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 UK Data

• During the week Halifax House Price Survey for June. Previous -2.4%m/m & -3.8%y/y
• Monday 12.01am Gfk Consumer Confidence for June. Previous -29.0 index Actual -34.0
• Monday 9.30am BoE Mortgage Approvals for May. Previous 58.0k
• Tuesday 7.00am Nationwide House Price Survey for June. Previous -2.5%m/m & -4.4%y/y
• Tuesday 9.30am CIPS Manufacturing PMI for June. Previous 50.0 index
• Thursday 9.30am CIPS Services PMI for June. Previous 49.8 index

Sterling surged to a two month high against the Dollar last week after a survey showed UK retail sales fell by less than expected in June, allaying some concerns over the health of the consumer sector. The CBI distributive trades balance rose to -9 from -14 in May, confounding forecasts for further deterioration, while the retailer’s expectations component also improved. However, Sterling gains were capped on Friday after the UK economy slowed more than previously thought in the first quarter of 2008, as the service sector registered its weakest performance in twelve years. Further reminders of the dire state of the UK housing sector should be encountered this week, with the market looking for declines in the Nationwide and Halifax house price surveys.

US Data

• Monday 2.45pm Chicago PMI for June. Previous 49.1 index
• Tuesday 3.00pm ISM Manufacturing Survey for June. Previous 49.6 index
• Wednesday 1.15pm ADP Employment Survey for June. Previous 40k
• Wednesday 3.00pm Factory Orders for May. Previous 1.1%m/m
• Thursday 1.30pm Non-Farm Payrolls & Unemployment rate for June. Previous -49k & 5.5%
• Thursday 3.00pm ISM Non-Manufacturing Survey for June. Previous 53.6 index
• Friday Market Holiday – Independence Day

The Dollar sank across the board last week after the Federal Reserve failed to give a strong enough signal that it would aggressively raise interest rates this year. As expected, the FOMC voted to hold the Fed Funds rate steady at 2.00% on Wednesday, amid growing concerns over inflation relative to growth. The decision by the US Central Bank effectively put an end to the aggressive rate-cutting campaign that the Fed launched in September, in an attempt to put a floor under an economy hit hard by an ailing housing market and global credit crunch. The Fed voiced concerns about inflation in its accompanying statement but also said it expects price pressures to moderate this year, helping push back rate hike expectations. This week’s market attention will focus on Thursday’s payroll and unemployment data following dismal outturns in May.

EU Data

• Monday 10.00am HICP (Flash Estimate) for June. Previous 3.7%y/y
• Tuesday 9.00am Manufacturing PMI for June. Previous 50.6 index
• Tuesday 10.00 Eurozone Unemployment for May. Previous 7.1%
• Wednesday 10.00am PPI for May. Previous 0.8%m/m & 6.1%y/y
• Thursday 9.00am Services PMI for June. Previous 50.6 index
• Thursday 10.00am Retail Sales for May. Previous -0.6%m/m & -2.9%y/y
• Thursday 12.45pm ECB Interest rate announcement, followed by news conference at 1.30pm

The Euro closed in on previous June highs against the Dollar last week after Jean-Claude Trichet, President of the European Central Bank cemented expectations that Eurozone interest rates were set to rise in July. Mr. Trichet told the European Parliament that the Central Bank was on a “heightened state of alertness” over inflation. He said he was particularly concerned that elevated inflation expectations would lead to “second-round effects” as workers in the region demanded higher wages. There can be little doubt that the ECB will implement a 0.25% rate rise to 4.25% on Thursday with June HICP expected to reach another record high.

Interest rate outlook