to see some commentators talk of a revision to US Q2 GDP data to below 2% and some are already talking of flat to very modest Q3 GDP. Given that only a few weeks ago the consensus was talking about second half US GDP at 3%, times have changed rather rapidly and the risks that the slowdown turns into something worse remain material.


The economic data this week kicks off in the US with publication of the Empire State Manufacturing Index for Aug which is a monthly survey of manufacturers in New York State. This will make very interesting reading because of the rapid slowdown in the growth rate we have been seeing in the manufacturing sector. This index declined by 15 points to 5.08 last month and it was the start of several data sets that disappointed the market. The consensus is expecting the data this month to recover a little to 8.0 and whatever the number it will be looking for signs of stabilisation. A negative number suggesting contraction will not be taken well. We have the equivalent number for the Philadelphia Federal Reserve district on Thursday. This also declined last month to the level of 5.1 and the consensus is looking for 7.0 for August. Any suggestion that the US manufacturing sector is heading into a phase of contraction will not bode well for growth over the coming months.

The decline in the UK housing market appears to be picking up some momentum. According to the Right Move house price index published today, prices fell by 1.7% during August. In London, prices fell by a significant 4.1% during August which is the largest decline in 2 years. The UK housing market is undoubtedly overvalued. With the impact of low interest rates starting to fade as short term deals start to expire, and with the self certification market now non-existent, a lot of the recent supports are starting to disappear fast. We may well now be at the start of a prolonged downturn in the UK property market.

In Europe today we have had CPI data for July. The core rate excluding energy and food rose to 1% year on year compared to the 0.9% reported in June. The headline rate rose to 1.7% from 1.4%. Inflation pressures are still likely to remain relatively subdued due to the spare capacity in the Euro zone. However, the rise in the headline rate may start to raise some concerns that perhaps inflation over the near term could gather a little more momentum due to higher energy and food costs.

After a strong start world markets have slipped back into negative territory and the reason is fear over the data due for publication in the US this afternoon. After the poor initial weekly jobless numbers in the US yesterday which increased from to 484,000 from 479,000 last week, market fears over a growth relapse/double dip have increased, and they have every reason to. Given that the employment situation appears to again be deteriorating there is a good chance of disappointment from the retail sales numbers for July and the final July reading for the University of Michigan Consumer sentiment index due out later today. Retail sales for July according to the consensus are expected to show a modest 0.5% improvement during July compared to a -0.5% decline during June. Most confidence indicators have fallen back during recent weeks and the last reading for the University of Michigan series was 67.8 compared to 76.0 at the end of June. Expectations are for it to rise modestly to 69.0 but after more recent data, especially relating to the employment picture, a decline cannot be ruled out.


The good news of the day has come from Europe where Q2 GDP was +1% compared to the first quarter of just +0.2%. The consensus was looking for +0.5%. The same data for Germany has also been published confirming that Germany was the major powerhouse during Q2 with growth of +2.2% compared to +0.5% during Q1 whilst the consensus was looking for +1.3%. The weakness in the Euro will have certainly been to the benefit of the Euro zone during Q2 boosting external demand. With austerity measure yet to really bite and a slowdown in the US already underway this may well be as good as it gets this year.

After the poor Non Farm payrolls on Monday markets have bounced on the expectation that the Federal Reserve will announce additional stimulus measures when it meets tomorrow to decide on monetary policy. Once again we have a situation where markets view bad news as good news. The reality is very different and the fact that the Fed has to even consider additional stimulus measures at this point in the recovery is a reflection of the fact that the US has a jobless recovery and a very fragile one at that.


The Non Farm payrolls came in with a decline of -131,000 compared to the consensus which was looking for a decline of around -70,000 which was due to Census workers coming off the register. The key elements of this report were firstly the private payrolls which generated an improvement of 71,000 although the consensus was looking for a figure closer to 100,000. The previous headline number for June was revised from a drop of -125,000 to a significant decline of -221,000. The private payroll element of the June number was revised from a +83,000 gain to a much smaller gain of just +31,000. The unemployment rate remained steady at 9.5% but this was only because 181,000 people gave up looking for work. One interesting statistic we have seen quoted is that the number of unemployed, discouraged or involuntarily part-time workers is now more than 25 million or 16.5% of the labour force, which represents one in six Americans. Any idea that the road to recovery without any double dip or growth relapse is far from reality at present.

