With the US closed for President’s Day we can expect a relatively quiet day of trading ahead. In the UK the only economic announcement of note was the Rightmove house price index for February which actually gained by +3.1% month on month. We remain nervous of the UK housing market and still believe that we are in for a prolonged period of gradually declining house prices in the UK. With forecasts of the first UK interest rate hike now moving closer to May/June, sentiment within the housing market may quickly change over the coming months which could well exacerbate house price falls.


In Germany the Purchasing Managers Index for manufacturing rose to 62.6 in February compared to expectations of 60.3 and the January reading of 60.5. The equivalent data for services did not perform as well, declining to 59.5 compared to expectations of 60.3 and the January reading of 60.3. Overall though Germany remains the European powerhouse and this was particularly evident today in the IFO Institute’s index of German business confidence which rose to a record 111.2 in February.

The main event in the US this week will be the January durable goods orders data due out on Thursday and the second revision to 2010Q4 US GDP. For durable goods the consensus is expecting a month on month improvement of +3.0% for the headline number whilst the ex transportation number is expected to be closer to +1.0%. After posting an annualised rate of +3.2% the Q4 GDP number is expected to be revised modestly upwards to +3.3%.

In the UK the main event of the week will be the publication of the minutes from the latest Bank of England MPC meeting. With two members voting last time for a rate increase it will be interesting to see if any other members have joined the rate hike club. What is clear is that we are moving closer to the first base rate increase. There is no doubt that despite the Bank of England’s expectation that inflation will fall over the medium term there is a good deal of uncertainty by just how much. With so much room for error especially given the current inflationary pressures, a token +0.25% interest rate hike may well be viewed as a means of aligning expectations to further rate increases over the coming months and that in itself may help to start bringing inflation under control.

The Bank of England’s inflation report yesterday was the major event and with expectations of inflation now moving up closer to the 5% level over the coming monthsthere is a real threat of a near term base rate hike. The report itself leaves considerable uncertainty over when the first rate hike will come but what is clear is that the Bank of England is becoming increasingly concerned about the medium term path of inflation and that is likely to mean at least a +0.25% interest rate rise over the coming months. An increase of just +0.25% is unlikely to unsettle the market and it will at least help to align expectations for perhaps another increase before the end of the year taking the base rate to 1%. The impact on the housing market of rising interest rates could be significant and we continue to believe that a gradual decline in house prices over the coming months is a likely outcome especially if interest rate expectations start to shift. This in itself could prove to be a big drag on consumer spending given the relatively high correlation between house prices and consumer sentiment.


In the US the minutes from the latest FOMC meeting which were published yesterday were a little more upbeat. Their forecast for US GDP was raised to between +3.4% and +3.9% for 2011 compared to the estimate last November of +3.0% to +3.6%. They are expecting the recovery to strengthen over the coming quarters and noted that “the downside risks to forecasts of both economic growth and inflation - as well as the odds of a period of deflation - had diminished." Much will depend on the state of the economy as we approach the end of QE2 which is expected to end around June.

The UK appears to be facing the prospect of a jobless recovery which is much the same situation in the US. The number of jobless increased by 44,000 to 2.5 million in the three months to the end of December. The big headline was the number of jobless in the 16 to 24 year old category with one in 5 unemployed after a rise in the number by 66,000 to 965,000. The unemployment rate remained at 7.9% but this does not reflect the number of people being forced to opt for part time employment rather than full time. Overall higher unemployment is going to impact of consumer sentiment and with the public sector cuts working their way through the system it is difficult to see the private sector being able to take up the slack. Unemployment looks set to deteriorate further over the coming months.

In the US yesterday Industrial Production was the surprise underperformer with a month on month decline of -0.1% compared to expectations of a +0.5% improvement, but this must be set against the previous month which was revised upwards to +1.2%. US housing starts for January increased by +14.6% after falling by just over 5% during the previous month. US housing market activity remains at very depressed levels and there is little evidence to suggest there will be a pick up anytime soon.

