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  • Weekly macroeconomic and market update 13 April 2015

Weekly macroeconomic and market update

Read on for an overview of the major market and macroeconomic events for the week ending 10 April. This week’s roundup includes uncertainty over US interest rates, positive growth out of Europe and everything we can expect between now and Friday.

Increased uncertainty over the US interest rate

Last week saw increasing uncertainty around the US interest rate outlook, as US non-farm payrolls made a very significant miss on Good Friday – just 126,000 jobs were added compared to an expected 245,000. This was followed by minutes from the March Fed meeting, which showed differing views over when rates should be hiked.

Some members strongly advocated June, others favoured a hike later this year, and a couple of outliers suggested it won’t happen until 2016. Given that these views were expressed before the payroll data were released, the outlook for US interest rates is becoming increasingly uncertain.

Generally positive news for UK and European economic activity

Signs of Eurozone and UK economic activity continued to improve, with March manufacturing PMI figures rising to 52.2 and 54.4 respectively (from 51.0 and 54.0 in February). European retail sales also surpassed expectations, growing 3.0% year-on-year – slightly slower than January’s 3.2% but well ahead of the expected 1.9%.

Germany also posted a number of disappointing industrial measures, with factory orders continuing to reduce in February, and overall industrial production falling 0.3% from an increase of 0.9% in January. It was a similar story in the UK, as both manufacturing and industrial production numbers disappointed despite remaining in positive territory.

Last week’s other events

  • China’s official PMI reading increased to 50.1 for March, crossing the important ‘50’ measure from February’s 49.9. This official figure contrasts with HSBC’s reading of 49.6 for March, although the sample groups are slightly different.
  • Preliminary Japanese industrial production figures pointed to a further contraction in February, coming in at -2.6% year-on-year. Markets had expected flat production growth as an improvement from the -2.8% reading in January, but were seriously disappointed by the sharp month-on-month change (-3.4% month-on-month, against -1.8% expected).
  • The headline European inflation rate improved from -0.3% to -0.1% year-on-year based on flash readings. However, this improvement concealed a weakening of the core inflation rate from 0.7% down to 0.6%.
  • Questions over Greece are returning to the headlines. Next Monday marks a new deadline for the Greek government to submit their reforms list ahead of a meeting of EU finance ministers next Friday. Perhaps unsurprisingly, early reports suggest the current working draft falls well short of creditor expectations.

The markets

Last week was positive for equity markets but showed mixed results for both commodities and currencies.

Graph 13-04-2015

  • Equities – Equity markets continued to advance, with the FTSE All-Share up 3.5% over the last two weeks. The US, Europe and Japan were all similarly improved over the period.
  • Bonds – At close of play on Friday, 10-year gilt yields were holding steady at 1.59% while US 10-year treasuries remained just under 2% with a yield of 1.95%.
  • Commodities – Oil continued to range trade as markets alternately looked at swollen inventory levels and signs of a slowing production outlook, leaving Brent Crude at US$58.85 per barrel on Friday. Gold was up at just over US$1,200 while copper was volatile but ended up largely where it started the fortnight at US$2.75.
  • Currencies – The euro weakened against major currencies over the last seven days, finishing the week down 1.66% against sterling. At the same time, the US dollar resumed its strengthening and gained 3.7% against the euro – reversing some of the weakness seen previously.

The week ahead

After a slow start to the week, on Tuesday we will see the new UK inflation rate and Eurozone production figures – both of which are expected to remain level. These are followed by first quarter GDP numbers from China on Wednesday, along with industrial production and retail sales figures that are expected to show marginal strengthening. Wednesday will also see the conclusion of the ECB meeting, with ECB President Draghi giving a press conference around lunchtime.

On Thursday the US releases data on building permits and house starts, as well as the Philadelphia Fed index, while China releases an update on foreign direct investment. There will also be speeches by five members of Federal Reserve’s rate-setting committee, which may give us further guidance on the current thinking after last week’s mixed messages.

We finish the week with employment data in the UK and inflation figures from the Eurozone, followed by updated US inflation figures – which we expect to be at 0% with core inflation at 1.7%.

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