The next couple of trading days could well see some significant volatility. The market is expecting some form of announcement from the Fed about additional stimulus measures. This is certainly not a given and there is a significant possibility that they will opt for no action until the picture becomes clear of ongoing weakening in the recovery. Market reaction to a no action policy is likely to result in a sell off.

There is no major economic news scheduled for today in Europe or the US with all eyes focused on the Fed meeting result tomorrow.

In the US on Wednesday the ADP private payrolls report was a little better than expected with 42,000 jobs created compared to expectations of 35,000. All eyes will now be on the Non Farm Payrolls this afternoon with the consensus looking for a decline in the headline rate of 100,000 due to census workers falling off the register, but the important number will be the private payrolls with the consensus looking for a number of around +100,000 to +125,000.


After deterioration in the US initial weekly jobless numbers yesterday with an increase of 19,000 to 479,000, there are real fears that we are approaching a point at which there will be net job losses on the Non Farm Payrolls. The key level for the weekly initial jobless claims is 500,000, and if we breach that over the coming weeks the risks to the economic recovery in the US will increase significantly.

Both the MPC and ECB met yesterday to decide on interest rate policy and not unexpectedly both left rates where they are. Inflation in the Euro zone looks to be under control with the main upside risks now likely to emanate from commodity price inflation, with the downside coming from so much spare economic capacity and weak demand. Inflation in the UK looks set to remain above target for some time to come especially given the influence the VAT increase will have at the beginning of next year. The first interest rate hike may well be in the UK although it is debatable as to whether it will happen in 2010.

Remaining on the subject of inflation we have had the UK Producer Price Index (inputs and output) for July today. Inputs declined by a more than expected 1.0% month on month whilst outputs rose by a modest 0.1% again confirming that there is little in the way of inflation pressures at present in the UK economy. Industrial Production and Manufacturing production for the UK has also been published this morning. The former declined by -0.5% (consensus +0.3%) month on month whilst the latter rose by +0.3% (consensus +0.6%). Industrial production data for Germany is also due out today.

The market has jitters this morning about the results of the Non Manufacturing ISM data due out this afternoon in the US. Having fallen to 53.8 in June the market is expecting a further decline to 53.0 for July. The manufacturing equivalent on Monday fell by less than expectations and a similar result with the Non Manufacturing index will help world markets this afternoon. With so much concern over US GDP growth during the second half, any disappointment with this data is likely to result in sell-off. We shouldn’t forget the ADP private payroll data due out today with the consensus looking for a number around the 30,000 mark.


The trading update from Next today has put the retail sector under pressure. The comment ‘ a noticeable cooling in retail demand in recent months’ does suggest that the UK consumer might well be reigning in the purse strings. Next does have a habit of being overly cautious with their outlook statements but this certainly suggests that retail sales are slowing. It seems a very likely scenario given the cuts and taxation that are ahead, but this is the first real tangible evidence from one of the big retailers. Carpetright have made similar comments today.

In the UK today the Halifax house price index showed a 0.6% gain for last month which has reversed the same decline over the previous month. We have also had the July Purchasing Managers Index for services which fell to 53.1 from the June level of 54.4. The consensus was actually looking for a modest increase. Germany, Spain, Italy, France and the Eurozone July PMI Services were all reported today and all show declines on the previous month. The rate of growth appears to have peaked and the real issue is whether we continue to see a slow-down or whether we will see this data start to stabilise over the coming months. Finally, we have had June retail sales for the Eurozone today which registered no change month on month.

The July ISM manufacturing report yesterday was better than expected with a decline to 55.5 from 56.2 in June. Expectations were for a decline to 54.0, and given the more recent manufacturing surveys the risks of a lower figure seemed quite high. The relief helped the Dow to keep most of its gains for the day with a 200+ point gain. We also had better than expected US construction spending for June with a 0.1% gain compared to consensus expectations of a -0.1% decline, although the figure for May was revised down from -0.2% to a -1.0% decline.


Today in the US we get personal income and consumer spending for June with the consensus expecting a 0.1% month on month gain. This data can move the market given its implications for GDP especially given that growth can only be achieved during the latter part of the year if the US consumer continues to spend. We also have factory orders for June and the pending homes sales index for June in the US today.

In the UK today we have had the July Purchasing Managers Index for construction which was worse than expectations declining to 54.1 from 58.2 in June. This sharp deterioration in business conditions within the construction sector may well be a reflection of the outlook for UK house prices.

In Europe today we have already had the June Producer Price Index which was broadly as expected with a 0.3% month on month increase.

After the sharp rally in world markets yesterday we can expect a degree of consolidation today. The economic data seems to be holding up reasonably well especially in Europe and this may well provide further support to equity markets over the coming days.

