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Market Update

What to Expect from the Week Ahead

Inflation data, manufacturing PMIs, the end of QE2 and Greece's continuous struggle with its fiscal deficit will all keep investors busy as we head towards the end of June

Morningstar.co.uk Editors 24 June, 2011 | 4:20PM
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The coming week will bring monetary and fiscal policy developments that markets have been bracing themselves for throughout June. Namely, the Fed will officially end its second quantitative easing programme and Greece will have to deliver on its promise to rein in fiscal spending (or at least have a credible plan for it).

While the end of the Fed’s asset purchasing programme has been widely expected for some time already, it is still likely to translate into less appetite for risky assets in the weeks to come. Recent signs of economic slowdown in both developed and developing markets will likely feed into that trend.

To that end, the coming days will offer plenty of macroeconomic information to investors wondering where the economic growth and consumer prices are heading. For example, consumer price inflation data for June from Germany, the eurozone and Japan are scheduled for Tuesday, Thursday and Friday, respectively. Seeing as the European Central Bank signalled that it is planning another interest rate hike in July, eurozone inflation figures should provide an argument as to the necessity of such measure.

Perhaps of even more investor interest will be economic growth indicators. We have seen the market on both sides of the Atlantic be extremely susceptible to economic announcements in the past couple of weeks and there is a wealth of data points coming up that may spur further swings. Add to this the fact that trading volumes are low at present and are likely only worsen as we move into the summer months, thus further exacerbating volatility, and we could be in for a bit of a rocky ride.

In the UK, the final estimate of first-quarter GDP is due on Tuesday, followed by consumer borrowing and mortgage approval data for June on Wednesday, this month’s Gfk consumer confidence survey on Thursday and the manufacturing sector PMIs on Friday. Manufacturing sector PMIs will also be released for Germany and the rest of the eurozone on Friday.

Economists expect that the previous 0.5% estimate of UK growth in the first quarter will remain unrevised, while both consumer confidence and the manufacturing PMI will show producers and consumers struggling with the economic environment. Among these latest national accounts, Howard Archer, Chief European and UK Economist with IHS Global Insight, will be particularly interested to see what happened to households' real disposable income and the savings ratio in the first quarter.

Elsewhere in the EU, we will be expecting German retail sales for May on Monday, a number of eurozone confidence surveys for June on Wednesday and eurozone unemployment for May on Friday. While these statistics are likely to once again highlight a two-speed economic recovery in the EU, of particular interest will be the extent to which the EU’s powerhouse, Germany, has been hit by peripheral debt concerns and the broader global economic slowdown.

In the political arena, the Greek government will be battling to pass budget reform through parliament – a change stipulated as mandatory in order for the country to receive the latest instalment of its bailout package and avoid default in the short term. It is likely that such agreement will be reached, says Morningstar equity analyst Erin Davis, but she argues this will not solve Athens’ structural debt problem and the country will eventually default on its debt.

As far as the coming week is concerned, however, in addition to the Greek saga, movements in other peripheral bond markets will be of interest as the spreads between Italian and Spanish sovereign bonds and German bunds will give some insight into how fragile the Mediterranean economies could be if eurozone debt concerns linger.

The volume of corporate announcements will be relatively quiet with no FTSE 100 company updates due except for trading updates from Petrofac (PFC) and Wood Group (WG.) on Thursday. On Wednesday, Compass Group (CPG), Man Group (EMG) and Tate & Lyle (TATE) will trade ex-divided.

Monday
UK Economic Announcements
Nationwide House Prices for June
International Economic Announcements
Eurozone: German Retail Sales for May, German Import Prices for May
US: Personal Income and Spending for May, Dallas Fed Manufacturing Activity

Tuesday
UK Corporate Announcements
Carpetright (CPR), Northgate (NTG)
UK Economic Announcements
1Q GDP, 1Q Current Account
International Economic Announcements
Japan: Retail Sales for May
Eurozone: German GfK Consumer Confidence Survey for July, German CPI for June
US: Consumer Confidence for June, Richmond Fed Manufacturing Index for June

Wednesday
UK Corporate Announcements
Betfair Group (BET), Stagecoach Group (SGC)
Ex-dividend Date
FTSE 100: Compass Group (CPG), Man Group (EMG), Tate & Lyle PLC (TATE)
FTSE 250: Cranswick (CWK), Halfords Group (HFD), HomeServe (HSV), The Paragon Group of Companies (PAG), Petropavlovsk (POG)
UK Economic Announcements
M4 Money Supply for May, Net Consumer Credit and Net Lending Secured on for May, Mortgage Approvals for May
International Economic Announcements
Japan: Industrial Production for May
Eurozone: 1Q French GDP, eurozone business and consumer confidence surveys for June
US: Pending Home Sales for May

Thursday
UK Corporate Announcements
Greene King (GNK), HMV Group (HMV), Petrofac trading update, Wood Group trading update
UK Economic Announcements
GfK Consumer Confidence Survey for June
International Economic Announcements
Eurozone: French Consumer Spending May, French Producer Prices May, German Unemployment for June, eurozone CPI for May
US: Weekly jobless claims, Chicago PMI Survey for June, NAPM Milwaukee for June

Friday
UK Economic Announcements
PMI Manufacturing Survey for June
International Economic Announcements
Japan: Household Spending for May, Jobless Rate for May, CPI for May, 2Q Tankan Large Manufacturing Index
Eurozone: French PMI Manufacturing Survey for June, German PMI Manufacturing Survey for June, eurozone PMI Manufacturing Survey for June, eurozone Unemployment Rate for May
US: University of Michigan Consumer Confidence for June, Construction Spending for May, ISM Manufacturing Survey for June

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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