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  • Weekly macroeconomic and market update 27 April 2015

Weekly macroeconomic and market update

Read on for an overview of the major market and macroeconomic events for the week ending 24 April. This week’s roundup includes weaker economic figures from the Eurozone, rising tensions over the Greek government and a look at the flurry of economic data we can expect over the next week.

Weakening in the Eurozone despite positive expectations

European economic indicators painted a picture of a weakening environment on the continent against expectations for broad improvements. The week started with a surprise fall in the ZEW Indicator of Economic Sentiment in Germany to 53.3 from 54.8, which amongst other things was attributed to concerns over Greece.

The Eurozone flash consumer confidence reading also deteriorated unexpectedly to -4.6 from -3.7 the month before, and similarly flash PMI readings for Services and Manufacturing fell short of expectations. The only consolation came from the fact that German ‘current conditions’ sub-indices from both the ZEW and IFO surveys were stronger, and future expectations can change quickly.

More disappointment from across the pond

US numbers were also weak, with US Durable Goods Orders (excluding transport) falling in March and for the second month in a row. Whilst the fall of 0.2% was an improvement on the revised -1.3% from February, it was still a disappointment from an expected 0.3% increase. New home sales also came up short, as did the flash PMI Manufacturing numbers which fell considerably further than expected to 54.2 from 55.7.

Last week’s other events

  • The Greek government failed to submit a detailed list of financial reforms to creditors, causing a tense and acrimonious meeting of Eurozone finance ministers on Friday. Details are vague due to the closed-door nature of the meeting, but with time and money rapidly running out for Greece there is increasing talk of bypassing the confrontational finance minister Yanis Varoufakis.
  • UK retail sales were weaker in March, falling -0.5% month on month from 0.6% in February (0.4% had been expected). Excluding fuel, retail growth was at 0.2% – positive but still behind expectations and weaker than the previous reading.
  • There were further signs of economic slowdown in China, as the Chinese flash Manufacturing PMI fell further in April according to the HSBC survey, down to 49.2 from 49.6.
  • Japan suffered a similar slowdown in economic activity indicators, with the Markit Manufacturing PMI flash reading falling below 50 at 49.7 for April.

The markets

Equities were in positive territory last week with most major indices in positive territory. Bonds were generally weaker over the week, but we had mixed results for commodities and currencies.

Graph 28-04-2015

  • Equities – Despite weak economic data, equity markets had a solid week with most major indices in positive territory. UK FTSE All-Share was up 1%, S&P 500 increased 1.8% and FTSE Europe ex-UK was up 1.5%. Japan was up 1.9% whilst Emerging Markets (as measured by FTSE) also increased 2.6%.
  • Bonds – UK, US and German bonds were all generally weaker. UK 10 year gilt yields were 7 bps wider at 1.65%, whilst US Treasuries remained below 2% as they softened 5bps to 1.91%. Despite worries over Greece, German bunds actually widened to 0.15%.
  • Commodities – Oil made improvements through the week and ended at US$65.28, while copper was marginally softer at US$2.74. Gold fell below the US$1,200 mark, finishing the week at US$1,176.80.
  • Currencies – The sterling strengthened against the euro, yen and dollar during the week (0.90%, 1.48% and 1.44% respectively). The euro was also marginally stronger, up 0.51% against the dollar and 0.55% against the yen.

The week ahead

We have a relatively busy week ahead of us, beginning with UK business optimism numbers from the CBI and flash US Services PMI figures. On Tuesday we will see first estimates of UK first quarter GDP growth, which is expected to have slowed slightly from 0.6% to 0.5% quarter on quarter, for a year-on-year growth rate of 2.6%. In the afternoon the US S&P/Case-Shiller Home Price index numbers for February are released, as is the Consumer Confidence measure which is forecast to be stronger at 102.5.

Wednesday morning begins with business confidence, economic sentiment and industrial sentiment readings from the Eurozone, where we expect little change from last month. Later in the day all eyes will be on the US, where first quarter GDP numbers are also released – expected to have slowed from 2.2% annualised to 1% annualised quarter-on-quarter. The Federal Reserve also releases its latest interest rate decision, though clearly no action is expected.

On Thursday we get overnight updates on Japanese industrial production, as well as the latest interest rate decision from the Bank of Japan – where no action is expected to be taken. Here in Europe we have UK consumer confidence updates and Eurozone inflation updates (which we expect to be negative at -0.1%).

We finish the week with a flurry of data, starting with ‘official’ Chinese government PMI numbers for manufacturing and non-manufacturing. Japan also releases inflation and unemployment data together with household spending. Back in the UK and we get manufacturing PMI numbers and mortgage figures, followed by a host of data from the US. This will include ISM Manufacturing PMIs (expected to have strengthened to 52.0 from 51.5), construction spending numbers and final readings on Market Manufacturing PMIs.

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