Pound rallies on UK Manufacturing Data

Yesterday we saw a surprise jump in UK’s manufacturing data in April to 2.3% from a paltry 0.1% in March.

Yesterday we saw a surprise jump in UK's manufacturing data in April to 2.3% from a paltry 0.1% in March.

The positive number in an area that has struggled, led to a move higher for the Pound. In addition, the NIESR GDP estimate also came out stronger, which suggests that UK growth could be stronger than thought.

The Pound will continue to be driven by the perceived outcome of the referendum in the short term, and tonight we have a two hour ITV debate (8-10pm) involving politicians from both camps.

Initial jobless claims to come

Today ECB President Mario Draghi will be speaking, and the market will be looking for any new signals or comments following last week’s meeting. In addition, we have US data with initial jobless claims later on. This data is normally benign, but given the weak non-farm payroll number on Friday it will be eyed closely. If jobless claims are rising, it could suggest that labour market growth is turning sour.

Royal Bank New Zealand rates unchanged

Overnight the Reserve Bank of New Zealand (RBNZ) left rates unchanged at 2.25%. There was some expectation that a 25 basis points cut could be on the cards. It is still likely that we will see a rate cut in the near future as the RBNZ maintain an easing bias. The NZD has strengthened on the avoidance of a rate cut.

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UK trade deficit drops to £1.2 billion in April

The UK trade deficit dropped to £1.2 billion in April from £3.1 billion in March according to the Office for National Statistics.

UK trade deficit dropped to £1.2 billion in April from £3.1 billion in March An £8.6 billion deficit on goods was partially offset by an estimated surplus of £7.4 billion on services the ONS said.

The ONS added that in the quarter to April, exports were flat after 0.3% growth in the first quarter, but imports were up 2.1%, the same as in the three months to March.

UK exporters have struggled in the face of weak demand in the eurozone.

Part of the deficit dip was down to a fall in imports of art and furniture, said the ONS. Another factor was less oil being imported.

Last year, companies began stockpiling oil as the price of the commodity collapsed.

The deficit – a description of how much imports exceed exports by value – was less than economists had expected.

“Monthly trade figures are notoriously volatile but today’s significant improvement is nonetheless very welcome, but there is no room for any complacency,” said David Kern, chief economist at the British Chambers of Commerce.

“The longer term trend still shows a worsening in the trade position in recent months. It is clear that we are not making enough, sustained, progress in closing the trade gap.”

The UK’s trade deficit for 2014 widened to £34.8 billion, the biggest gap since 2010.

What these figues continue to point out is the futility of focusing our exports on countries which are struggling economically rather than English speaking countries with growing economies.

UK inflation rate turns negative

The main measure of UK inflation turned negative in April for the first time on record- with the rate falling to -0.1%.

UK inflation rate turns negativeIt is the first time that the Consumer Price Index (CPI) inflation has turned negative since 1960, based on comparable historic estimates, the Office for National Statistics said.

The biggest contribution to the fall came from a drop in air and sea fares.

Bank of England governor Mark Carney said he expected inflation to remain very low over the next few months.

But Mr Carney added that “over the course of the year, as we get towards the end, inflation should start to pick up towards our 2% target”.

The latest inflation figures show that transport costs were 2.8% lower in April than the same time a year ago, while food was 3.0% cheaper.

Chancellor George Osborne said the inflation figure should not be mistaken for “damaging deflation”.

He added that the lower cost of living – driven by last year’s fall in oil prices – would be a welcome relief for family budgets, in an environment in which average wages were finally beginning to rise.

“Of course, we have to remain vigilant to deflationary risks and our system is well equipped to deal with them, should they arise,” Mr Osborne added.

The latest inflation figure means that a basket of goods and services that cost £100 in April 2014 would have cost £99.90 in April this year.

The last time we saw a price fall in the UK was March 1960, before even I was born, when there was a drop (probably) of 0.6%.

Almost nothing changed between March and April’s inflation figures- the ONS says that the thing that did move, which was the price of air fares and sea fares, was depressed by the timing of Easter.

The prices that are used to calculate the CPI are collected in a few days in the middle of the month. In 2014, Easter fell during those days, which meant transport fares were inflated.

This year it didn’t, so fares were lower, which means today’s tiny deflation may be seen as a technical effect.

UK economic growth slows to 0.3pc

The rate of economic UK growth has halved in the three months to the end of March- marking the slowest quarterly growth for two years.

UK economic growth slows to 0.3pcThe UK economy grew by 0.3% in the quarter according to the Office for National Statistics (ONS) said.

That compares with 0.6% in the last three months of 2014.

The figures, which come nine days before the general election, suggest a “temporary” slowdown in the economy, analysts said.

The ONS said the economy was 2.4% larger than the same period a year earlier.

