Weekly Briefing

After a rather turbulent week markets ended on a positive note. US markets benefited from a better than expected inflation outlook, following Fridays CPI numbers. The majority of inflation increases were due directly and indirectly to energy costs, so markets were thankful for the fact that oil didnt finish the week on a new record high.
The Energy heavy FTSE trudged behind its European peers and US markets, as oil stocks took a back seat, and domestic inflation fears dampened the buyers enthusiasm. Rumours hit the newswires that UK inflation will be double the expected rate. This news will make it easy for the BOE to make the decision to raise interest rates at the next central bank meeting. This is yet another piece of negative news for the FTSE, which has spent most of the year in the red. The CPI number released next week could add further negative pressure on the UK benchmark index.
Underwriters of the HBOS rights issue breathed a huge sigh of relief as the bank rose above the discount level, which would have caused them to step in and take up the issue at a bad price. The UK banking stocks finished down on the week, but managed to close significantly above the lows as bargain hunters entered the market. At one stage Barclays dipped below £3.00 a share for the first time in a decade before closing the week at £3.23.
Oil dropped slightly at the end of the week as comments from Saudi Arabia reassured investors that supply would be increased. However, this pullback has to be put into the perspective of the rapid price advance over the last few weeks. Just a few weeks ago $133 a barrel would have set headlines blazing; now it is a welcome pullback, with oil still well within the $130 to $139 trading range of the last few days.
On the currency markets, the Euro finished the week well down against the Pound and the Dollar. Sellers were out in force after Irish voters rejected the EU reform treaty by a narrow margin. The Lisbon treaty has to be ratified by every country before coming into effect. Every other country elected to allow their national governments to ratify the treaty, but Irelands democratic vote has thrown the treaty and potentially further EU integration into disarray. With increasing divisions within the Eurozone over rates policy, the single currencies detractors were out in force.
Next week starts off with some heavy data on both sides of the Atlantic, but ends on a quiet note with little data released on Friday. Monday sees the release of Core EU CPI, which could impact on the Euros recent declines. Around midday the US release of TIC net long term transactions will also impact on global currency markets. Tuesday sees the release of a raft of upper and middle tier US data. Top of the list is the Housing Starts and PPI data. On Wednesday we have the release of the minutes from the last MPC meeting. Considering recent developments, these minutes may be slightly obsolete, but will still be scoured for hints of future policy directions. Thursday brings UK retail sales and US unemployment claims.
Although markets ended the week on a positive note, European indices still ended well down. US inflation is still sky high. Everything from hospital services to education is costing more. To make matters worse, recent US home foreclosure data has indicated that one in every 483 US households experienced a foreclosure filing during the Month of May. In some parts of California, this figure stands at an incredible 1 in 66 houses. ECB president Trichet recently commented that much depends on the trajectory of the US housing market. If he is correct then the feared global depression may be more real than people are prepared to believe.
The FTSEs high from last year was 6754; roughly 200 points shy of its peak in 1999. It could be argued that it will be a long time before these levels are seen again. A No Touch bet on the FTSE not to touch 6800 at any time during the next 6 months (180 days) could return 18%.

Morning Update

The FTSE is currently indicating a flat open, mostly because there are no economic news out today in UK. Most traders will be waiting for the US advanced retail sales before deciding the tone for the trading day. A lot has been said over the last few days about the state of the US consumer, and this will be the first inside look into just how the consumer is doing. There is talk that the number will be weaker then expected, which should hurt the US dollar, especially versus the British Pound. Look for the GBP/USD to touch 1.9750 after the number comes out at 12.30pm GMT.


Gold made a small comeback yesterday after weakness in the US dollar. Lately most commodities have abandoned fundamentals and have been trading based on how the US dollar been doing that day. Oil crept back to above 135 dollars per barrel after US inventories fell another week. This started some concerns that the US stockpiles may be strained during the summer driving season

BetOnMarkets Weekly Briefing

Contents This Week:
Economic calendar for week 9th - 13th June 2008.
Commentary: The week ahead.
Economic Calendar for week 9th - 13th June 2008

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

Monday June 9th:

GE - 06:00 - Trade Balance.
EU - 08:30 - Sentix Investor Confidence.
UK - 08:30 - PPI Input M/M.
UK - 08:30 - PPI Output M/M.
US - 14:00 - Pending Home Sales M/M.
UK - 23:01 - RICS House Price Balance.
UK - 23:01 - BRC Retail Sales Monitor Y/Y.

Tuesday June 10th:

FR - 06:45 - Industrial Production M/M.
UK - 08:30 - Industrial Production M/M.
UK - 08:30 - Manufacturing Production M/M.
US - 08:30 - DCLG House Price Index Y/Y.
US - 12:30 - Trade Balance.
UK - 14:00 - IBD/TIPP Economic Optimism.
UK - 23:01 - NIESR GDP Estimate.

