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Monday, June 30, 2008

BetOnMarkets Weekly Briefing

Contents This Week:
Economic calendar for week 30th June - 4th July 2008.
Commentary: The week ahead.
Economic Calendar for week 30th June - 4th July 2008

PLEASE NOTE - All times GMT not BST. BST is +1 Hr.

Monday June 30th:

UK - 08:30 - Index of Services Q/Q.
UK - 08:30 - Mortgage Approvals.
UK - 08:30 - Net Lending to Individuals M/M.
EU - 09:00 - CPI Flash Estimate Y/Y.
US - 23:30 - Chicago PMI.

Tuesday July 1st:

GE - 06:00 - Retail Sales M/M.
UK - 06:00 - Nationwide House Prices M/M.
GE - 07:55 - Unemployment Change..
EU - 08:00 - Manufacturing PMI.
UK - 08:30 - Manufacturing PMI.
EU - 09:00 - Unemployment Rate.
US - 14:00 - ISM Manufacturing Index.
US - 14:00 - ISM Manufacturing Prices.
US - 14:00 - Construction Spending M/M.

Wednesday July 2nd:

EU - 07:15 - ECB President Trichet Speaks.
UK - 08:30 - Construction PMI.
UK - 08:30 - Housing Equity Withdrawal Q/Q.
EU - 09:00 - PPI M/M.
US - 11:30 - Challenger Job Cuts Y/Y.
US - 12:15 - ADP Nonfarm Employment Change.
US - 14:00 - Factory Orders M/M.~
US - 14:30 - Crude Oil Inventories.
US - 14:30 - Treasury Sec Paulson Speaks.
US - 16:00 - FOMC Member Mishkin Speaks.

Thursday July 3rd:

US - Tentative - Halifax HPI M/M.
EU - 08:00 - Services PMI.
UK - 08:30 - Services PMI.
UK - 08:30 - Credit Conditions Survey.
EU - 09:00 - Retail Sales M/M.
EU - 11:45 - Minimum Bid Rate.
EU - 12:30 - ECB Press Conference.
US - 12:30 - Nonfarm Employment Change.
US - 12:30 - Unemployment rate.
US - 12:30 - Average Hourly Earnings M/M.
US - 12:30 - Unemployment Claims.
US - 14:00 - ISM Non-Manufacturing Composite.
US - 14:00 - Natural Gas Storage.

Friday July 4tf:

US - All Day - Independence Day US Holiday.
FR - 06:45 - Government Budget Balance.
GE - 10:00 - German Factory Orders M/M.

EU - Europe wide
FR - France
UK - United Kingdom
US - United States
GE - Germany

The week ahead.

Financial markets were a sea of red numbers last week as the classic Fade the Fed trade played out. The initial reaction to Wednesdays US interest rate decision was neutral to positive, then the selling set in and hardly stopped. Thursdays mini rally did a very poor job of papering over the cracks in the global economy. On Friday those cracks were wide open for all to see with housing and financial stocks hit the hardest. Barclays in particular was back to square one, erasing all gains from the start of the week, as investors took a second look at their fund raising plans in light of Goldmans predictions of further write downs for major western banks. Citi Group was also floored on similar sentiment, falling to its lowest level since 1998.

The Dow Jones Industrial average ended the week down 4.2% and nearly 8% down over the last fortnight. The FTSE faired little better, falling 2.88% on the week and 6.26% over the fortnight. The twin evils of Gold and Oil were again the sectors in demand, as investors looked to profit from further economic turmoil, and hedge their bets against inflation. Oil refused to budge below $130 and set a new all time high of $143. $150 a barrel, scoffed at by some just a few months ago, is looking increasingly more likely and is surely now only a matter of time.

Some positive cheer came with US consumer spending rising as Bushs stimulus cheques hit. While this lift at least created a pause from the continuous stream of bad news, market participants were wary of reading too much into what may be a short term patch for the US economy.

Despite a shortened trading week with Independence Day on Friday the 4th of July, it is a very busy week ahead. Currency markets will be eyeing Thursdays ECB interest rate decision and accompanying statement. The European Central Bank is expected to raise rates by a quarter of a percent to 4.25%. With this starting to be priced in already, market participants will be more interested in the prospects of a string of inflation fighting rate rises from the ECB.
Thursday also sees the all important US Non Farm Payroll data brought forward a day because of the holiday on Friday. This more than anything could have the greatest impact on currency and equity markets for the new month of July. The UK certainly doesnt escape without any top tier data with two lots of house price announcements. Nationwide release their data on Tuesday and The Halifax House Price index is tentatively planned for Thursday. The news is expected to be dire from both these announcements with Stephen Nickell, the head of the Prime Ministers housing planning unit predicting that the UK housing market wont boom again until 2015. To make matters worse, recent data shows that British households are more indebted than any other country in recorded history. 173% of household incomes are owed in debts. This is higher even than Japans peak in 1990 that preceded decades of deflation. Barclays added to the gloom by warning their clients to prepare for the financial storm ahead.
While Thursday was an impressive sell off, doubts remain whether the puking point has been reached just yet. Bottom feeders will start to become interested, but the VIX options volatility index is still some way off the January and March spikes. In addition we are not seeing the same flight to safe havens such as short term fixed income, that we saw in the first quarter.
With Gold bottoming around $860 and renewed concern over inflation, it is perhaps time for the precious metal to follow its evil twin, oil higher after a few months in the doldrums. A One Touch trade for Gold to hit $1000 again within the next two months could return 70%.