Daily Insight

Sterling was given an unexpected boost yesterday with UK Retail Sales growing for a third month in April, jumping 0.6% from March and the year-on-year growth rate also rose to 3%, which was well ahead of market expectations. UK house prices gained 2% in the last month, the biggest increase in over 2 years and growth in wages managed to outpace inflation, which gave consumers more disposable income to spend on the highstreet. It is widely anticipated that the Bank of England will raise interest rates if economic expansion begins to accelerate in the latter part of the year and if Consumer Spending, which counts for two thirds of the economy, continues to show improvement despite increasingly higher utility bills and petrol prices, the BoE will be justified in lifting interest rates from the current 4.50%. There is some data released in the UK this morning with the PSNCR for April, which analyses the public sector net cash requirement and forecasters are anticipating the figure to show a marginal increase from March.

After a fairly quiet day yesterday, there is some significant data released in the Euro-zone this morning with German Producer Prices widely expected to show the biggest year-on-year increase since June 1982 primarily due to higher energy bills, which have risen 20% in the last year alone, and the rising cost of raw materials. In addition, French GDP data is released this morning with forecasters anticipating that the economy grew by 0.6% in the first quarter and Italian Industrial Orders is also expected to show some improvement in March.

Over the course of this week, speculation has been building that the Federal Reserve will continue raising U.S Interest Rates after a recent government report showed that inflation is accelerating faster than anticipated and producer prices have also risen significantly in the last month, prompting fears that the Fed will add to 16-consecutive rates rises in their next scheduled meeting on June 29th. In their last policy meeting, the Fed chairman, Ben Bernanke, indicated that a change in monetary policy was on the horizon but he also left scope for future rate rises providing the data supported the view of rising inflation. However, the data released yesterday showed that U.S Leading economic Indicators unexpectedly declined in Apil, providing evidence that higher interest rates and rising petrol costs are having a damaging effect on the housing market, consumer confidence and personal spending. The Dollar has gradually come back towards the significant support level at 1.8750 this morning and a break below here could signal further gains towards the major support at 1.8500 as the market looks to consolidate following the biggest move since Hurricane Katrina hit U.S shores last September.
Data Released 19th May

UK 09:30 PSNCR (April)

EU 10:00 Trade Balance (Mar)

GER 07:00 Producer Price Index (April)

written by Adam Solomon