Growth data depicts “economy in waiting”

Better than expected GDP data for Q1 in the UK has been attributed to several one-off factors that are a direct result of the UK’s impending departure from the EU. The preparations businesses were making for the 29th March Brexit date added to output which was stronger than expected but leaves financial markets concerned about Q2 in much the same way as similar data from the U.S. and Eurozone has.

The uncertainty over Brexit remains and has, if anything, intensified as it is becoming clear that the impasse is not going away any time soon. With the UK now having to take part in the European elections both main parties are bracing themselves for a severe protest vote.

The Prime Minister has been summoned by the 1922 committee of Backbench MPs later this week as the pressure for her to name a date for resigning the leadership grows. It is hard to imagine a change of leader making any major difference, only a General Election or a second referendum is likely to achieve any change.

The pound traded in a 1.2991/1.3048 range on Friday and has opened in Asia this morning continuing its recent wait and see stance.

Mrs May’s meeting with Backbench MPs is expected the be the highlight of the week despite the employment report which will be released tomorrow. Wage inflation is expected to remain at 3.5%, while the headline number itself will show a small improvement which will be hailed by the Government but treated as little more than a curiosity by the market.

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No breakthrough leaves China/US relations strained but intact

The relationship between the United States and China remains the most significant barrier to global trade initiatives and the entire globalization process.

Having gone ahead with the threat to increase tariffs on over $200 billion of imports from China, President Trump tried to mount a charm offensive saying there was “no hurry” to agree on a deal and that the tariffs were simply a normal reaction to the current situation. In carefully leaked rumour, it was intimated that the current delay was due to China trying to “change the goalposts” about its commitment to change laws over foreign investment in certain sectors of its economy.

Given the way the Chinese have gone about investing in the U.S., this was designed to highlight just how unfair Washington sees the current arrangements.

Chinese industrial production data is due for release tomorrow and is expected to have fallen from 8.5% in March to 6.5% in April. Chinese reaction to such data is likely to be a consideration of its own economy first which is to be expected. While the reaction to the increased tariffs has been met with the usual rhetoric just what practical measures will be taken have yet to be announced.

Retail sales and industrial production data for the U.S. will be released on Wednesday and will provide another piece to the Feds economic jigsaw. Retail sales could reflect concerns over the economy which may be unfounded. Sales in April are expected to have grown by 0.7% following a 1.2% rise in March.

The dollar index is reflecting the current uncertainty over the economy and the Fed’s next move. It traded between 97.45 and 97.13 on Friday, closing at 97.33.

Euro drifting lower as market awaits economic improvement

There is a real feeling amongst traders that the single currency is being held in limbo as it awaits genuine signs of an improving economy which is being anticipated from all sides.

This week’s data releases will add to the feeling, but it is unlikely that the numbers will have the desired effect just yet.

The focus will start to change over the next couple of weeks to the European Parliamentary elections and the backdrop of uncertainty given concerns over a rise in populism. Parties to the right of the political spectrum are expected to make advances but any change to the overall Liberal Social-Democratic makeup of the Parliament isn’t expected.

The plans for greater integration of parts of the Union which have been so far left untouched (mainly a joint military and fiscal integration) will be fleshed out during the next Parliament. Just how much further they can go will determine the way leadership battles in France and Germany will be fought.

This week sees several significant data releases in the region with traders braced for another fall in industrial production region-wide following its release tomorrow, it is expected to have fallen by 2.1% in March following a 0.3% fall in February. This flies in the face of the current nascent optimism but a view that “it is always darkest just before dawn” prevails.

This will be followed by another reading for Q1 GDP which is likely to be unchanged at 1.2% YoY. Finally, on Friday, inflation data will be released which will show that the expected pickup in prices predicted by Marion Draghi hasn’t yet arrived. With MoM inflation likely to be just 0.9% adding to a 1.2% YoY figure the pressure on the ECB to act on stimulation will remain for at least another month.

The single currency traded in a similar fashion to the dollar index on Friday, reaching a high of 1.1253 and closing at 1.1234.