There is a glut of significant data released today on both sides of the Atlantic and we can expect to see further market volatility after the Dollar fell significantly against the majors yesterday afternoon amid the appointment of Hank Paulson as the new U.S Treasury secretary and the release of Consumer Confidence data for the month of May, which showed that rising energy prices will point to weaker economic growth and slower spending in the second half of the year. The figure came in slightly above market expectations but still posted the biggest decline in eight months as the Conference Board’s Index fell to 103.2 from the four-year high of 109.8 in April. The focal point of today in terms of U.S data released will be the minutes of the Federal Reserve’s last policy meeting where investors will be looking for any clues that inflationary pressures will lead to policy makers raising interest rates again in the coming months.
There is a host of significant data released in the UK this morning with Nationwide House Prices showing only a modest increase of 0.2% in May and following the slowdown in prices last month, the UK housing market looks to be cooling after strong gains in the first quarter of the year. In addition, UK Consumer Confidence is widely expected to show a partial improvement in the last month. Higher utility bills and rising energy costs affect sentiment and this is reflected in the recent collapse of consumer credit, which posted the weakest growth in over 12 years in the figures released last month. it is anticipated that the data released this morning will remain weak. Finally, UK Mortgage Approvals are expected to slide further to 113,000 for the month of April compared with 120,000 just three months earlier as higher unemployment and sky-high property prices have discouraged first-time buyers.
With regards the Euro, there was some positive data released in the euro-zone yesterday as the M3 survey showed that money supply throughout Europe increased by the most in three years last month as economic growth fuelled a surge in loan applications, reinforcing concerns that the ECB will need to raise interest rates from the current 2.50%. There is some significant data released this morning in the euro-zone with French and German unemployment data widely anticipated to show a marginal improvement in the last month and therefore, European Consumer Confidence is expected to remain relatively unchanged in May.
Data Released 31st May
UK 07:00 Nationwide House Prices (May) UK 09:30 Mortgage Approvals (April) UK 09:30 Consumer Credit (April) UK 11:00 Consumer Confidence (May) UK 11:00 CBI Distributive Trades (May)
EU 10:00 Flash HICP (May) EU 10:00 Sentiment Index (May) - Industrial/Consumer Confidence
U.S 13:15 ADP National employment report U.S 15:00 Chicago PMI (May) U.S 19:00 FOMC Minutes – (10th May)
Following a quiet start to the week with the Bank Holiday, we can expect some market movement over the course of this week with a host of significant data released both in Europe and the States. The Euro made gains against the Dollar yesterday as German Consumer Confidence rose to the highest level in 5 years coming in at 6.8 for the month of June, which was well ahead of expectations and provides yet more evidence that economic growth is accelerating in the Euro-zone and will lead to the ECB raising interest rates again from the current 2.50%. There is some data released in Europe this morning with French unemployment and Spanish retail Sales both expected to show signs of modest growth in the last month.
Sterling has been boosted in recent weeks by a sharp pick-up in Manufacturing and Services, which has led to increased speculation that the Bank of England will need to lift interest rates towards the latter part of the year in order to keep inflation around the government’s 2% target. However, it is widely anticipated that the BoE will maintain a cautious approach with regard a change in monetary policy as the MPC await further signs of an improvement in consumer spending. UK Consumer Confidence for the month of May, which is released tomorrow, is expected to show only a slight improvement in the last month as higher petrol costs and utility bills continue to harm sentiment. There is some data released this morning in the UK with Hometrack House Prices expected to remain relatively unchanged from the 0.6% increase in April.
The Dollar’s erratic and volatile behaviour in past few weeks has largely been driven by a number of significant factors, not least the Fed’s announcement that they are nearing the end of their current rate cycle, which has seen 16-consecutive rate rises in just under 2 years. However, the chairman of the Federal Reserve, Ben Bernanke, left the door open for further rate rises providing the data justified that inflation is accelerating faster than anticipated. Therefore, when the inflationary data released last Friday showed that Personal Spending had only risen 0.6% in April, speculation intensified that Fed policy makers will need to think about lifting rates again at their next meeting in June. As a result, the Dollar rallied significantly against the majors but that has been hampered this morning by suggestions that U.S Consumer Confidence, released this afternoon, declined to 101.5 in May from 109.6 the previous month led by a significant rise in petrol costs and rising interest rates.
