The market is awaiting the US employment data and the ISM Non Manufacturing Index this afternoon. After the ISM manufacturing index on Wednesday defied expectations with an increase over the month there has been a sudden shift in sentiment towards the bulls. Expectations for private payroll growth within the nonfarm payrolls currently stand at +40,000 which hasn’t changed since earlier in the week and that’s despite the poor showing from the ADP number on Wednesday. Undoubtedly a negative private payroll number today will be taken badly but anything positive may well be greeted with relief giving the market a further excuse to rally after the market decline in August. The headline nonfarm payroll figure will still be negative as the census workers roll off the register with expectations of a drop of around -100,000.


The ISM Non Manufacturing data due out this afternoon is very important indeed given that it covers around 90% of the US economy. Expectations for July are for a reading of 53.0 from the previous reported level of 54.3. Given recent economic indicators we would certainly expect a decline although we would have said the same of the manufacturing report earlier in the week. There is the potential for a surprise but more likely a modest decline in line with expectations.

Overall a lot rests on the data this afternoon and if at the very least the numbers are no worse than expectations we would expect to see the market continue its rally. However, we would not read too much into this and it is more likely to be short lived. The US recovery is far from out of the woods and Q3 GDP is still lining up to be worse than Q2. Based upon recent data such as the bad construction numbers announced for July and the downward revision to the June number we may yet see a further downward revision to Q2 US GDP and a very low Q3 number with some commentators still suggesting Q3 could be negative.

The European data we have had today is the August Services Purchasing Managers Index for Germany, the EuroZone and the UK. The Eurozone was a little above expectations whilst Germany and the UK showed declines over the month. Euro Zone retail sales have also been published for July and the number was slightly below expectations with a month on month increase of +0.1% compared to expectations of +0.2%.

The ISM manufacturing report in the US yesterday afternoon changed the market mood completely and all of a sudden there was a rush to buy risky assets pushing world markets up by well over 2%. The ISM reading came in at 56.3 against expectation of a fall to 53.0 from the previous monthly level of 55.5. However, the new orders and unfilled orders element of the index declined to their lowest level in many months. More recent data relating to the US manufacturing industry has pointed to quite a sharp slowdown in activity and it is difficult to see this index making any more progress from here. In fact yesterday’s data was almost a little deceptive in terms of what the underlying picture currently is.


The US ADP private payroll data was dire, bearing in mind that we are supposed to be in a stage of economic recovery. To lose a further 10,000 private payrolls when the US should in fact be creating 100,000+ at this time is not an indication that all is well. Also yesterday, US construction spending for July was announced and this fell by -1.0% compared to expectations of a -0.6% fall. The June level was revised to a decline of -0.8%, which is a reflection of the poor state of the US housing market. However, yesterday the market chose to focus on the positives and we now look to the Non Farm Payrolls and the ISM Non manufacturing data due out tomorrow. If both of these please the market we may well see markets push further ahead over the coming week, but conversely to that we may get a reality check instead.

This afternoon keep an eye out for the US weekly initial jobless claims. After the significant improvement last week to 473,000 from the terrible 504,000 posted the week before the market will at the very least be looking for claims to be hovering around the 470,000 mark. A shift back up towards 500,000 will not be taken well, but if we see further improvement that is likely to give the market a further boost this afternoon. Other data due out in the US today are factory orders for July with the consensus looking for a modest +0.3% gain following the -1.2% drop during the previous month.

In the UK today we have had further confirmation that the housing market is in decline with the Nationwide house price index falling by -0.9% during August. In Europe the estimate for Q2 European GDP was unrevised at 1.0%. The European Central Bank is meeting today to decide on interest rate policy. We can expect no change and realistically any rate increase is unlikely to come until well into 2011.

The first of the employment data in the US is due for publication today with the ADP private payrolls for August due shortly. With clear deterioration in the US employment picture during recent weeks expectations have fallen and the consensus is expecting private payrolls to show a figure of just +20,000 last month. This compares to the July number of +42,000. However, there is considerable uncertainty as to what the figure will be today and it is not inconceivable that no private payroll jobs have been created. Either way the ADP number today will give some indication of where the Non Farm Payroll number is heading on Friday.


Today in the US we also get the ISM Manufacturing Index for August. More recent manufacturing data has suggested a rather rapid slowdown in conditions within the US manufacturing sector and the ISM number today will reflect that. The consensus is expecting a figure of 53.0 after 55.5 last month but given the recent weakness there is in our view some downside risk to this number.

Other US data due for publication is construction spending for July with the consensus expecting a drop of -0.6% after the +0.1% gain in June.

In Europe today we have had the August Manufacturing Purchasing Managers Index for the Euro zone and Germany which were broadly in line with expectations. The equivalent figure for the UK published today was a little less than expected at 54.3 compared to expectations of 57.0 after the July figure of 56.9. Overall, so far economic activity in Europe and the UK seems to be holding up a lot better than most feared although it is still early days given that the austerity measures and general fiscal squeeze are in the main yet to be felt.

The market is strong today after better than expected manufacturing data in China. The US economic data due out over the next couple of days will be crucial if the momentum is to be maintained.

This week presents us with a minefield of economic data, with the major ISM indices and the all important unemployment data in the US due for announcement.


