UK Next Week s Agenda and Wrap Up, July 8 Aug 9

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1 4 July, 2013 UK Next Week s Agenda and Wrap Up, July 8 Aug 9 - Headlines for the UK and global economy - Wrap up - Next week s agenda - Financial overview - Government bond yields - Financial forecast - Chart of the week - The economy - News and statements during the week The UK publication will have a summer break and will be back on Friday, August 9 Helena Trygg, , hetr01@handelsbanken.se

2 Headlines for the UK and key global highlights UK Positive survey data continue to be delivered by the industry. The PMI for the manufacturing sector surprised again in June with an index at 52.5 compared to 51.5 in May. The more positive sentiment within the manufacturing sector most likely reflects stronger domestic and foreign demand. The industrial production data published next week will likely be positive and also contribute to the GDP in Q2. The PMI index for the construction sector fell slightly to 52 in June while the PMI index for the services sector jumped significantly to 56.9, the highest level since March Household borrowing figures confirmed that the combination of the Government s Help-to-Buy Scheme, the Bank s Funding for Lending Scheme and renewed optimism about the economic recovery is bringing about a modest revival in housing market activity. Mortgage approvals for new house purchases rose to the highest level since December As expected, the Bank of England Monetary Policy Committee decided to keep the policy rate at 0.5 percent and keep the asset purchase programme intact. Mark Carney signalled that the Bank of England will keep interest rates at a record low for longer than investors had expected as he used his first meeting as governor to give more insight into future policy. The implied rise in the expected future path of bank rate was not warranted by the recent developments in the domestic economy, the BOE said in a statement. The pound fell the most in almost five months against the dollar and investors pushed back bets on the timing of a rate increase. Global Sweden - the Riksbank announced that the repo rate will remain at 1 percent, in line with practically unanimous market expectations. The decision makes it the third straight time for the Riksbank keeping the repo rate unchanged. The last rate change was the cut in December 2012 (from 1.25 percent). Two members voted for a cut by 25bp and to keep the repo rate path lower for a longer time than the majority voted for. ECB President Mario Draghi said during a press conference that incoming information confirmed previous assessment and underlying price pressures are expected to remain subdued over the medium term. He also said recent confidence indicators based on survey data have shown some further improvement from low levels, and continued that monetary policy provides support to a recovery in economic activity later this year and in 2014 and that monetary policy stance will remain accommodative for as long as necessary. 2

3 Wrap Up, July 1-5 Monday Hometrack Housing survey, Jun 0.4/0.8 (p: 0.4/0.4) PMI Manufacturing, Jun 52.5 (e: 51.2, p: 51.5) Net consumer credit, May 0.7bn (e: 0.6bn, p: 0.6bn) Net lending secured on dwellings, May 0.3bn (e: 0.8bn, p: 0.7bn) Mortgage approvals, May 58.2k (e: 56.0k, p: 54.4k) M4 Money supply, May -0.1/-0.1 (e: 0.0/0.0, p: 0.3/-0.1) Tuesday PMI Construction, Jun 51.0 (e: 5124, p: 50.8) Auction of 2¼% Treasury Gilt 2023 Wednesday PMI Services, Jun 56.9 (e: 54.5, p: 54.9) BRC Shop price index, Jun /-0.2 (p: /-0.1) Thursday Bank of England Monetary Policy Committee meeting Bank rate 0.5 (e: 0.5, p: 0.5) Asset purchases 375bn (e: 375bn, p: 375bn) New car registrations, Jun /13.4 (p: /11.0) Halifax house prices, Jun 0.6/3.7 (e: 0.4/3.6, p: 0.5/2.6) Friday No major events 3 m-o-m/y-o-y a = Actual e = Estimate p = Prior

4 Next week s agenda, July 8-12 Monday No major events Tuesday BRC Sales like for like, Jun (p: /1.8) RICS House price balance, Jun (p: 5) Industrial production, May (p: 0.1/-0.6) Manufacturing production, May (p: -0.2/-0.5) Visible trade balance, May (p: bn) Trade balance non-eu, May (p: bn) Total trade balance, May (p: bn) NIESR GDP estimate, Jun (p: 0.6/) Auction of 0 1/8% Index-linked Treasury Gilt Wednesday No major events Thursday Auction of 3¼% Treasury Gilt 204 Friday Construction output, May (p: -1.1/) 4 m-o-m/y-o-y a = Actual e = Estimate p = Prior

5 Next week s agenda, July Monday Rightmove house prices, Jul (p: 1.2/2.7) Tuesday CPI, Jun (p: 0.2/2.7) Core CPI, Jun (p. /2.2) PPI Input prices, Jun (p: -0.3/2.2) PPI Output prices, Jun (p: 0.0/1.2) PPI Output core, Jun (p: 0.1/0.8) RPI, Jun (p: 0.2/3.1) RPI ex mortgage payments, Jun (p: /3.1) Wednesday Bank of England minutes Claimant count rate, Jun (p: 4.5) Jobless claims change, Jun (p: -8.6k) Average weekly earnings, May (p: /1.3) Weekly earnings ex bonus, May (p: /0.9) ILO unemployment rate, May (p: 7.8) Employment change, May (p. 24k) Thursday Retail sales ex auto fuel, Jun (: 2.1/2.1) Retail sales, Jun (p: 2.1/1.9) Friday Public finances (PSNCR), Jun (p: 3.1bn) PSNB ex interventions, Jun (p: 8.8bn) Public sector net borrowing, Jun (p: 10.5bn) 5 m-o-m/y-o-y a = Actual e = Estimate p = Prior