Growth of 0.5% in the services industry was offset by a 1.6% fall in the pace of economic output in construction.

The UK services sector accounts for around three quarters of economic growth, with construction, manufacturing and production accounting for the remaining quarter.

The Chancellor, George Osborne, said: “It’s good news that the economy has continued to grow, but we have reached a critical moment. Today is a reminder that you can’t take the recovery for granted and the future of our economy is on the ballot paper at this election.”

Liberal Democrat Chief Secretary to the Treasury Danny Alexander, said the figures were still progress but a warning too.

He added it was vital his party were part of the next government to ensure the “fair and balanced approach needed to secure this recovery”.

For reasons no one can quite explain, construction in Britain has been lousy for six months.

The production industries have been especially hurt by the oil price collapse, which has led to something of a crisis in the North Sea. Excluding oil and gas, quarter-on-quarter growth would have been 0.1 of a percentage point higher at 0.4%.

But nor has manufacturing been sparkling: it showed growth of just 0.1%. And perhaps because of the strengthening pound, the growth rate of our manufacturers has progressively decelerated in a straight line from 1.4% a year ago

More unexpectedly, some service industries in which the UK is a world leader – finance, engineering and architecture – have had a poor few months.

One possible explanation of their slowing growth is that demand for our services and goods in important export markets – especially China and the US – may be a bit worse than official figures show. That could be a sign of trouble ahead.

So thank goodness for our domestic facing services.

Or to put it another way, if we weren’t a nation of shoppers and restaurant eaters, there would be very little growth at all. The output of distribution, hotels and restaurants increased by 1.2% in the quarter – only slightly slower than at the end of last year.

The figures represent a first estimate of economic growth and are based on less than half of the total data required for the final output estimate.

But the ONS said that while estimates are subject to revision as more data become available, the revisions are typically small between the preliminary and third estimates.

King signs off with optimistic review

Mervyn King has signed out with an upbeat final quarterly inflation report with growth forecasts increased and inflation forecasts scaled down.King signs off with optimistic reviewKing expects to see unemployment gradually come down which backs up the official data today which showed unemployment levels falling.

The big positive is the expectation that growth expectations are looking rosier and at the same time inflation is softening, previously it has been the other way around.

The report is good news for consumers that have been hit with persistently high inflation and no end in sight for a return to growth.

Although the report gave a short term boost to the Pound on the upbeat growth forecasts, this was short lived as overall we expect the pound to fall in line with a more aggressive Bank Of England as Mark Carney replaces Mervyn King as Governor.

The sparks of life are now evident but until we see the UK economy truly fire into life we can expect the Bank Of England to be proactive and more aggressive which is likely to weaken the pound.

In other news Japanese preliminary GDP beat estimates and this help to continue the positive risk sentiment in Asia until it was dampened by weaker Japanese earning reports.

In the currency markets the Euro came under renewed pressure against the USD as speculation increases for a further rate cut from the ECB following yesterday’s disappointing Q1 GDP data.

In addition the US Dollar is making gains after hints that the Fed is moving closer to exiting their QE strategy.

Sterling rockets as GDP growth excites the wise money markets

The first quarter GDP figure for the UK was released yesterday and came in well above expectations at 0.30% vs 0.1% alongside the annualised figure of 0.60% vs 0.3%.
Sterling rockets as GDP growth excites the wise money markets
Consequently, the UK has avoided a triple dip recession and provided Sterling support against US Dollar and Euro which lasted throughout the day.

Sterling gained 2 cents yesterday against the US Dollar to move from 1.5280’s to reach 1.5480 and also positively moved over 1½ cents versus the Euro from low 1.17’s before the release to high’s in the 1.1880’s. EUR/USD yesterday continued to struggle to stay above 1.30 as the picture darkens throughout the continent.

The excellent number yesterday has given Chancellor Osborne some much needed breathing room and is likely to mean the BoE will keep the printing presses on hold as the UK may be on the course for recovery without the need for extra stimulus. Further positive data in the coming weeks will most likely strengthen Sterling further.

Yesterday it was confirmed that Spanish unemployment rate has increased to the highest level in 37 years at 27.2% of the population struggling to find work.

As the Eurozone is likely to stay in a recession this quarter with poor PMI figures being released it expected that the ECB will cut the interest rate to 0.50% from 0.75% in the policy meeting on May 2nd.

It has been widely expected after ECB member Jens Weidmann hinted that a cut at a press conference in April. A rate cut is likely to weaken the Euro further against most major counterparts.

After better then expected jobless claims yesterday, the US GDP figure this afternoon is the next big event on the horizon for the markets, as it looks to add a handsome 3.0% growth to the first quarter of 2013, which would comfortable beat the previous quarter of 0.4%.

As the economic picture begins to show a more positive, if not mixed, outlook for the US the expectations that the FOMC will scale back is rather accommodative policy will continue to be on the cards.