This afternoon in the US we can look forward to the weekly initial jobless claims number which after another fall to 383,000 last week is expected to move back up to 410,000. We also get the Philadelphia Fed manufacturing survey for February with the consensus expecting an improvement to 22.0 from the previous reported level of 19.3. The CPI for January is also due for publication this afternoon with expectations of a month on month increase of +0.3%, with the core rate excluding food and energy expected to be just +0.1%. Ben Bernanke will be speaking this afternoon and we may see some market volatility on the back of any comments he makes about the economic outlook.

The much awaited UK CPI published this morning for January was as expected at +0.1% month on month leaving the annualised rate at +4.0% which is twice the level targeted by the Bank of England’s MPC . Bank of England Governor Mervyn King said today that inflation is expected to rise as high as 5% over the short term. He said that “the MPC’s central judgement under the assumption that the Bank rate increases in line with market expectations, remains that ... inflation will fall back so that it is about as likely to be above the target as below it two to three years ahead,". There is clearly a good degree of uncertainty over the medium term path of inflation and it seems likely that the market will continue to worry about the path of UK interest rates with expectations of an increase sooner rather than later with the market at present looking for a +0.25% increase mid year.


US retail sales for January have come in a little below expectations with a +0.3% month on month improvement, but if you exclude the impact of auto sales and gasoline the increase was +0.2%. Overall given the poor shape the US consumer is in this is still not a bad result for January although after the meteoric rise in the US equity market the miss may well be used as an excuse for some profit taking today.

The manufacturing data for New York State announced this afternoon was a little better than expected at 15.43 for February which is well into growth territory and is a reflection of the strong contribution that has been provided by the US manufacturing sector. The next report will be for Philadelphia on Thursday.

French, German and Euro zone Q4 GDP published today was a little less than expectations. For Germany, Q4 GDP came in at +0.4% on the quarter against expectations of +0.5% whilst France was weaker with a +0.3% gain compared to consensus expectations of +0.6% whilst the Euro zone as a whole achieved a +0.3% improvement compared t o expectations of +0.4%. Overall we can expect to see modest growth for Europe but with Germany and to a lesser extent France making up the running whilst the peripheral countries will continue to hold back growth as austerity measures impact.

Inflation and interest rates are the buzz word at the moment. With commodity costs spiralling upwards the fear of an early interest rate hike has become the focus of market attention. This week we will be on the receiving end of a plethora of inflation data for the UK, US and China. China is already in the process of trying to cool an overheating economy and only last week the People’s Bank of China raised their base rate by another 25bp to 3% but with their CPI still running at close to 5% there may well be more to come. We get the latest data for China’s CPI tomorrow with the year on year rate expected to be over 5%.


The UK has a significant inflation problem with many expecting the year on year rate for the CPI to move up to +4.1% when it is published tomorrow from the last reported level of +3.7%. This is very significant given that it would leave UK inflation at twice the 2% level targeted by the Bank of England. A number of commentators including ex MPC members are starting to question the judgement of the Bank of England. We will get further information about the thinking of the Bank of England when their quarterly inflation report is published on Wednesday. The MPC has continued to argue that there is sufficient slack within the economy to put downward pressure on prices over the medium term with the more recent pressures such as higher energy prices and food prices likely to prove only short term. However, if inflation does continue to move yet higher over the coming months the debate over the MPC’s credibility will start to get louder and we could well see a token 0.25% rise in the base rate before long to keep the market in check.

On Thursday the US CPI for January is due for publication with a month on month increase of +0.4% expected which would take the year on year rate to +1.6%. Inflation in the US is less of a concern at present and we are far from the point of the Federal Reserve raising the interest rate. However, market expectations have shifted somewhat with an increase of +0.25% expected towards the end of the year. This seems unlikely in our view although much will depend upon whether the US economy can survive after QE2 ceases around the middle of the year. If the economy does continue to have strength post QE2 we may well see a token rise in the interest rate but at present the US economy continues to look as if it will struggle in the absence of any major stimulus measures.