Wednesday June 11th:

FR - 06:45 - CPI M/M.
UK - 08:30 - Claimant Count Change.
UK - 08:30 - Average Earnings Index +Bonus Q/Y.
UK - 08:30 - Trade Balance.
UK - 08:30 - Unemployment Rate.
US - 14:30 - Crude Oil Inventories.
US - 18:00 - Beige Book.

Thursday June 12th:

FR - 06:45 - Final Employment Change Q/Q.
EU - 09:00 - ECB Bulletin.
EU - 09:00 - Industrial Production M/M.
US - 12:30 - Core Retail Sales M/M.
US - 12:30 - Retail Sales M/M.
US - 12:30 - Import Price Index M/M.
US - 12:30 - Unemployment Claims.
US - 14:00 - Business Inventories M/M.
US - 14:30 - Natural Gas Storage.

Friday June 13th:

GE - 06:00 - CPI M/M.
EU - 09:00 - Labor Cost Index Y/Y.
EU - 10:00 - Employment Change Q/Q.
US - 12:30 - Core CPI M/M.
US - 12:30 - CPI M/M.
US - 13:55 - Prelim Michigan Sentiment.

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

The week ahead.

Three percent may seem an inauspicious number, but it certainly caused some headaches last week. Firstly, UK inflation is running at 3%, over the Bank Of England target of 2% and obliging the Governor of the Bank of England to write a letter of explanation to the Government.
Secondly, on Friday, US markets in unison fell by over 3% as panic once more swept through financial markets. The week ended how it had began with some faltering rallies in between. The main catalyst for the capitulation was the U.S. payrolls decline. The jobless rate of 5.5% was the biggest increase since 1986 and the fifth consecutive month that the US had lost jobs. The no recession consensus that had been building is now under considerable pressure on both sides of the Atlantic.
The final nail in the coffin was the price of oil awaking from its temporary slumber. Crude prices surged over $15 Dollars in the final two days of the week, adding $11.31 on Friday alone to close at a new record high of $139.12. Fears of war in the Middle East and a US recession created the perfect Storm.
Even before equity markets opened for the week June had already started badly for domestic markets. In early trading, the Pound fell sharply against the Dollar on weak manufacturing data. Then equity markets opened to an all out blood bath on shares in Bradford and Bingley. News had already leaked over the weekend that the Bank was in trouble, and so it proved with shares pushed down to 60 pence at one stage. The bank has now fallen an incredible 87% since its peak in 2006. Barclays Bank has fallen less in percentage terms since its peak, but the size of the bank has made its collapse all the more damaging. Last week Barclays closed the week at its lowest level since March 2003 on capital adequacy concerns.

Recently there were signs of a slowing but not capitulating UK economy, now things are looking graver. As house prices inch lower, consumers feel poorer than six months ago. This in itself is not too dramatic, but combined with oil prices not far off record highs and food inflation on the up, consumers not only feel poorer, they actually are.
There was no surprise from the MPC with its rates decision last week, but the ECB ruffled some feathers by indicating that they may have to raise rates as soon as July. The DAX and CAC have lagged behind other markets, as the prospect of higher rates proves unpopular with equity investors. Bernanke dropped some large hints that the Feds bias was moving towards tightening rates after an easing cycle, but the recent payrolls data shows that the Fed like many other central banks, is stuck between a recessionary rock and a inflationary hard place.
Next week has the potential to pour more misery on an already depressed market. The week starts with UK PPI data, and the latest House price balance from RICS. Tuesday sees the release of UK industrial production figures and the US trade balance. The weeks hottest ticket is potentially the US retail sales data on Thursday. If the US consumer starts to seriously tighten their wallet, there could be wide reaching international consequences.
Bespoke Investments have some interesting data on the performance of the Dow Jones following capitulations such as Friday. The average change following a 3% drop has been 0.11% the following day and 0.28% the following week. Over the last decade, the average performance the next day has been 0.63%. In addition when the market rises 1.5% one day then drops 1.5% the next day (as the Dow did on Thursday and Friday), then the following day is up on average 0.14% and 0.56% over the following week. There are certainly wide variations in the making of this average and one must be mindful of Nassim Talebs advice to never cross a river because it is on average 4 feet deep. However, there is at least the potential for upside that may not be currently priced in. The Dow Jones closed on Friday at 12209.81. A 0.5% rise over a week would bring it to 12271.05. Setting a bull bet predicting that The Dow Jones (Wall Street) will be higher than 12271 in 10 days time could return 126%.

BetOnMarkets Weekly Briefing

Contents This Week:
Economic calendar for week 2nd - 6th June 2008.
Commentary: The week ahead.
Economic Calendar for week 2nd - 6th June 2008

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

Monday June 2nd:

UK - Tentative - Halifax House Price Index M/M.
EU - 08:00 - Manufacturing PMI.
UK - 08:30 - Manufacturing PMI.
UK - 08:30 - Mortgage Approvals.
UK - 08:30 - Net Lending to Individuals M/M.
US - 14:00 - ISM Manufacturing Index & ISM Manufacturing Prices.
US - 14:00 - Construction Spending M/M.