Fitch downgrades UK’s credit rating

The credit rating agency Fitch lowered the U.K.’s credit rating to AA+ from AAA in a further sign that the economy and reforms are struggling.Fitch downgrades UK's credit ratingThis hit Sterling hard, after a strong surge during early London trade, it went from 1.1759 down to mid-1.1650’s, with GBP/USD moving below 1.53 and EUR/USD bouncing between mid-1.31’s and 1.3085.

As the G20 summit came to a close on Friday we saw the confirmation, again, that Japan is well within its rights to continue on it monetary easing to return the nation to growth and inflation by 2014.

The Italian election is back on the cards this week, after the country remains split over which party to elect with hopeful Pier Luigi Bersani deciding to step down from his party’s race over his failure to secure election or a coalition party.

This week will be relatively quiet but we kick the week off on Tuesday with Public Sector Borrowing figure expected to show another rise. Big ticket data will start on Wednesday when it is confirmed whether or not the U.K. has avoided a triple dip recession with conflicting reports ranging from marginal to no growth up to a triple dip recession.

After ECB member Jens Weidmann successfully weakened and strengthened the euro last week we have a quiet week coming up with notable data on Tuesday that will see Eurozone Manufacturing and Services PMI expected to show a deficit for the region with Germany’s Manufacturing expected to reveal another month of deficit but growth in Services.

Quite a busy week for the American money markets coming up starting with more positive data for Existing Home Sales and also Tuesday’s New Home Sales figure is expected to rise again in a bullish sign for the property market in America.

Durable Goods Orders on Wednesday are expected to have declined. Thursday, Initial and Continuing Jobless claims are expected to show a slight fall. Friday, is the big ticket data with the GDP release, expected to show a whopping 3% growth compared with 0.4% last quarter.

IMF adds more pressure on Osborne

Recent comments from the IMF that Britain should rethink its austerity policies bring it into direct opposition to the Chancellor George Osborne’s current stance that fiscal tightening is here to stay.IMF adds more pressure on OsborneA high profile stand-off is on the cards. Fair play to the IMF for changing its mind in light of the evidence, data has shown forecasts to be far too optimistic and economic performance since the financial crisis woeful.

Output is still three per cent below its 2008 peak. Adding to the Chancellors woes is the widely publicised critique of the Reinhart-Rogoff work that was heavily cited by austerity advocates.

Researchers were unable to replicate their results and it emerged errors in excel and omission of certain countries from the sample is now throwing their conclusions into doubt.

At least it seems Mark Carney, the incoming Bank of England chief, is on Osborne’s side. In prepared remarks in Washington yesterday Mr Carney suggested all a central bank can do is provide the conditions for growth and it is up to the private sectors to deliver that growth.

Less welcoming will be Mr Carney’s description of the UK as a crisis economy along with the eurozone.

The sheer weight of news has done little for Sterling, which trades slightly higher against the Euro and Dollar in early trading this morning

Next week should be a busy one with the all-important 1st quarter GBP numbers due in the UK on Thursday.

Britain is expected to avoid a triple dip recession by the skin of its teeth after the recent cold snap depressed high street activity in March. US GDP is also due on Friday showing the divergence between both sides of the Atlantic underway.

The Pound is hit by higher unemployment

It was a bad start to the day yesterday for the Pound after it was confirmed that UK unemployment edged higher to 7.9%.The Pound is hit by higher unemploymentThe Pound dropped against the US Dollar and the euro on the data which followed confirmation on Tuesday that inflation has remained stubbornly high, with higher unemployment and inflation providing a negative mix.

We also had confirmation of the Bank Of England minutes which once gain gleaned a divided committee with a vote of 6-3 to keep QE as it is. Today we have UK retail sales data which is also expected to disappoint and could spell further weakness for the pound.

The fall in the Pound yesterday set the tone for an extremely volatile day in the money markets.

Later in the day the euro was rocked by comments from ECB member Weidmann the Bundesbank president who stated that the ECB could cut rates if data suggested this was necessary.

Given that economic data has been weaker lately this set the precedent that a rate cut could be on the cards. The Euro fell sharply against the USD on the comments and has maintained its lows so far in today’s trading.

Economic data outside Europe has also started to turn negative such as in China and the US and this adds to the view of a rate cut at the next meeting.

The overall sentiment with weaker economic data of late has led to a risk off sentiment in the markets. Equities have fallen and the slide in EUR/USD emphasizes this trend which looks set to continue through today.

Focus for today will be on Europe and feedback from Italy which seems to have come to agreement on a presidential candidate with Franco Marini looking likely to get the nod.

In addition the markets will also be looking at any feedback from the G20 meeting which starts in Washington and in particular for any criticism of Japans recent policy actions.