Last week Sterling was treading water as it continues to deliberate what COVID-19 and Brexit means for the longer-term prospects of the nation. Last week’s reading monthly GDP highlighted this uncertainty. The monthly GDP saw a 1.8% monthly rise in May, well below expectations of 5.5%. In the meantime, UK employment data whilst better than expected, received a tepid response as several companies continue to announce job losses and there is concern that this figure could rise in August as the governments contribution to furlough payments drops with the employer making up the difference.
US economic data continues to remain positive. Last week, US retail sales, industrial production and Philadelphia manufacturing data all reported better than expected readings. However, the tone remains cautious as new COVID-19 cases hit a record high in the US of excess of 75,000. The market remains cautious about what this could mean for the US economy. Whilst economic data remains positive, it is backward looking, and the market will keep an eye on COVID-19 and what impact it could have on future data.
The focus of the week was on the EU economic summit with the market glued to developments surround the recovery fund. The meeting has extended beyond the weekend and will continue today. The EU recovery fund would be borrowed via instruments on the financial markets, to be paid back sometime after 2027. Leaders are at odds over how to carve up a vast recovery fund designed to help haul Europe out of its deepest recession since World War Two, and what strings to attach to the countries it would benefit. The frugal states, Austria, Sweden, Denmark and to some degree Finland, want some control over how the money is handed out. The southern states including Italy and Spain want an urgent decision to revive economies battered by a devastating pandemic. Talks continue today.
Looking to the week ahead, in terms of economic data it is a lighter week but given the continued backdrop the week is likely to remain busy with UK/EU trade talks, COVID-19 developments and the EU recovery fund.
- UK public borrowing
Public borrowing is expected to show another big figure but less than last month’s number. However, given the economic situation this will not be a surprise.
- US existing homes
- US crude oil
Existing home sales is expected to show a sizable pick up from the previous month providing further evidence of economic recovery. In the meantime, crude oil inventories remain in focus. This measures the number of barrels of crude oil held in inventory by commercial firms and as a result subsequent demand factor.
- US Jobless claims
Despite economic data pointing towards a recovery there are still strains in the nation, the weekly jobless claims is one figure that will be deciphered as an indicator ahead of the monthly numbers. This is expected to show a decline from last week. If mass lockdowns start to come into force this may push the figure higher.
- UK and EZ PMI Services
- UK and EZ PMI Manufacturing
Both the UK manufacturing and services indices have already picked up from their April lows. Expectations are for further rises in both this month with manufacturing up to a 15-month high and services to a 4-month high as lock down restrictions ease. If expectations are hit, it will be the first time we have seen expansion in the service sector since March. The eurozone figures will also be watched for the same reasons.
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