Weekly outlook
Last week in review
Main theme driving the market.
- Investors were encouraged to support the US Dollar this week, taking the currency to a 6-month high against the euro and a 1-week high against sterling.
- China reported growth and inflation data that encouraged the view that policy tightening is inevitable in China
- The World Bank suggested there was a risk that the global recovery could lose momentum
- Concerns over Greece’s ability to cut their debt grew to fresh heights
Sterling (GBP):
- The Bank of England’s Quantitative Easing programme was called into question as data released showed a 1.1% decline in money supply.
- Minutes released by the BoE did not offer any new suggestions about the direction of monetary policy. The outcome of the MPC meeting in February will be contingent upon the central bank’s Inflation Report, which will be updated in time for the meeting.
- Macro-economic data offered some hope – unemployment data rose surprisingly less than expected and the Rightmove house price survey revealed a 1-year high.
- Expectations for strong sales figures propped up sterling/ dollar and also enabled a 5-month high against the euro.
US Dollar (USD):
- The dollar’s drive came from safe haven inflows, as fears over tighter policy in China and investor concerns regarding the situation in Greece sent investors fleeing to the dollar.
- A builders’ confidence survey revealed a dip in confidence, whilst housing starts dropped by 4%.
- Building permits rose sharply, which did help to limit some of the negative fallout from housing start numbers.
Euro (EUR):
- Much of the spotlight was focussed on Greece this week, as one rating agency questioned whether the government would be able to implement its plan to cut the deficit.
- The spread between yields of German government bonds and Greece’s government bonds rose to record highs – an indicator of investor concern.
- Economic data in the eurozone offered little help. Germany’s ZEW investors’ sentiment survey fell for the fourth consecutive month and flash PMI estimates failed to live up to expectations.
Japanese Yen (JPY):
- The yen was mostly affected by economic data coming out of New Zealand this week. The announcement that JAL was filing for bankruptcy saw some investors flee to the yen and this was accelerated when New Zealand’s Q4 CPI came in negatively at 0.2%.
Recent key releases:
| Indicator | Actual | Forecast | Previous |
|---|---|---|---|
| GBP December CPI – % y/y | 2.9 | 2.6 | 1.9 |
| EUR January German ZEW Sentiment – survey | 47.2 | 49.5 | 50.4 |
| GBP December Claimant Count – k | -15.2 | -2.5 | -10.8 |
| USD December Housing Starts – k | 557 | 580 | 580 |
| USD December PPI – % (m/m) | 0.2 | 0.0 | 1.8 |
| GBP December PSNCR – £ bln | 23.60 | 26 | 14.624 |
| GBP January CBI Ind. Trends – index | -39 | -37 | -42 |
| USD December Leading Indicator – % (m/m) | 1.1 | 0.7 | 0.9 |
| EUR January Flash PMI Composite – index | 53.6 | 54.5 | 54.2 |
| GBP December Retail Sales – % (m/m) | 0.3 | 1.1 | 0.3 |
| EUR November Ind. New Orders – % (m/m) | 1.6 | 0.5 | -14.5 |
Highlights for this week
Sterling (GBP):
- All eyes look towards the Q4 GDP data released on Tuesday, revealing whether the UK officially exited recession at the end of 2009.
- If this is confirmed, sterling will receive considerable support as investors factor our any expansion to the BoE’s quantitative easing programme.
US Dollar (USD):
- The focus next week will be on FOMC meeting. Whilst the Fed is not expected to change policy, investors will be keen to learn if the Fed will implement any further measures to mop up excess liquidity.
- The US’ Q4 GDP data is released on Friday and is expected to show growth.
Euro (EUR):
- Sentiment figures out of the euro zone and Germany will be as important as flash HICP estimates, which are also due out this week.
- Weak public finances in countries such as Greece and Portugal will likely continue to limit the ECB’s ability to exit its loose monetary policy.
Japanese Yen (JPY):
- The Bank of Japan is not expected to change interest rates this week, but new quantitative easing measures may be announced, which would continue to undermine recent yen strength.
Upcoming key releases
| Date | Indicator | Forecast | Previous |
|---|---|---|---|
| 25.01 | USD December Existing Homes Sales – mln | 6.03 | 6.54 |
| 26.01 | EUR January German IFO Sentiment – index | n/f | 94.7 |
| 26.01 | GBP Q4 First Estimates GDP – % (q/q) | n/f | -0.2 |
| 26.01 | USD January Consumer Confidence – index | 53.3 | 52.9 |
| 27.01 | GBP January CBI Distributive Trades –index | n/f | 13 |
| 27.01 | USD December New Home Sales – k | 370 | 355 |
| 28.01 | EUR January German Unemployment – k | n/f | -3 |
| 28.01 | EUR January Business Sentiment – index | n/f | -1.22 |
| 28.01 | USD December Durable Goods – % (m/m) | 2.0 | 0.2 |
| 28.01 | USD January FOMC – rate | 0-0.25 | 0-0.25 |
| 29.01 | GBP December GfK Consumer Confidence – index | n/f | -19 |
| 29.01 | EUR December M3 Money Supply – % (y/y) | n/f | -0.2 |
| 29.01 | EUR January Flash HICP – % (y/y) | n/f | 0.9 |
| 29.01 | EUR December Unemployment –rate | n/f | 10 |
| 29.01 | CHF January KOF Leading – index | n/f | 1.68 |
| 29.01 | USD Q4 GDP – % (q/q) ann | 4.5 | 2.2 |