There is a large amount of economic data due for publication this week although today is relatively quiet with just European Industrial Production for December which fell by -0.1%. This was broadly in line with expectations due to the impact of the harsh weather in December. Despite the fall it still left industrial production for Q4 with a +1.7% increase compared to the Q3 number of +1.3%. Overall industrial production within the Euro zone is proving to be relatively robust and should continue to make a positive contribution to overall GDP growth.

Tomorrow in the US we get retail sales data for January which is expected to show a +0.5% month on month increase. The US manufacturing industry will also be in the spot light this week with both the Empire State Manufacturing index (due out tomorrow) and the Philadelphia Fed Survey (due out Thursday).

Apart from the CPI data in the UK this week the market will be focusing on the December unemployment figures due out on Wednesday along with the Bank of England Quarterly Inflation Report.

The last two days has been very quiet in terms of economic announcements and in the absence of any news the market seems intent on ticking yet higher. Today’s main economic news in the UK relates to the trade balance for December which hit a record £9.2bn. The ONS said the volume of exports declined by 0.1% in December whilst imports rose by 2%. Whilst some of the deterioration can be blamed on the bad weather it is clear that the underlying trend is poor. Without a strong contribution from external trade the UK economy faces yet another headwind to growth especially given the ongoing uncertainties over the global economic situation.


In the US tomorrow the main event will be the weekly initial jobless claims. After another improvement down to 415,000 last week the consensus is expecting 412,000 to be reported tomorrow.

In the UK tomorrow the Bank of England’s MPC meets to discuss interest rate policy and whilst no change is expected the market is becomingly increasingly nervous of when the first interest rate hike is going to come. Most commentators are expecting an increase of at least +0.25% before the year is out. At present the MPC is unlikely to raise the interest rate despite inflation remaining almost twice the targeted level of 2%. Their argument is that the factors creating the recent inflation surge such as commodity prices are only temporary and that inflation will move below target over the medium term. However, it does seem likely that they are also concerned about the potential impact of an interest rate increase on an already fragile UK economy. Whilst a +0.25% increase is unlikely to make a huge difference it would almost certainly raise expectations of a further increase and that alone would impact on consumer behaviour.

The disappointment over the headline Non Farm Payroll number on Friday of just +36,000 and a private payroll number of +50,000 quickly dissipated as headlines rolled out that the snow was to blame. Undoubtedly the bad weather will have had an impact but the consensus clearly didn’t factor this into their equation given that they were expecting a headline number of around +140,000. The bad weather may have held the number back but it doesn’t disguise the fact that the improving trend is still very weak. There is every chance we will see a degree of catch-up next month and some brokers are already talking about a headline Non Farm number for February of +300,000. We remain unconvinced by Friday’s announcement and unemployment in the US looks set to remain weak for a long time to come. The decline in the unemployment rate to 9% was unexpected but it is nothing to do with any improvement in the trend and more to do with the labour force shrinking by 500,000 as people continue to give up looking for work. Overall the bulls have focused on the weather impact but if we don’t see a healthy bounce next month it will again prove that employment trends in the US are far off what you would expect at this stage of recovery.


In Europe today December factory orders data for Germany were published which came in below expectations with a -3.4% month on month decline compared to expectations of a -1.5% fall. However, this does follow on the heels of a 5.2% gain last month and the year on year rate remains at a healthy +21.9%. The German economy remains the leading growth force within Europe but with the austerity measures starting to bite in the peripheral countries overall growth is likely to slow as the year progresses.

The only major data due for publication in the US today is Consumer Credit for December although this is unlikely to be a market moving event. Expectations are for a number of around $2.0bn.