Following a quiet start to the week, we have seen some market movement over the past 48hrs and there was some significant data released yesterday on both sides of the pond as Sterling received a slightly unexpected boost when the second estimate for GDP showed that the UK economy expanded by 0.6% in the first quarter to coincide with the first estimate from April 26th with inflation rising above the government’s target to 2.2%. It was widely anticipated that the recent pickup in the service sector and the fastest expansion in UK manufacturing in five quarters wouldn’t be strong enough to effect the second revision for GDP and forecasters are now predicting a rise in UK interest rates at some point towards the end of this year as the Bank of England signals further growth in manufacturing, business spending and UK exports.
The Euro has gained significantly against Sterling in the build-up to the ECB rate announcement early next month and some extremely positive data coming out of Germany has boosted the single currency this week as we await the release of German Consumer Confidence this morning, which is expected to be relatively unchanged from May at 5.5%.
Following much better than expected New Homes Sales data in the States on Wednesday, the Dollar has continued to hold steady around the 1.8700 level as the U.S economy accelerated at an annual rate of 5.3% in the first quarter, which was faster than the government’s initial estimate with growth in goods and services increasing due in part to a sharp rise in U.S exports as the weakening Dollar became for attractive to investors. However, following the robust growth in New Home Sales the Federal Reserve would have been looking for further clarification that a pick-up in the housing market would fuel economic growth into the second half of the year. Therefore, Sales of Existing Homes, released yesterday afternoon, fell by 2% in April to an annual rate of $6.76 Million, which was largely in line with original expectations as a further cooling of the U.S housing market will dampen economic growth this year. There is some significant data released this afternoon in the States with Personal Income and Consumption giving the market the Federal Reserve’s preferred measure of U.S inflation and forecasters are predicting that the Core Personal Consumption deflator will almost mirror the Consumer Price Index last week in showing growth of 0.3% in April, taking the annual rate to 2.2%.
The Euro has been boosted against Sterling in the past week by some extremely positive data coming out of Germany and yesterday the single currency made further gains against Sterling as the Ifo Business climate index showed that confidence in Germany remains at a high level despite forecasters anticipating a decline in May following increasingly higher energy costs and the surging price of oil. The index, which is based on a survey of 7,000 executives, maintained the 15-year high from April and only dropped off to 105.6 from 105.9 last month with expectations for euro-zone exports to continue improving over the coming months and that’s despite comments from the French Finance Minister indicating that the ECB wouldn’t want the Euro to appreciate much more because exports would become to expensive for foreign investors.
Sterling weakened significantly against the majors yesterday off the back of some weaker than expected CBI data, which showed that manufacturers were less optimistic with monthly orders dropping to -12 in May despite forecasters anticipating a continued improvement this month from April as average price expectations for the next three months dropped to 0 but there was some positive news for the Pound as UK export orders reached the highest level in ten years. There is some important economic data released this morning with the second estimate for GDP in the first quarter and it is widely anticipated that UK inflation will remain unchanged from the first estimate at 2.2%.
With regards the Dollar, we witnessed some significant market movement yesterday as U.S Durable Goods Orders fell by more than expected for the month of April, dropping by 1.1% from March where orders showed the biggest two month increase since comparable records began in 1992. The sharp increase in fuel costs are seemingly having a visible effect on companies as they attempt to curb corporate spending with Orders for goods made to last falling by 4.8%, the biggest decrease since January. However, the Dollar climbed dramatically against the majors on the release of housing data in the States, which unexpectedly showed that Sales of New Homes increased by 4.9% in April to an annual rate of $1.198 million despite market expectations of a sharp decrease this month as rising U.S interest rates make mortgages less attractive for American consumers.
Nevertheless, there were 565,000 new homes for sale at the end of April, the highest ever recorded, and a seemingly buoyant labour market is sustaining demand for new homes, which flies in the face of higher mortgage rates. The policy makers at the Federal Reserve will be watching the housing market closely and yesterday’s data has increased speculation that the Fed may continue it’s two year cycle of interest rates rises as the economy continues to show growth. As a result, we have seen some renewed appetite for the Dollar, gaining 0.3% against Sterling to close under 1.8700 last night and there is some significant data released this afternoon in the States with the first quarter GDP deflator, which is widely expected to come in just under the Consumer Price Index last week at 0.2% and Sales of Existing Homes are also expected to decline in April.
The market remained fairly stagnant yesterday following a second successive day without any significant data released either in the UK or the States but we can expect some market movement over the course of the day with the CBI Monthly Trends survey released this morning and forecasters are anticipating a moderate improvement in May following a pickup in UK Manufacturing and Industrial Orders in the past month. Sterling may rally against the majors if the figure comes out slightly above market expectations and we will be focusing on the first quarter GDP data released tomorrow to give us an indication of whether growth in manufacturing and the service sector will be able to sustain the year-on-year growth rate at 2.2%.