We ended last week on a positive note with world markets rallying after the second estimate for Q2 US GDP was no worse than feared at +1.6%. Fed chairman, Ben Bernanke made comments in his speech on Friday at the Fed’s Jackson Hole retreat that the Fed is prepared to do whatever it takes to keep the recovery on track. However, he stopped far short of suggesting that any new measures were imminent and instead said additional measures would be used if “the outlook were to deteriorate significantly”. This does suggest that the Fed is not in any rush to address the ongoing US slowdown and in fact he believes that the preconditions are in place for a more vigorous recovery next year. The market will certainly be looking for more action sooner rather than later if the data this week provides more evidence of a rapid slowdown.

World markets this morning have opened in negative territory after the Dow slipped back last night following slightly disappointing personal income data although volumes in the US yesterday were very light.

Today in Europe the main economic data that has already been announced is German and European unemployment for August. Both were static with German unemployment at 7.6% and European at 10%. In the UK, July mortgage approvals have been announced and they were slightly higher than expectations although this does not change the short term outlook for declining house prices. The latest Home Track house price index was published over the weekend and that showed prices fell by -0.3% during August.

In the US today the main data announcement will be the Conference Board Consumer Sentiment index for August. The consensus is looking for 51.0 after the 50.4 registered in July. If the University of Michigan data is to serve as any guide it would seem that more recent sentiment data has stabilised and the risks of a miss do appear lower at present.

Also in the US today we get the latest FOMC meeting minutes. Given the recent comments from Fed members there are unlikely to be any surprises within this announcement.

After the market declines of last week world markets have today opened stronger and with little in the way of economic data due for publication the strength we are seeing this morning may well last into the afternoon trading session. The economic calendar is relatively busy after today and there will be plenty of data for the market to get its teeth into, especially in the US.


There is no economic data scheduled in the US today whilst in Europe we have had the August Purchasing Managers Index for Services and Manufacturing, both of which have come out a little lower than expectations.

Tomorrow we get June Industrial New Orders for the Euro zone and the main event will be the US existing home sales data for July. With the US economy already clearly in trouble, a collapsing property market will only compound the problem. The consensus is already expecting a significant decline on the last month’s figure of 5.37m units on an annualised basis to closer to 4.7m units. Given the impact that high unemployment is already having on US consumer sentiment, a poor housing market will only add to the US consumers’ woes and it is difficult at present to see any light at the end of the tunnel. Without healthy consumer spending the US economy has no hope of building the foundations for a sustainable recovery.

On Wednesday in the US we get more housing data with new home sales for July. The consensus is looking for a figure of around 340,000 annualised compared to the prior level of 330,000. Durable Goods orders for July are also due for publication on Wednesday with the consensus looking for a 2.5% increase after the -1.0% decline in June. In Europe on Wednesday the IFO Business Climate index is due for publication.

After the disastrous weekly initial jobless claims in the US last week, the market will be looking for a number lower than 500,000 on Thursday. If we see yet more deterioration in this data the market reaction will be very negative. If the 4 week moving average starts to close up on the 500,000 level the probability of a US double dip will increase significantly.

Friday is arguably the big data day this week. We get the second estimate for UK Q2 GDP which is expected to be unchanged on the first estimate of +1.1%. We also get the second estimate for Q2 US GDP. After the first estimate of +2.4%, expectations for the second reading have fallen quite dramatically with the consensus now looking for just +1.4%, although we feel if anything there is some downside risk to even that number. With so much US data now rolling over it is not inconceivable that the Q3 GDP will be a negative number.

We round the week off with the next dosage of US University of Michigan Consumer Sentiment data. The last reading was 69.6 and the consensus is looking for no change in the report this week. Under normal circumstances this index would be around the 90 mark under the conditions of economic recovery which does demonstrate just how far away we are from what could be considered to be a normal economic recovery.

With no major economic news due for publication in the US or Europe today, the market is still chewing on the dire US weekly initial jobless claims published yesterday. This was followed by an equally poor Philadelphia Fed Manufacturing index which fell into negative territory, signifying contraction in the manufacturing sector in the Philadelphia Fed area during August. This index was expected to show a modest improvement to 7 from the previous reported level of 5.1. In fact it declined to -7.7 and as with the equivalent Empire State Index earlier in the week the new orders part of the index fell over the month. The manufacturing sector during recent months has been one of the bright spots of the US economy which has helped to keep at least some of the momentum going in GDP growth. It is now clear that the peak in manufacturing has been reached and the momentum is being lost rapidly. The issue now is whether the slowdown in growth in the manufacturing sector is going to turn into a broad based contraction. The next ISM manufacturing index reading is undoubtedly going to show a further decline although we are unlikely to be at a point of outright contraction.


Next week could contain the catalyst for a further downward move in world equity markets when the second estimate for US Q2 GDP is published on Friday. Given that only a few weeks ago the consensus was expecting second half GDP growth of around 3%, we may already be faced with a Q2 revision that takes it below 2%, the first estimate was 2.4%. Some commentators are already considering the possibility of less than 1% growth during Q3 with an outside chance of a negative print. A move to less than 1% or even negative growth before the end of the year would almost certainly prompt a potentially significant market sell-off.

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.