The technical analysts voices appear to be in the ascendency at the moment with the S&P 500 now trading close to its 200 day moving average once again whilst the Dow is now close to break even for the year as is the FTSE100 and most major European indices. In the US the earnings season has made a difference given the ongoing disappointing economic data, although we must bear in mind that the earnings reports are historical whilst much of the economic data is a forward looking indicator.


The outlook remains very clouded and with the European austerity measures yet to really bite it is far too soon to consider the current rally in world equity markets as sustainable. US unemployment remains stubbornly high and the US economy is still benefitting from a massive fiscal stimulus, a good deal of which is now starting to fade which is why the more forward looking indicators point to a slowdown. We remain very uncertain as to the direction of world equity markets and it is difficult to believe yet that the fundamental picture is showing any real signs of improvement given the headwinds we face over the coming months.

The major US data announcement yesterday was the Conference Board’s Consumer Confidence index for July which declined to 50.4 from 52.9 against the consensus which was expecting a figure of 51.0. Consumer confidence in the US has slipped back significantly during recent weeks and if it remains at these depressed levels we can expect to see that reflected in spending patterns over the coming months which again does not bode well for US growth during the second half.

One glimmer of hope in the US is the housing market with activity appearing to show some signs of reaching a floor after the withdrawal of the tax credit stimulus measures. On Monday we had new home sales which after a 36.7% decline in May did at least rebound by just under 24% during June to 330,000 on an annualised basis. Other housing data relating to existing home sales and housing starts has been better than expectations this month.

The Bank of England Governor, Mervyn King has stated this morning that interest rates in the UK are set to stay low for the foreseeable future. Looking at GDP estimates and inflationary expectations we could be facing low interest rates for years rather than months. Despite the first estimate for UK Q2 GDP being substantially ahead of expectations it is difficult to see much more progress being made from this level over the coming months, and growth in the UK is still forecast by most commentators to be around the 1.3% mark for 2010. Estimates for 2011 show a little improvement on this level but not much with growth during 2011 likely to remain below 2%. These are levels that are unlikely to warrant any change in interest rates for a long time to come.

In the US today look out for the durable goods orders data for June. After a -0.6% decline last month the market is looking for a 1% improvement. The Beige book is also due for publication today and that gives some of the most up to date evidence of economic conditions in the 12 Federal Reserve districts.

Today has been all about the US again and the economic data continues to drive the market which over the last two days has put world markets back into reverse. Yesterday we had a plethora of data all of which points yet again to a slowdown in US economic growth. The Empire State manufacturing index for July was considerably worse than expected with a reading of just 5.08 (the lowest reading since Dec 2009) compared to expectations of a modest drop to 18.0 from the previous reported level of 19.57. The equivalent figure for Philadelphia only confirmed a weakening picture with the index for July dropping to 5.1 whilst the consensus was expecting a rise to 12.0. The constituents of the Philadelphia index paint a rather bleak picture with the new orders index moving into negative territory at -4.3 from 9.0 whilst current shipments declined to 4.0 from 14.2. This almost certainly means we are on course for a weaker ISM manufacturing reading next month.


One slight positive yesterday was that industrial production managed a modest gain of 0.1% during June whilst the consensus was expecting a slight decline of -0.2%. Within the same report manufacturing declined during June by -0.4% following on from a 1% improvement in May. Capacity utilisation remains very slack at just 74.1%.

With unemployment in the US continuing to be very much in focus it was interesting to see the weekly initial jobless claims data being largely ignored with a much better than expected reading yesterday of 429,000 against consensus expectations of 445,000. The reason the market chose not to look at this data was partly due to the bad manufacturing surveys. However, seasonal factors primarily related to delayed layoffs in the auto industry for re-tooling and the July 4th holiday will have distorted the picture making the reading this week unreliable.

In the US today we have had CPI data for June with the headline number showing a decline for a third month in a row of -0.1% month on month whilst the core index (less food and energy rose by 0.2%). Overall inflationary pressure remains very subdued in the US, a trend which is expected to continue over the coming months.

The week in the US has been rounded off with a poor University of Michigan consumer sentiment index reading for July which fell from 76.0 to 66.5, against expectations of a modest decline to 75.0.

After yet another glut of poor US data the Dow is down 150 points at the time of writing whilst the FTSE100 has fallen by 50 points on the day. Next week in the US the economic data is primarily focused on the housing market which we already know is in deep trouble again and we kick off on Monday with the National Association of Home Builders housing market index.