There is no data due out in the UK today and the main event of the week will be the Bank of England MPC meeting on Thursday. Expectations are for no change but with two members voting for a +0.25% rate hike at the last meeting the market is growing increasingly nervous that the first increase in the base rate is getting closer. It still looks very unlikely that the interest rate will be increased but if inflation does continue to strengthen above expectations during the course of the year we may well see a token +0.25% increase before the year is out.

A brief update today as there is little in the way of economic news. The main event has been in the US with the publication of the ADP Private Payroll number for January which came in at +187,000 compared to expectations of around 150,000. The number for December was revised down to 247,000 from the previous reported number of 297,000. The ADP number has provided little guidance during recent months as to where the important Non Farm Payroll number is headed. However, the trend is most definitely positive and we should expect to see the private payroll number within the Non Farm data to be at least +100,000 with the consensus looking for around +150,000.

A very strong reading from the US manufacturing ISM index this afternoon for January is responsible for the rally gathering momentum during afternoon trading. At 60.8 the reading was well above consensus forecasts of 57.5 and the last reported reading of 58.5 (revised from 57.0). The US manufacturing sector has outperformed for some time now and the momentum judging from this data is still being maintained. Conversely to this, the construction spending data announced this afternoon for December actually fell by -2.5% month on month compared to expectations of a modest improvement of +0.2%. The data for November was also revised down to a decline of -0.2%. Within the data, private residential construction decline by -4.1%. Clearly expectations within the residential construction industry of any housing market recovery in the US remain very depressed. As we have said before without an improvement in US house prices US consumer confidence is likely to remain at very depressed levels. The major hope is that the employment market improves which makes the Non Farm Payroll data due out on Friday a very important announcement this month if the positive sentiment is to be maintained.


In the UK today the CIPS/Markit report on manufacturing was very strong with the PMI rising to 62.0 in January from the last reported level of 58.7. Some of this strength may well be attributable to catch up after the bad weather slowed activity during December. This lends weight to the theory that Q1 GDP may well show a reasonable amount of strength after the Q4 contraction. However, even without a degree of catch-up within the figure for January the trend is still firmly in growth territory.

Also in the UK we have had further evidence of weakness in the housing market with the Bank of England’s measure of housing approvals declining to 42,600 in December from the previous reported level of 47,300 for November. The Nationwide house price index for January was released today and this showed a -0.1% decline. The reported slump in consumer confidence last week combined with increasing unemployment may well raise the spectre of forced selling as the year progresses which may well put further pressure on house prices. An immediate slump is unlikely but a drift back in house prices over the coming months does look a real possibility.

Finally, in Europe today we have had unemployment data for December which fell by 73,000 leaving the unemployment rate at 10% compared to November which was revised down to 10% from 10.1%. German unemployment announced today for January fell by 13,000 after a 1,000 increase in December. This leaves the German unemployment rate at 7.4%, the lowest level since 1992 whilst for the whole Euro zone it is near a 12 year high. This demonstrates just how much divergence there currently is between the core and the peripheral countries.

This is the busiest week in the US economic calendar with the all important non-farm payroll data due out on Friday and both sets of ISM data due for publication. After the last disappointing Non Farm number for December the market will be looking for an improvement this month. The consensus is looking for the headline number to show an improvement of around +150,000 and within this we would estimate that private payrolls are expected to come in around the +130,000 mark. After the dip in the unemployment rate last month to 9.4% there is every chance it will spike back up as disheartened workers return to the work force looking for a job, and the consensus is looking for an increase in the rate to 9.5%.


In the US today we have the Chicago Purchasing Managers Index for January due for publication. Consumer spending and personal income data for December will also be published with the former expected to show a +0.7% month on month improvement with income likely to have increased by +0.4%. The most recent employment data suggested a slight pickup in the number of hours worked and hourly earnings which should reflect in the data today.

