Last week we saw the “risk on” tone return to the market; generally aided by central bankers. A number have expressed optimism that a strong rebound in economic growth should be possible later this year, with one Bank of England official likening the UK economy to a “coiled spring”. Federal Reserve (Fed) Chair Powell Jerome Powell said that the economy remains a long way from full employment. These comments reassured markets that they will have continued support from a combination of the expected rebound alongside very loose monetary and fiscal policy.
The UK’s vaccine programme hit a landmark this weekend, hitting it target of 15 million people by the 15th February. Covid-19 cases are down for a fourth successive week, which is fuelling speculation about when the latest set of lockdowns will start to be eased. Prime Minister Johnson is set to address the nation on 22nd February with a road map for reducing lockdown levels; reaffirming that schools could reopen on the 8th March. However, as some scientists have suggested that both dates may be premature; the coming week will be watched for any adjustments and signposting to this timetable.
In terms of data, UK Gross Domestic Product (GDP) increased by 1.0% for the fourth quarter of 2020, above expectations of 0.5% with a 9.9% contraction for 2020. Importantly, this removes the short-term chances of a double dip recession. However, it should also be noted that the Office of National Statistics (ONS) estimate suggested that 18% of the national workforce was on furlough in the latest week. The data illustrated underlying pressure on public finances.
Looking to the week ahead the market will continue to focus on Covid developments, in the UK particularly with deciphering rhetoric for the road map to easing next week. In terms of economic data, the key data releases will be on Friday with the release of the Purchasing Manager’s Index (PMI) services and manufacturing data.
- US bank holiday
- EZ Industrial Production
It is a quiet day to the week as US markets are closed in observance of Presidents’ Day bank holiday. In the meantime, the Eurozone industrial production data will be continued to be watched for signs of recovery and growth in economic activity.
- EZ GDP
- German ZEW
- US Empire Manufacturing
The second of three readings of Eurozone GDP are expected to maintain an unchanged reading showing a contraction of 0.7%. The German ZEW figure is set for release and is generally watched for an indication of economic sentiment as it surveys 300 German institutional investors and analysts which asks respondents to rate the relative 6-month economic outlook for Germany. The US return from their long weekend with the Empire State (New York area) manufacturing data set for release.
- UK inflation data
- US retail sales
- FOMC meeting minutes
UK inflation data is set to slide and remain at low levels. The headline figure is expected to slide to 0.5%, well below the target rate of 2%. In the US, the retails sales figures could provide some green shoots and bounce back from their negative readings last month, a stronger reading could highlight further optimism. The Federal Open Market Committee (FOMC) minutes are due after the European markets close. The FOMC minutes will be deciphered for further clues on future policy.
- US weekly jobless claims
- Philly Fed Manufacturing
The weekly jobless claims continue to be a focus as the market continues to monitor the employment dynamic amidst the pandemic. In the meantime, Philadelphia Fed Manufacturing will be watched for signs of economic activity growth. The index is expected to slow from the previous meeting.
- UK retail sales
- UK public sector borrowing
- UK/EZ/US PMI Services
- UK/EZ/US PMI Manufacturing
The end of the week provides a busy day in terms of economic data. UK retail sales data is expected to show a contraction of 2.6% but given ongoing lockdown measures up to and over the Christmas period, this is not unexpected. UK public finance data is expected to post a deficit despite a boost to tax revenues from ‘self-assessment’. The PMI services and manufacturing from the UK, Eurozone and US will provide the market with a good indication of economic activity and growth prospects.
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