UK Data
- During the week Nationwide House Prices for May. Previous -1.1%m/m & -1.0%y/y
- Monday Market Holiday – Spring Bank Holiday
- Tuesday 9.30am BBA Mortgage Approvals for April. Previous 35.4k Actual 38.7k
- Thursday 11.00am CBI Quarterly Distributive Trades for May. Previous -26.0% bal
Sterling closed higher against both the Dollar and the Euro last week, after UK data reinforced expectations that the Bank of England will keep interest rates on hold for the time being. Sterling initially pared earlier losses on the release of the May BoE minutes, after it was revealed that UK interest rates were kept on hold at 5.0% by a majority of 8-1 as expected. Only arch dove, David Blanchflower elected for a 0.25% rate cut in May, while the remaining policymakers remained focused on inflation concerns rather than slowing growth. Better than expected UK retail sales and factory orders data supported the Pound, taking it to 3-week highs versus the Dollar on Thursday. However, even though the numbers beat expectations, they still painted a pretty lacklustre picture for the UK economy and thus for the Pound in the months ahead. Market attention now shifts to this week’s Nationwide house price survey after posting its first year-on-year fall in April for 12-years.
US Data
- Monday Market Holiday – Memorial Day
- Tuesday 3.00pm Consumer Confidence for May. Previous 62.3 index
- Tuesday 3.00pm New Homes Sales for April. Previous 526k
- Wednesday 1.30pm Durable Goods Orders for April. Previous -0.3%m/m
- Thursday 1.30pm GDP Annualised (Preliminary Estimate) for Q1. Previous 0.6%q/q Ann
- Friday 1.30pm Core PCE Price Index for April. Previous 0.2 index
- Friday 2.45pm Chicago PMI for May. Previous 48.3 index
- Friday 3.00pm University of Michigan Sentiment Survey for March. Previous 59.5 index
The Dollar slipped across the board last week, after the Federal Reserve signalled interest rates were likely to remain on hold at 2.0% for the immediate future. The Dollars slide commenced after the headline gauge of US producer prices rose by a less-than-expected 0.2% in April, as food and gasoline prices took respite after seasonal adjustments. However, core prices rose by 0.4%, twice the rate expected and posting the highest year-on-year gain since 1991. Thereafter, the Dollar extended losses on a rather gloomy set of FOMC minutes from last months rate decision. The Fed slashed its 2008 growth prospects for the US economy and warned it expected unemployment to rise ‘significantly’, reducing prospects of a rate hike later this year. In a condensed week, market attention shifts to both GDP and Core PCE figures for confirmation that rates will remain on hold.
EURO Data
- Wednesday 9.00am Current Account (nsa) for March. Previous €5.0bn
- Friday 10.00am Eurozone Unemployment for April. Previous 7.1%
- Friday 10.00am HICP (Flash Estimate) for May. Previous 3.3%y/y
The Euro advanced to a 1-month high against the Dollar last week after a surprise rise in German business confidence dented expectations for a near-term Eurozone interest rate cut. The Ifo business climate index rose to 103.5 in May, well above forecasts for a slight dip, encouraging the view that the threat of inflation currently outweighs economic slowdown. However, Euro gains were tempered somewhat later in the week after Eurozone services and manufacturing growth sank much more than expected. Both sectors were seen falling dangerously close to the 50.0 mark that separates growth from contraction, with clear signs that worse may be to come, particularly with a stronger Euro and a surging oil price. Attention now focuses on Friday’s inflation data, where the recent oil price spike is expected to reinstate the series upward trend.
Interest rate outlook
| Country |
Current rate |
Last change |
Date of change |
Next meeting |
| UK (MPC) |
5.00% |
-25bps |
10/04/08 |
5th June |
| US (FED) |
2.00% |
-25bps |
30/04/08 |
25th June |
| EU (ECB) |
4.00% |
+25bps |
06/06/07 |
5th June |