The ISM Manufacturing Index is also due out tomorrow and is expected to show a slight increase according to the consensus, up to 57.5 from the previous reported level of 57.0. The US manufacturing sector has been outperforming during recent months and the regional reports continue to show good growth. Tuesday also brings construction spending data for December which is expected to show a +0.2% gain on the month which would be the fourth consecutive gain.

The ADP private payroll report due out on Wednesday cannot be relied upon to give any idea of where the Non Farm private payroll number may be headed and it has consistently been at odds with the Non Farm data during recent months. After registering a +297,000 gain last month the equivalent number within the Non Farm data turned out to be just 50,000. This month the consensus is looking for an ADP number of around +150,000.

The equivalent ISM number for non manufacturing is due out on Thursday. This index remained comfortably within growth territory for the December reading at 57.1 and this month the consensus is expecting no change or possibly a modest drop.

After the significant spike back up to 454,000 due to seasonal factors and bad weather the US weekly initial jobless claims are expected to fall back to 425,000 when they are released on Thursday. Also on Thursday factory orders for December are due for publication with the consensus expecting a -0.4% month on month drop.

We finish the week in the US with the all important Non Farm Payroll data for January.

In Europe we started the week off with German December retail sales which were below expectations with a month on month decline of -0.3%, which is the fourth decline in five months. On Tuesday in the UK the Nationwide House price index is due for publication. With the sharp decline in UK consumer confidence reported last week it will be interesting to see what impact this is having on housing market activity and if the recent decline in UK house prices is picking up momentum. In Germany tomorrow the manufacturing Purchasing Managers index and the unemployment rate for January will be released.

Wednesday is relatively quiet with the Euro zone Producer Price Index for December. On Thursday the European Central Bank meets to discuss interest rate policy. There will be no change in the interest rate but with headline inflation creeping up to 2.2% (the ECB target is 2%) in December from the previous reported level of 1.9% we are likely to start seeing the ECB members begin to take a slightly more hawkish view. Any change in monetary policy does not look imminent but as in the UK the chance of a hike in the interest rate before the end of the year has certainly increased. Also on Thursday Euro zone retail sales for December will be published. Expectations are for a +0.6% month on month increase but after the poor German retail sales data this morning there may well be some downside risk to this number.

On Friday there is no major economic data due for publication in Europe but in the UK the latest Halifax house price survey will be released for January.

The US Q4 GDP report came in at +3.2% annualised compared to consensus expectations of +3.5%. Given the only slight miss the market has taken this data in its stride. The next two quarters will be far more interesting especially once we start the approach to the end of quantitative easing in June. Any slowdown will very quickly start the alarm bells ringing especially if we are close to the stimulus tap being turned off. Also this afternoon in the US the next reading for the University of Michigan Consumer has just been published and this was a little better than expected at 74.2 compared to the last reported reading of 72.7.


UK consumer confidence fell by the most in almost two decades with the publication of the GfK NOP consumer confidence index which dropped eight points this month to -29. After the negative reading for Q4 GDP it must set the alarm bells ringing that the UK is at risk of2011 becoming one of no growth and certainly at the best very modest growth. Whilst Q1 GDP is likely to reflect a degree of catch-up after the poor last quarter which should help to achieve some growth in the first quarter there is every risk that we will see another quarter of negative or zero growth before the year is out.

In the US today the main event although some would argue non event will be the result of the two day FOMC meeting. There is unlikely to be any change in monetary policy and they may well tweak the language that was used for the last statement, but at present with QE2 still in motion it seems unlikely we will see any change in policy for January. Also scheduled for today are US new home sales for December which are expected to show an annualised pace of 300k from the previous reported level of 290k.


