Daily Market Update: A busy week of US economic data lies ahead

On Friday US economic growth was revised up to an annualised rate of 0.8% for Q1. This equates to a rather pedestrian 0.2% rise when presented in the traditional quarterly basis.

While this was firmer than the earlier estimate it wasn’t quite as strong as economists had been expecting. However this is viewed as old news.  What is more important, particularly with the busy week of data that lies ahead, is how strong the rebound in economic growth is during the second quarter?  We have already had some encouraging data on this front. In turn, this will largely determine when the Federal Reserve chooses to pull the trigger for its second interest rate hike.

Remain

Last week on the currency markets sterling and the dollar both strengthened against the single currency. Sterling’s recent recovery has been supported by an increasing number of polls pointing to an increasing lead amongst the “Remain” camp. Last week EUR/GBP opened at 77.3p and this morning is 1p lower and 76.2p. The currency pair had reached a low of 75.6p in the middle of last week. EUR/USD starts the week almost one cent lower than this time last week at $1.113. Meanwhile sterling has recovered some ground against the dollar in recent sessions. GBP/USD regained a foothold back above the $1.46 mark last week. The currency pair is currently changing hands at $1.461.

Confidence

Turning to today’s data, a surge in investment provided a boost to French economic growth in the first quarter. The Eurozone’s second largest economy saw growth accelerate from 0.4% q/q in Q4 to 0.6% q/q for Q1. This was slightly above the 0.5% growth rate expected by analysts and marks the fastest rate of growth in a year. Business investment jumped by 2.4% q/q which was almost a full percentage point higher than expected. We will shortly get the latest set of confidence surveys from the European Commission for May and German CPI. It is a quiet day in the UK with the May Bank Holiday and there are also no economic data releases due for the US.

Data releases

Looking to the rest of the week, there is a raft of top tier economic data releases on both sides of the Atlantic. The focus however will largely be on the US.  Last Friday Fed chairperson Janet Yellen indicated that the Federal Reserve would hike rates “in the coming months” if the economy and the labour market continue to improve. Friday’s nonfarm payrolls report is the key release of the week as always. The consensus amongst analysts is for another net gain of 160k in May. Before then we will have the ADP private sector employment report on Thursday. Tomorrow we have the Fed’s preferred measure of consumer price inflation – the core PCE deflator. The annual rate of growth in consumer prices is running at 1.6% y/y.  Not too far below the Fed’s target rate of 2%. Outside of the US the key event in the Eurozone this week will be the ECB’s policy announcement.  No change is expected in the ECB’s policy settings.  However, Mario Draghi’s press conference and Q&A will be closely followed by financial markets. In the UK we get the trio of PMIs from Wednesday to Friday. You may recall that the April survey’s reported a slowdown in the rate of growth for the construction and services sectors. Meanwhile the UK manufacturing sector fell into contraction territory in April.