Tuesday June 3rd:

UK - 08:30 - Construction PMI.
EU - 09:00 - PPI M/M.
EU - 09:00 - Revised GDP Q/Q.
US - 14:00 - Trade Balance.
US - 15:00 - Factory Orders M/M.
UK - 23:01 - Consumer Confidence Index.

Wednesday June 4th:

EU - 08:00 - Services PMI.
EU - 09:00 - Retail Sales M/M.
UK - 09:30 - BRC Shop Price Index Y/Y.
US - 11:30 - Challenger Job Cuts Y/Y.
US - 12:15 - ADP Nonfarm Employment Change.
US - 12:30 - Nonfarm Productivity Q/Q.
US - 12:30 - Unit Labor Costs Q/Q.
US - 14:00 - ISM Non-Manufacturing Composite.
US - 14:30 - Crude Oil Inventories.

Thursday June 5th:

UK - Tentative - MPC Rate Statement.
UK - 11:00 - Official Bank Rate.
EU - 11:45 - Minimum Bid Rate.
EU - 12:30 - ECB Press Conference.
US - 12:30 - Unemployment Claims.
US - 14:30 - Natural Gas Storage.

Friday June 6th:

FR - 06:45 - French Government Budget Balance.
FR - 06:45 - French Trade Balance.
GE - 10:00 - German Industrial Production M/M.
US - 12:30 - Nonfarm Employment Change.
US - 12:30 - Unemployment Rate.
US - 12:30 - Average Hourly Earnings M/M.
US - 14:00 - Wholesale Inventories M/M.
US - 19:00 - Consumer Credit M/M.

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

The week ahead.

US stocks have received a slight boost as oil prices retreat and new home sales unexpectedly rose on a month on month basis. However, we shouldn't really read too much into this, as there is a margin for error in these figures and new home sales in the US are still down 42% year on year. In addition, the Case-Schiller benchmark house price index is now showing a record decline of 14%. During the early 90s housing recession, this figure reached just -2.8%, which is a real indicator of the absolute capitulation in the US housing market. Predictions of double digit losses for the UK housing market may not be far off the mark, especially in light of recent house price data showing record month on month falls.

There isnt the immediate connection between UK house prices and the FTSE as there is with oil and equities at the moment. Before the credit crunch broke, US house prices were on the retreat, yet stock markets continued to rally. Oil currently has a more immediate relationship with equity performance because of its daily volatility and that fact that many traders have already moved to price in a UK housing slump. The banking sector itself however, does have more significant correlation between house prices and share prices. Banks were amongst the worst performing sectors last week as fears of repossessions and negative equity caused many to question the values of their loan books. RBS also dragged the sector down with rumours that its rights issue would fail.
The FTSE finished the week below its European peers and well below US markets, who actually managed a decent gain on the week. In the US, the Nasdaq led the charge with Google up on encouraging pay per click data. Ironically, it may have been lower oil prices that hit the FTSE hardest last week. Oil finished down, around $8 from the peak of $135, sending oil majors such as BP and Shell lower over the reduced trading week. Financial stocks contribute around 25% of the FTSEs total weighting and Oil & Gas stocks arent far behind at just under 20%.

While there is still scope for oil to at least contain its price inflation, there is a long way to go before the impact of high oil prices is nullified. Todays pull back was welcomed in the short term by traders, but the realisation is setting in that sky-rocketing oil prices have left a trail of inflationary destruction in their wake that wont disappear over night, even if prices dip back below $100.

The stand out announcements next week revolve around interest rates. On Thursday, the BoEs Monitory Policy committee will announce the latest headline interest rate decision. A rate cut seems to be off the cards given recent comments from Governor King. The most likely decision will be to keep rates at 5%, there is always a small potential for upside. In Europe, the ECB has been taking a stronger line on inflation for longer with the German central bank calling for rate hikes. Elsewhere we have important employment data from the US on Friday on top of top tier manufacturing data earlier in the week. The Halifax house price index is tentative for some time on Tuesday, an announcement that could cement the UK housing decline.
The GB Pound/ US Dollar exchange rate, known as cable was virtually unchanged over the week, but given the raft of announcements due on both sides of the pond, there could be some significant movement next week. An Up or Down trade wins if either of two barrier levels are hit within the specified time. An Up or Down trade on GBP/ USD to touch either 1.9454 or 1.992 within the next 10 days could return 11%.

Morning Update

The week of economic surprises is upon us, and first up is the US ISM manufacturing numbers, set to be released at 14.00 GMT. Economists are expecting another contracting month, however there seems to be indication that the number will be below expectations. From high oil prices, and even lower economic outlook among business owners the risk for the lower then expected number is strong.

The FTSE is currently indicating a lower open, however since its Monday morning, we are not considering them as very accurate. Commodities were on the weak side last week mainly on the strength of the US dollar; however the party might be ending especially will all the economic news on the calendar.