The Bank of England MPC meeting minutes have been published this morning and the big news is that a second member, Martin Weale has joined Andrew Sentance in voting for a +0.25% hike in the interest rate to 0.75%. Adam Posen on the other hand voted for another £50bn of quantitative easing with the rest voting for rates to stay on hold. The meeting minutes stated that the MPC considered the case for a rate rise in January, and that for some members this was 'a finely balanced decision'. Furthermore, the minutes stated "For most members, recent developments implied that the risks to inflation in the medium term had probably shifted upwards’. The shift in sentiment towards an interest rate hike is therefore clear although this meeting took place before the news that the UK contracted by -0.5% during the final quarter of 2010. With this in mind the interest rate is likely to be held at 0.5% over the coming months but if GDP does start to pick up again the first interest rate hike looks more likely than not before the end of 2011.

The big news of the day has to be the -0.5% contraction in GDP the UK suffered during Q4, according to preliminary estimates. Undoubtedly a lot of this is due to the bad weather conditions experienced but it does raise the question of just how well the UK economy can withstand the austerity measures being put in place as well as the recent hike in VAT. Whichever way you look at it a contraction of -0.5% is very bad indeed and certainly demonstrates just how fragile the UK economy is and how susceptible it is to any negative shock. The ONS estimated impact of the bad weather is -0.5% which suggests that in more normal conditions the UK would have registered no growth during Q4 anyway. Whilst a degree of catch up can be expected during Q1, which should result in a positive number, the data today will provide policy makers with a lot to worry about.


In the US today the main economic announcement was the Conference Board’s Consumer Confidence Index for January which rose to 60.6 from the previous reported level of 52.5. A lot of this will be due to the rise in the stock market and the perceived improvement in the jobs market. The increase is certainly welcome news although it must be borne in mind that confidence even now remains at very depressed levels.

Also in the US, the FOMC start their two day policy meeting today although we expect little change in their statement due out tomorrow evening.

The Purchasing Managers Index data for the Euro zone today has confirmed a solid start to the year with the PMI for services up to 55.2 from the December level of 54.2 whilst manufacturing did register a modest decline to 56.9 from the December level of 57.1, but remains well into growth territory. The composite index rose to 56.3 from 55.5. The equivalent numbers for Germany were strong suggesting that we are seeing the continuation of a strong trend within the core and a weak showing among the peripheral countries which will report next week.


There is no other major data that has been published today in Europe or the US. The main event of the week will be on Friday with the first estimate for US Q4 GDP which the consensus is expecting to provide a reading of around +3.5% annualised. Growth looks almost certain to be above 3% with an outside chance of 4%+.

In the UK tomorrow the first estimate for Q4 GDP will be published and it is expected to show a +0.5% quarter on quarter growth rate compared to the last reported reading of +0.7% for Q3. The economic headwinds continue to build and expectations are that growth over the coming quarters is likely to remain at around the current run rate with the risks skewed to the downside. Tomorrow also bring news of the UK public borrowing for December.

In the US tomorrow the two day FOMC meeting starts and the announcement on Wednesday is not expected to be materially different to the previous meeting result. The US interest rate is unlikely to change this year although expectations have started to shift with raised concerns over the inflation outlook. The main event in the US tomorrow will be the Conference Board’s consumer confidence index for January. After the dip in December to 52.5 the consensus is expecting a modest increase to 54.3. With unemployment showing some signs of improvement and a US stock market closing in on levels not seen since mid 2008 we should see some improvement in consumer sentiment.

Wednesday in the US brings new home sales data for December with the consensus expecting an improvement to 300K annualised from the previous reported level of 290k. After the better than expected existing home sales data last week we may well see an improved performance from new home sales although activity remains at very depressed levels.

In the UK on Wednesday the minutes from the latest Bank of England MPC meeting are due for publication. The market will be looking for comments concerning inflation and any indication that perhaps the currently divided opinion is starting to move closer to a rate rise. We have seen one broker projection this morning expecting the first +0.25% hike in the UK base rate in November of this year. In an interview on Friday, Adam Posen who is a member of the MPC stated that he expected UK inflation will fall well below the 2% target after a temporary surge, suggesting that it could be some time yet before a rate rise is on the agenda.

