Fundamentals – Week Ahead 10 May 2015

Posted On 10 May 2015
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Two events last week, both which seemed to make everyone very happy and pile back into risk assets. The first took place on Thursday when the Conservative Party in the UK won a slender majority which was totally unexpected. A big rally took place in the FTSE100 on Friday.
Friday also saw the release of NonFram Payroll which came in lower than expected. Naturally what is bad for the economy at large is good for risk assets as it means the FED and other Central banks will delay rate increases ensuring the party continues. Until it does not of course.

Main activity this week besides in the US$ is in the GBP.

► USD:  All activity takes place at the end of the week. On Wednesday we have Core Retail Sales expected to show small growth of 0.4% and Retail Sales estimated to come in at 0.3%. The first number excludes automobile sales. Thursday we have PPI and the customary Unemployment Claims number. The former is thought show a minor rise of 0.1% and the latter is estimated at 271,000. On Friday we have the Preliminary Consumer Sentiment number expected at 96.5.
► EURO: A quiet week for the Euro with only two data points of note. On Monday we have a series of Eurogroup meetings. Main and possibly only item on the agenda will be the ongoing Greek saga. On Wednesday we have the German GDP number thought to be 0.5%.
GBP: Lots of news for the GBP. Monday sees the Official Bank Rate announcement which will see rates unchanged at 0.5% and the MPC Rate Statement. Traders will analyse the wording to see whether the BOE becomes more hawkish towards rates in its language. On Tuesday we have the Manufacturing Production number which is expected to show a small rise of 0.3%. On Wednesday we have a slew of numbers: Average Earnings which measures the change in the price businesses and the government pay for labour, including bonuses expected at 1.7%; the Claimant Count Change which measures the change in the number of people claiming unemployment-related benefits during the previous month and thought to fall by 20,000; the BOE Governor speaks and the BOE Inflation Report is released.
► YEN: Only one item of note for the Yen this week which takes place on Tuesday with the release of the Current Account number expected at 1.34Tr.
► AUD: Only two items. On Monday we have the NAB Business Confidence gauge and on Tuesday the Annual Budget is announced.
CNY: Most important announcement is that the PBOC has cut interest rates to 5.1% over the weekend. This is the third cut in 6 months and the second this year. On Wednesday we have the Industrial Production number expected to show a growth of 6.1%.
OUR VIEW: Back to basics this week after the general election in the UK and NonFarm Payroll in the US.
Risk continues to trade at all time highs, commodities languish and the US$ has retraced some of its recent gains.
The stand out asset class which does not seem to be willing to play ball is the government debt market which have risen in yield in spite of general market perception that rates will continue low for the foreseeable future. What do the bond markets know that the rest do not?
Stay nimble. Good luck trading.



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