6 Next week s agenda, July Monday No major events Tuesday BBA Loans for house purchases, Jun (p: k) Wednesday CBI Trends total orders, Jul (p: -18) CBI Trends selling prices, Jul (p: 3) CBI Business optimism, Jul (p: 5) Thursday GDP, Q2 preliminary estimate (p: 0.3/0.3) Index of services, May (p: 0.2/0.8) Friday No major events 6 m-o-m/y-o-y a = Actual e = Estimate p = Prior

7 Next week s agenda, July 29 Aug 2 During the Week Nationwide House prices, Jul (p: 0.3/1.9) Halifax House prices, Jul Monday Hometrack Housing survey, Jul (p: 0.4/0.8) Net consumer credit, Jun (p: 0.7bn) Net lending secured on dwellings, Jun (p: 0.3bn) Mortgage approvals, Jun (p: 58.2k) M4 Money supply, Jun (-0.1/-0.1) CBI Reported sales, Jul (p: 1) Tuesday No major events Wednesday GfK Consumer confidence survey, Jul (p: -21) BRC Shop price index, Jul (p: /-0.2) Thursday PMI Manufacturing, Jul (p: 52.5) Bank of England Monetary Policy Committee meeting Friday PMI Construction, Jul (p: 51.0) 7 m-o-m/y-o-y a = Actual e = Estimate p = Prior

8 Next week s agenda, Aug 5-9 During the Week Halifax house prices, Jul (p: 0.6/3.7) Monday PMI Services, Jul (p: 56.9) Tuesday BRC Sales Like for like, Jul Industrial production, Jul Manufacturing production, Jul NIESR GDP estimate, Jul New car registrations, Jul (p: /13.4) Auction of 1¼% Treasury Gilt 2018 Wednesday Bank of England publishes Inflation Report Thursday Auction of 0¾% Index-linked Treasury Gilt Friday Visible trade balance, Jun Trade balance non-eu, Jun Total trade balance, Jun Construction output, Jun 8 m-o-m/y-o-y a = Actual e = Estimate p = Prior

9 Financial overview 9

10 Government bond yields 10

11 Financial forecast Policy rates last 3 m onths 6 m onths 12 m onths USA Eurozone United Kingdom Ten year governm ent bond yields USA Eurozone UK governm ent bond yields 2 year year year UK sw aps 2 year year year FX last 3 months 6 months 12 months EUR/USD EUR/GBP GBP/USD Sources: Handelsbanken Capital Markets and Macrobond 11

12 Chart of the Week old favourite 12

13 The economy what to look for during the summer The most interesting news will be the minutes published by the Bank of England after this week s policy rate decision. With the new Governor Mark Carney on board, will he vote as his predecessor Mervyn King did? The minutes will be published on July 17. First estimate of the Q2 GDP will be released on July 25. Economic barometers have turned slightly more positive in recent months and the overall sentiment seems to be recovering gradually but slowly. However, the most important trade destination for the UK, Germany, is still facing headwinds from the debt crisis within the eurozone. Will the positive sentiment continue during the summer? With PMIs for all three sectors (services, manufacturing and construction) above the 50- treshold, this indicates a GDP growth of 0.5 percent in Q2. Keep an eye on the PMI July reading, published on August 1, 2 and 5. All in all, overall economic sentiment looks more positive and economic forecasters are raising their GDP predictions for We keep our forecast of GDP growth of 0.8 percent in 2013 and 1.3 percent next year. 13

14 News and statements during the week At the Monetary Policy Committee meeting its meeting today at the Bank of England, the Committee noted that the incoming data over the past couple of months had been broadly consistent with the central outlook for output growth and inflation contained in the May Report. The significant upward movement in market interest rates would, however, weigh on that outlook; in the Committee s view, the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy. The latest remit letter to the MPC from the Chancellor had requested that the Committee provide an assessment, alongside its August Inflation Report, of the case for adopting some form of forward guidance, including the possible use of intermediate thresholds. This analysis would have an important bearing on the Committee s policy discussions in August. In the light of these considerations, the Committee voted to maintain the size of its programme of asset purchases financed by the issuance of central bank reserves at GBP 375 billion. The Committee also voted to maintain Bank Rate at 0.5 percent. ( Non-EU nationals coming to England for more than six months could be charged GBP 200 a year to access NHS treatment. The charge, added to visa costs for students, is among proposals unveiled in a government consultation. Changes may be made to how hospitals reclaim costs from EU patients and free access to GPs stopped for those staying less than six months. Some doctors say surgeries could be turned into border posts and there are concerns about public health risks. The government believes some people come to the UK to take advantage of the system and plans to carry out an audit to determine the extent of the problem. Health Secretary Jeremy Hunt is to unveil a consultation on its plans but has already suggested an additional GBP 200 charge on six-month visas, as well as charging tourists for GP access and moves to recover more healthcare costs from other countries. ( Bank of England Governor Mark Carney must focus on boosting lending to help maintain Britain s recovery, according to the British Chambers of Commerce. The BCC said in a survey in London today its measures of sales at manufacturers and service companies rose in the second quarter. Still, the report also showed declines in some investment gauges and weak cashflow. They are a warning that economic growth could be slow, and a reminder that a sustained upturn cannot be taken for granted, BCC Director General John Longworth said in a statement. For these reasons, business access to finance, and working capital in particular, must be assured. (Bloomberg) Former Governor at the Bank of Canada Mark Carney takes the Bank of England helm on Monday facing a struggle to make his policies count more than those of his U.S. counterpart for U.K. government debt. Gilts ended their worst quarterly performance since 2008 last week after a selloff fueled by Federal Reserve Chairman Ben S. Bernanke s outline for reducing U.S. asset purchases. The securities made a loss even as outgoing Bank of England Governor Mervyn King sought to persuade fellow Monetary Policy Committee members to add stimulus and amid speculation Carney will introduce new policy tools to boost growth. (Bloomberg) 14

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