The minutes of the most recent FOMC meeting published yesterday revealed what most were expecting which was a downgrade to their growth outlook for 2010 from a range of 3.2% to 3.7% to a range of 3.0% to 3.5% and for 2011 from a range of 3.4% to 4.5% to 3.5% to 4.2%. In the grand scheme of things the downgrade is not that significant, and if the US does achieve these lower forecasts the market will have the basis to move further ahead. However, there is still considerable uncertainty around the market as to whether growth of over 3% is achievable this year. Given the Q1 figure of 2.7% and some estimates already doing the rounds of under 3% for Q2 there is a possibility that the Fed forecasts are going to need a further downward revision in the not too distant future. What we don’t want to see is a significant second half growth relapse in the US which is a real risk at present and is an event that is not priced into the market. At present most forecasters are not expecting any change in US interest rates until the latter part of 2011 at the earliest with many now predicting no change until well in 2012.


Other data news in the US published yesterday were retail sales for June which came in below expectations with a month on month decline of -0.5%. Most of this was due to a dip in auto sales which when stripped out showed a fall of -0.1% which follows on from a decline of 1.1% in May. Whichever way you cut it consumer trends in the US remain weak and it is difficult to see how the consumer will be able to pick up the baton and keep the momentum going over the coming months.

The US has a lot of data due for publication this afternoon. We start with the weekly initial jobless claims with the market looking for a number of 445,000 (last week 454,000). The Empire State Manufacturing report for New York State is due out at the same time. The market is looking for the index to drop back modestly to around 18.0 for July from the previous reported level of 19.57. Later in the day Industrial Production is due for June with the consensus looking for a month on month decline of -0.2% after the 1.2% increase reported for May. The final data of the day is the Philadelphia Fed manufacturing survey which is expected to show an improvement to 12.0 in July from the previous reported level of 8.0.

There was some relatively good news on UK unemployment yesterday with a drop of 34,000 in the number unemployed in the 3 months to May. Employment rose by 160,000 (although 148,000 of this was part time workers) over the same period but the number of people starting to look for work also increased significantly which held back the overall drop in the unemployment number. The outlook for the employment market remains clouded at present especially given the planned government cuts which according to the Office for Budget Responsibility will result in around 600,000 public sector job cuts by 2015/16.

The economic calendar for Europe is relatively quiet today with just the ECB monthly report on current economic trends due for publication.

The core UK inflation rate (excluding food and energy) remains stubbornly high and actually increased to an annualised rate of 3.1% in June from the previous level of 2.9% in May. The headline rate which does include food and energy moved down slightly to 3.2% from 3.4%. These figures remain well above the Bank of England’s target rate of 2%, but expectations are firmly in the camp of gradually declining prices over the coming months driven on by excess capacity in the economy. With a VAT hike due at the start of 2011, the Bank of England will no doubt want to see the CPI much closer to target before the inflationary impact of the VAT increase. Expectations for the timing of the first interest rate increase in the UK are still well into 2011, but this may change if the trend does not start to show a more meaningful decline.


In Europe the Centre for European Economic Research (ZEW) said that its German economic sentiment index fell to 21.2 in July from 28.7 in June. The European equivalent also fell during July to 10.8 after a reading of 18.8 in June. Both were below expectations and perhaps show the lagged impact of the European sovereign debt crisis. It is still too early to assess the impact of the austerity measures in Europe and again the lack of news flow more recently is helping the market to recover recent losses but that doesn’t mean the problem has gone away.

At the moment optimism has grasped the market and the US Q2 earnings season has every chance of keeping the momentum going in the short term. Most commentators appear to have dismissed the idea of a double dip recession as a low probability event. The next few weeks will be crucial given the fact that the economic data has in the main rolled over and to what extent the slowdown becomes something more is still an unknown and we do not believe that the idea of a double dip can be dismissed at this stage.

World markets managed a strong rally last week despite having digested a plethora of US economic data the week before which points to a slowdown in US economic activity over the second half of this year. The absence of any bad news last week undoubtedly helped the rally along, but as we move into the Q2 earnings reporting season this week attention will focus on company results and in particular outlook statements. The first report in the US comes from Alcoa after the market close today, but the real action won’t start until later in the week when the banks start to report with many of the technology companies and industrials scheduled for next week. A healthy reporting season may well help to instil confidence that a double dip is not on the horizon and possibly market expectations will start to adapt to slower growth paving the way for stability in the equity market. We remain very cautious about the market at present and although a good reporting season in the US may well help markets to recover some of the recent losses, there is still considerable uncertainty over whether the market is priced for low US growth over the second half.