On Thursday the January CPI for Germany is due for publication as well as European Consumer Confidence. After a better than expected weekly initial jobless claims in the US last week of 404,000 the consensus is expecting a similar number when it is published on Thursday of this week. Also on Thursday US Durable Goods Orders for December are due out and are expected to show a +1.5% month on month improvement, although the headline number could well come out higher than this due to large non defence aircraft orders.

On Friday there is no major UK or European data due for publication and in the US we get Q4 GDP and the latest reading for University of Michigan Consumer Sentiment index which is expected to show a modest improvement on the last reported level of 72.7.

A brief note today given that there is no economic data scheduled for publication in the US and the only data worthy of note here is UK retail sales for December which declined by -0.8% against consensus expectations of a +0.1% gain. The recent retail trading reports had already flagged up the extent of the disruption caused by the bad weather and we may well see a degree of catch up during January.


In the US yesterday existing home sales were above expectations at 5.28m on an annualised basis for December against expectations of 4.9m. The jump from the previous reported level of 4.68m is encouraging but it must be borne in mid that activity is still bumping along close to levels not seen for over 10 years. It will be a long time yet before sales activity increases to a more meaningful level that could signal a real recovery.

Also in the US, the Philadelphia Fed Manufacturing Survey for January was broadly as expected at 19.3 compared to the consensus of +20.0. The constituent parts of this index did show some encouraging signs with a healthy jump in new orders and employment. Overall the regional reports continue to show the US manufacturing sector achieving respectable growth. It will be interesting to see the first estimate for Q4 US GDP which is due for publication on Friday of next week.

Worries over an overheating Chinese economy have once again brought fears that their central bank will have to implement further hikes in the Chinese interest rate. Chinese 2010 Q4 GDP came in at an annualised rate of +9.8% compared to Q3 of +9.6%. Consensus expectations were for a drop in the growth rate to +9.4%. Another increase in their interest rate looks to be almost a certainty given the high rate of growth and more importantly their inflation rate. The Chinese CPI for December was +4.6% year on year although this was a drop from the previous reported level of +5.1%. Most analysts expect the next rate rise of 0.25% in February.


US economic news yesterday was confined to December housing starts which fell to 529k from the November level of 555k. The US housing market faces many months of depressed activity and without a meaningful upturn it is difficult to see consumer confidence returning to pre crisis levels. The US economic calendar today provides further news of what is happening with the property market in the form of existing home sales for December which are expected to increase to 4.9m on an annualised basis from the previous reported level of 4.68m.

The US weekly jobless claims continues to provide a volatile picture making any assessment of current trends in unemployment very difficult to quantify. The reading last week was 445,000 and this week the consensus is looking for a drop to 420,000. The manufacturing data announced for New York State earlier in the week was still comfortably into growth territory and this afternoon we get the equivalent January data for Philadelphia. Expectations are for a slight drop to 20 from the previous reported level of 24.3, but again still well into growth territory.

There is no real news due out of Europe today but we did get UK unemployment data yesterday with the broader ILO measure showing an increase of 49,000 unemployed in the 3 months to November, bringing the total unemployment rate up to 7.9% from 7.7%. A combination of high unemployment and declining house prices is likely to weigh on UK consumer confidence over the coming months.

The market sell off which started yesterday afternoon is more a function of the strong rally during recent weeks rather than any significant shift in sentiment and a bout of profit taking was to be expected at some point. The news about China this morning has certainly provided a further reason for profit taking but a catalyst for a more significant correction remains absent at least for the time being. The European debt crisis seems to have lost some of the impact it did have last year, which is probably given the level of perceived political will to correct any problem, but it remains to be seen how the market will react to another bail out. The real worries are unlikely to come until mid year when the US quantitative easing program comes to an end and fears over whether the US economy is able to survive without government intervention will then be very high on the agenda.