In recent months, the cooling U.S Housing Market has come under pressure from the Federal Reserve’s prolonged campaign to stem the threat of rising inflation by raising interest rates continually for the past 16-months as the economy grew at a much faster rate than anticipated. However, with U.S interest rates currently at 5% consumers are finding it increasingly difficult to afford a mortgage and that sentiment is reflected in the Sales of New Homes, which is expected to decline by as much as 6.4% last month. In addition, U.S Durable Goods Orders is also released this afternoon in the States and forecasters are anticipating a slight decline from the previous month as the gains in orders for February and March combined showed the biggest increase since comparable records began in 1992.
With regards the Euro, there is some significant data released this morning in Germany with the Ifo Index expected to show a moderate decline from the 15-year high in April as business confidence in Germany suffered, primarily due to a sharp rise in global energy prices and a significantly stronger currency. The Index rose to 105.9 last month, which was the highest level since 1991 and coupled with a dramatic rise in German Producer Prices last week, we can expect the Euro to show further strength if confidence in Europe’s largest economy continues to remain at high level.
Without any significant data released either in the UK or the States, the Dollar’s dramatic decline resumed yesterday after what can be considered as an outright rejection of the new lows around the 1.8640 level and the Dollar promptly fell back to close above 1.8800. The recent volatility and lack of appetite for the U.S Dollar has primarily been driven by the Fed’s decision to end it’s current interest rate cycle, which has seen 16-consecutive rate hikes in the past 22-months. However, Bernanke did indicate that the FOMC wouldn’t hesitate in lifting interest rates oncemore, providing the fundamental data released in the States supported the view of rising inflation and a growing economy. Therefore, the Dollar’s volatile reaction to poor U.S data has been increasingly evident as the market’s attention begins to focus on the U.S Trade and Current Account deficits. The market has already factored in a further rise in interest rates over the coming months but the data released has yet to validate this sentiment.
For a second day, there isn’t any significant data released in the UK and we will turn our attention to the CBI Monthly Industrial Trends survey released tomorrow with forecasters anticipating continued improvement in May following a sharp increase in UK Manufacturing Output and Industrial Orders. Coupled with a rebound in Consumer Sentiment and Spending, the market is now anticipating that the Bank of England will need to lift interest rates at some point this year in order to keep inflation around the 2% target, a sentiment echoed in the minutes of the BoE’s recent rate announcement with one policy maker voting for an increase in UK rates for the first time in nine months.
The Euro rose by 0.5% against the Dollar yesterday following the release of the European Trade Balance, which unexpectedly showed a surplus of €300 Million in March despite forecasters predicting that the deficit had increased by €2.5 million following an apparent slow-down in euro-zone exports. There is a plethora of data released this morning, most notably Industrial Orders for the month of March, which is widely anticipated to show an increase of 0.3% and GDP in Germany is expected to show that Europe’s largest economy accelerated by 0.4% in the first quarter.
Following on from last week, the Euro was given a boost on Friday with German Producer Prices rising by 1% month-on-month in April, which was largely in line with expectations, showing the biggest increase in nearly 24-years as global energy costs continue to soar. This week, the German ifo business climate survey is released tomorrow and forecasters are anticipating a slight decline in May from the 15-year high last month as the Euro’s recent strength combined with market volatility and higher energy costs are expected to have a negative impact on business confidence. There is some significant data released this morning in the Euro-zone with the monthly trade balance expected to show that the deficit in goods and services has narrowed to €2.7 Billion in March.
In recent weeks, the Pound has made significant gains against the Majors as speculation continues to increase that the Bank of England will need to lift interest rates from the current 4.50% as the rising cost of oil and natural gas threatens to push UK inflation beyond the government’s 2% target. In addition, the Minutes of the Bank’s last policy meeting showed that the MPC was split 6-2 in favour of keeping interest rates on hold this month with David Walton, the only member to recommend a rise in rates in May. There is some fundamentally important data released this week as the first estimate for GDP growth came in at 0.6% quarter-on-quarter, taking the annual growth rate to 2.2% led by a sharp improvement in UK Manufacturing and the service sector but neither are expected to affect the second estimate released on Thursday.