In the UK today the ONS has published its final estimate of Q1 GDP which shows growth at 0.3%. More recent data suggest that the run rate during Q2 may have improved to +0.5% or +0.6%. However, that is still very small especially when you consider that according to the ONS GDP fell by 6.4% from peak to trough leaving a significant amount of lost output to make up.

This week is all about inflation with data due in the USA and Europe. In the US we get the Producer Price Index for June due for publication on Thursday with the Consumer Price Index for June due out on Friday. Both measures are expected to show modest declines of around 0.1% month on month. With so much spare capacity in the US economy and relatively weak demand it is difficult to see inflation becoming much of a threat for many months to come. Other notable US economic reports this week are retail sales for June due out on Wednesday which is expected to fall by around 0.2% following on from a 1.2% decline in May. The health of the US consumer is still very much in question and it is difficult to see consumer spending making much of a contribution to growth during the second half of this year. Also on Wednesday we get the minutes of the latest FOMC meeting which will make interesting reading. The market will be increasingly focusing on where policy makers see interest rates heading and the minutes will throw some light on any rifts occurring between the voters on how monetary policy should move over the coming months.

Thursday in the US brings the usual weekly initial jobless claims. After the decline last week to 454,000, the market is looking for a further fall to 445,000 this week. Also on Thursday we get another snapshot of the US manufacturing sector with the Empire State Manufacturing report for July. This index, which measures activity within the New York State manufacturing sector has remained comfortably within growth territory during recent months having registered 19.57 last month, with a reading of around 18 expected for July. A notable decline would almost certainly set the market back into worry mode over growth expectations for the second half. We also get the equivalent figure for Philadelphia on Thursday. The Philadelphia index surprised the market last month with a decline to just 8.0 and the market is expecting a bounce back for July to 12.0.

The week in the US ends with a dose of consumer confidence with publication of the first estimate for July of the University of Michigan Consumer Sentiment index. The last reading for June was 76.0 but with the recent decline in equity markets and ongoing weakness in the labour market a decline looks very likely. The consensus is looking for 75.0 but there is downside risk to this in our view.

In the UK tomorrow the CPI for June will be published. The month on month rate is expected to show no change bringing the year on year rate down to 3.2% from the 3.4% registered last time. The core annual rate is expected to dip to 2.8% from 2.9%. In Germany tomorrow the ZEW economic sentiment survey for July will be published. On Wednesday we get UK unemployment data and the European CPI for June as well as European industrial production for May. Thursday brings the ECB monthly economic report. Friday is relatively quiet on the economic front in Europe.

With little in the way of economic news world markets have continued to rally and this has helped the FTSE100 make its way back above the 5,000 level. What happens next is very difficult to say and the weekly initial jobless claims in the US this afternoon are likely to have a major bearing on where markets move by the close of business on Friday. After another elevated reading last week of 472,000 the market will be looking for a lower number with the consensus currently standing around the 465,000 level. A higher reading will not be taken well and after the strong market moves of the last 2 days disappointment will surely result in a sell off on the Dow this afternoon.


The US Non Manufacturing ISM data for June published on Tuesday provided further evidence that economic activity in the US has already peaked and the question now is at what level is GDP growth going to fall to. Expectations of 3% GDP growth for the remainder of the year in the US could well be optimistic especially given that the spurt in growth during Q4 2009 and Q1 2010 was primarily inventory driven which is now coming to an end leaving the US consumer to now pick up the baton.

Keeping with the US consumer the Red Book report on June retail sales published yesterday provided the market with some confidence that perhaps the US consumer isn’t dead. The report showed that retail sales increase by 3% compared to the same period last year. What the market didn’t focus on was the fact that month on month retail sales were down 0.5%. The debate over whether the US consumer will be able to maintain the momentum is likely to continue for some time and for the time being at least sentiment appears to be a little more positive than negative.

In Europe today we have both central banks meeting to discuss interest rate policy with the UK set to remain on hold at 0.5% whilst no change is expected in the European rate at 1%. Also today we have already had German industrial production for May which showed a healthy 2.6% month on month increase compared to the April number of 1.2%. In the UK we have already had manufacturing and industrial production for May. The former was up 0.3% (4.3% year on year) whilst the latter showed an improvement of 0.7% (2.6% year on year). This certainly suggests that UK GDP for Q2 is on track to show an improvement on Q1.