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Weekly macroeconomic and market update – 18 May 2015

Read on for a roundup of the market and macroeconomic events from the week ending 15 March. This week’s update includes growth forecast and inflation figures from the Bank of England and the latest economic figures from across the Eurozone. Read on to find out more.

Ben Seager-Scott Ben Seager-Scott
18 May 2015

The Bank of England has lowered its UK growth forecast

The Bank of England (BoE) has lowered its UK growth forecast as it released its quarterly inflation report. On the back of weaker estimates for first quarter GDP, the BoE now believes full-year GDP growth will come in at 2.6% down from 2.9% estimated in February. Similarly, the BoE downgraded forecasts for 2016 and 2017 to 2.6% and 2.4% respectively.

The BoE also sees inflation staying close to zero in the short term, before picking up towards the end of the year. With this in mind, it anticipates the base rate being hiked in the middle of next year before gradually rising to 1.5% by 2018. In the supporting commentary Mark Carney highlighted the lack of productivity growth as a challenge, but acknowledged that it was difficult to address this issue with monetary policy alone.

Eurozone GDP growth continues to accelerate

Flash readings for Eurozone GDP showed growth continuing to accelerate, growing 1.0% year on year in Q1 from 0.9% in the previous quarter. This was, however, slightly lower than the 1.1% forecast. France and the Netherlands were notably strong performers, both outperforming consensus.

France’s growth accelerated from 0.2% to 0.7% whilst the Netherlands grew at 2.4% year on year from 1.4% previously, ahead of expectations for a marginal slowdown. The main detractor within the region was actually Germany – traditionally the Eurozone’s economic powerhouse – which slowed more than expected from 1.6% year on year to 1.1%.

Greece “could run out of money in two weeks’ time”

The Eurogroup met on Monday with the issue of Greece at the top of the agenda – as usual. Once again there was no formal agreement, nor anything particularly concrete beyond a general consensus that ‘progress’ was being made.

Meanwhile, Greece is becoming increasingly desperate for cash. The country did manage to make a repayment of €750 million, but only by accessing its €650 million held on ‘buffer’ deposit at the IMF. Greece is only currently being sustained by a series of emergency measures. The Greek finance minister suggested the country may run out of money in two weeks’ time, with sizeable debt repayments due in June.

Last week’s other events

  • UK industrial activity measures were solid, with year-on-year industrial production accelerating to 0.7% in March, bouncing back from 0.1% the month before and comfortably ahead of expectations. Manufacturing production slipped from a revised figure of 1.2% to 1.1%, but this remains a strong reading that is ahead of expectations. Unemployment fell 0.1% to 5.5% and average earnings also improved 0.2% to 1.9%.
  • Eurozone industrial production came in as expected at 1.8%, only slightly down from the revised figure of 1.9% previously.
  • US retail sales were disappointing, falling from 1.7% to 0.9% year on year. Excluding automobiles, month-on-month sales growth was essentially flat at 0.1%, against forecasts of 0.5% and a fall from the previous month’s revised figure of 0.7%. Producer Prices also fell into negative territory, and consumer sentiment (as measured by the Michigan Consumer Sentiment Survey) lowered from 95.9 to 88.6.
  • Data out of China also disappointed, which explained the People’s Bank of China’s (PBoC) stimulus moves the week before. Fixed Asset Investment fell 150 basis points to 12.0% in March and retail sales also slipped marginally to 10.0%. Industrial production was up 0.3% at 5.9%, but was slightly behind expectations of 6.0%.

The markets

We saw mixed results across all major asset classes last week – equities were relatively unchanged, as were most bond yields. Elsewhere gold and copper rose in price, and the euro continued to strengthen against other major currencies.

1 month performance of major asset classes
It was a mixed week for equities with relatively little magnitude in the moves. FTSE All-Share was down 0.9% overall, while over in the US the S&P 500 ended the week up 0.3%. Europe was stronger after the release of decent GDP numbers, with the FTSE Europe All-Cap (ex UK) index up 1.3% on the week. Japan was also up 1.2% and emerging markets were up slightly on the week after advancing 0.4%.
German Bund yields continued to move out at the long-end, with 10-year Bunds 9 bps wider at 0.64% and 20-year Bunds rising above 1% to 1.09%. However, the short end was relatively unaffected. UK and US sovereign bonds were also unaffected, with UK 10-year gilts holding steady at 1.88% and US 10-year treasuries remaining above 2% at 2.15%.
Gold strengthened throughout the week to end at US$1,224.70, and copper rose slightly to US$2.95. There wasn’t much movement for oil, with Brent closing Friday at US$66.81 and WTI just shy of the US$60 mark.
The euro continued to strengthen against major currencies, up 0.6% relative to sterling and 2.3% against the US dollar. The dollar itself weakened through the week and finished down 1.7% against the sterling.

The week ahead

After Japanese machinery orders and Chinese house price figures on Monday, we have UK inflation data on Tuesday. We also get final EU inflation numbers, followed by US housing starts and building permits in the afternoon.

On Wednesday Japan will be the final major economy to report its first quarter GDP, with expectations for annualised growth of 1.5% in the first quarter (matching the performance in the last quarter of 2014). Later in the day the Federal Reserve will also release minutes from the FOMC meeting.

Manufacturing numbers are the common theme for Thursday, beginning with flash manufacturing PMIs from Japan and China (the HSBC reading). These are followed by Eurozone Manufacturing and Services PMI data, and then a variety of economic data from the US – including flash manufacturing PMIs, home sales figures and the Philadelphia Fed Manufacturing index.

On Friday morning Germany will release the latest results from the IFO business climate survey, before we end the week with US inflation data in the afternoon. Expectations are that headline inflation will remain slightly negative but core inflation is forecast to remain solid at 1.7%.


Data correct as at 18/05/2015. Source: Lipper.

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