Towards the end of last week, the Dollar made back some significant gains against the Pound and the Euro as the U.S Consumer Price Index showed that prices had risen by more than expected last month, increasing 0.3% from March, which fuelled speculation that the Federal Reserve will need to continue raising interest rates beyond the current 5% as inflation begins to accelerate. This week, the market will be looking for further indication that the U.S economy is accelerating faster than previously anticipated with the Fed’s preferred measure of inflation published on Friday and the Core Personal Consumption deflator is widely expected to mirror the CPI by rising 0.3% last month, taking the year-on-year growth rate up to 2.2%.
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
Yesterday represented a significant day in terms of market movement and data released with the Pound making further gains against the majors, peaking at 1.9025 against the Dollar and 1.4770 against the Euro after the Bank of England released the minutes of it’s May policy meeting. For a sixth consecutive month outgoing MPC member, Stephen Nickell again voted for a cut in UK interest rates but surprisingly another member of the nine-strong committee, David Walton, had voted to increase borrowing costs, which was the first time the MPC had been split in this way since August 1998 and gave a clear indication that the Bank of England are beginning to think about a change in monetary policy.
However, there was some negative data released yesterday in the UK as Unemployment reached the highest level in almost three years in the figures released for April with the number of people receiving jobless benefits climbing by 7,700 from March to 945,000, which was higher than expected, while the jobless rate was unchanged at 3%. In addition, UK Average Earnings remained relatively unchanged at 4.2% in the first quarter, which was in line with forecasts as growth in wages maintained the highest level since August last year. There is some important data released this morning with UK Retail Sales expected to show an increase of 0.5% in April with the year-on-year growth rate unchanged at 2.6% as higher utility bills and surging petrol prices has an effect on consumer spending.
The Euro fell by 0.6% against the Dollar yesterday amid speculation that European policy makers may talk down the strength of the single currency after a 6.5% rise against the Dollar in the past three weeks. That follows comments from the French Finance minister, Thierry Breton, that the ECB are willing to do whatever is necessary in making sure this appreciation of the Euro against the Dollar doesn’t keep going. With regards the Dollar, U.S Consumer Prices rose by 0.6% in April, while Core Prices, excluding food and fuel, increased by 0.3% from March, which was above market expectations and rekindled concerns that higher inflation will prompt the Federal Reserve in lifting interest rates once more. As a result, the Dollar traded up towards 1.9020 against Sterling before dropping towards 1.8800 at the close of trading for the second day in succession and from a technical perspective, the market failed to reach the low from the previous day of 1.8750, which continues to act as a significant support level.
In recent weeks, the Euro has made significant gains against the Dollar as speculation has intensified that the ECB will lift interest rates from the current 2.50% as the euro-zone economy begins to gain momentum. However, the data released yesterday has cast some doubts over this as the ZEW survey, which focuses on economic sentiment in Germany, showed that investor’s confidence had dropped sharply this month to 50.0 from 62.7 in April due in part to a sharp rise in global energy prices. The Euro may come under further pressure today with euro-zone Industrial Production data expected to show a 0.2% drop in April from 3.2% in March and the Core measure for inflation in the euro region is widely anticipated to remain unchanged at 1.4%.
There was some significant data released in the UK yesterday as the Consumer Price Index showed that inflation accelerated in April, coming out in line with the government’s 2% growth target following a drop to 1.8% in March. Consumer Prices rose by 2% year-on-year in May, which was largely in line with expectations, as prices gained 0.6% from March, the biggest increase since May 2001. The Minutes of the Bank of England’s May meeting are released this morning with Stephen Nickell, the only MPC member to vote for a cut in interest rates, expected to continue his recommendation despite forecasts for higher inflation in the UK. The focal point of today in terms of data released will be UK unemployment and average earnings at 09:30 this morning with forecasters expecting a rise of 3% in April while headline earnings growth may give Sterling a boost if the figure comes out in excess of 4.2% in the first three months to March.
With regards the Dollar, there was a real mixed bag of data in the States yesterday as the Producer Price Index showed that U.S Wholesale Prices jumped by 0.9% in April but excluding food and fuel, Core prices only rose by 0.1% from March, which is under market expectations and supported the Fed’s view that inflation is under control and therefore provides justification in keeping interest rates on hold. In addition, the Dollar was hampered further when U.S housing data showed that builders had begun work on the fewest new homes since November 2004, providing yet another indication of a cooling housing market in the States as increasingly higher interest rates have dampened demand. We have been anticipating a period of consolidation for the Dollar in recent days but this morning we have resumed the upward movement towards the 1.9000 level and we can expect further market movement throughtout the course of today. There is some significant data released in the States with the Consumer Price Index expected to jump by the most in three months in April but excluding record high petrol costs, Core Prices may only rise by 0.2%, which is under market expectations and 0.1% down from March.
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