Weekly wrap: The UK economy avoids a triple dip recession – 29.04.2013
Source: Henderson Global Investors
Global equity markets closed the week higher. The Chancellor George Osborne breathed a sigh of relief as the UK avoided a triple dip recession. First quarter gross domestic product (GDP) growth achieved a better than expected 0.3% reading, driven by the dominant services sector which grew 0.6%. The UK government borrowed £120.6bn in the year to April, just £0.3bn lower than the previous year. Meanwhile, the Bank of England announced an extension to its Funding for Lending Scheme until the end of next year. The scheme provides banks with cheaper loans to incentivise more lending.
In the eurozone, unemployment in both Spain and France reached new record highs. Spanish unemployment surpassed six million while in France the number of jobseekers rose to 3.2m in March. Italy’s 10-year government bond yields dipped below 4% for the first time in almost three years as Enrico Letta, former deputy leader of the centre-left Democratic party, was nominated as the next prime minister in a move to end Italy’s political deadlock. Markit’s composite purchasing managers’ index (PMI) for the eurozone remained in contraction territory at 46.5 in April, unchanged from March, while in Germany, the Markit ‘flash’ composite PMI fell to 48.8 in April, a six-month low. This weakness in the eurozone’s services and manufacturing sectors, combined with a weak business confidence survey in Germany, has increased pressure on the European Central Bank to cut rates at their meeting later this week.
Elsewhere, in the US, Markit’s manufacturing PMI fell from 54.6 to 52.0. This was the slowest pace of growth for the sector in six months. More encouraging was US GDP, which grew at an annualised rate of 2.5% in the first quarter, driven by a 3.2% rise in consumer spending. In China, the preliminary HSBC manufacturing PMI fell from 51.6 to 50.5 in April, adding to concerns about the country’s economic recovery. The drop is due to a fall in export orders, indicative of weakening global demand.
As the Fed focuses on QE, the ECB may consider a rate cut
In the US, pending homes sales data is released on Monday, an increase of 1.0% month-on-month in March is expected due to the spring selling season. On Tuesday, April’s Conference Board Consumer Confidence index is expected to remain relatively unchanged as macroeconomic data continues to weigh on sentiment. Wednesday brings the Institute for Supply Management’s (ISM) manufacturing survey and the Federal Open Market Committee (FOMC) rates decision. The ISM survey is likely to fall slightly as last month’s report suggested little upside to the current level. There are not expected to be any substantive changes to the Fed’s policy language or any change to rates at the May FOMC meeting. Friday’s employment report is likely to show nonfarm payrolls growth of around 150k following a lacklustre reading of 88k in March. No change to the unemployment rate is expected.
In the eurozone, Monday sees the latest reading of the European Sentiment Indicator, which is expected to show a second consecutive monthly decline as European PMIs have remained at low levels. On Tuesday, euro area inflation and unemployment are released. Inflation is likely to continue decelerating due to a fall in oil prices. Meanwhile, the euro area unemployment rate is expected to tick up to 12.1% due to rising unemployment rates in the eurozone periphery (Italy and Spain). UK manufacturing PMI on Wednesday is likely to show a modest rise from 48.3 to 48.5 in April helped by a general improvement in the weather. Market consensus is for a 25 basis point rate cut at the next European Central Bank meeting on Thursday. UK services PMI is expected to remain steady at 52.4 (Friday).
In China, the official manufacturing PMI is expected to move slightly lower on Wednesday, mostly due to seasonality.