Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Jun 29 09 07:13 GMT |

Overview & economic commentary It is an important week for data and events, headed by the ECB interest rate decision, the US labour market report and the Tankan Q2 survey. Although the ECB is unlikely to announce any changes to policy on Thursday, the press conference will provide an important forum for analysing both its efforts so far and potential developments. The ECB's tender of €442bn last week has further boosted banking sector liquidity, leading key lending rates to edge lower and also improving the capacity for euro zone banks to lend. At least for now, this should help counter arguments for the key official interest rate to be cut below 1% and for the ECB to consent to US/UK style quantitative easing. We expect the Riksbank to hold interest rates steady at 0.5% early on Thursday. With the US Independence day holiday this Friday, the always eagerly anticipated US labour market report is published on Thursday. We look for a fall in non-farm payrolls in the region of 400,000 in June, from 345,000 in May and the first worsening since January. The unemployment rate is forecast to rise 0.2% to 9.6% - the highest since June 1983, casting further doubt over the timing and strength of the eventual economic recovery. However, we expect modest rises in consumer confidence and the ISM manufacturing index this week to raise hopes that the US could still emerge from recession in the second half of 2009. In the UK, final Q1 GDP data are forecast to show a sharper decline than estimated last month, reflecting a much worse than predicted fall in construction activity. However, a further rise in the manufacturing PMI and the services PMI holding above the key 50 level in June will suggest a significantly smaller drop in Q2. News of the first annual decline in EU-16 CPI is likely on Tuesday Currency commentary Currency markets were caught in narrow trading ranges in Asia overnight, taking stock of comments by China's central bank yesterday that it is not considering a change in forex reserves. In the absence of other major global data releases UK M4 and mortgage lending data at 9.30 could help set the early tone for sterling crosses. Weekly IMM speculative data shows a first rise in gbp shorts since the week of May 22. This could cap upside in gbp or the best case scenario could force participants to cover gbp shorts in the event of further gbp gains adding fuel to the rally. Declines in Asian equity markets put some downward pressure on commodity and EM currencies overnight. A failure of the Nikkei to hold on to early gains above 9,900 may not portend well for broader sentiment and may explain the drift lower in S&P futures (-5.60) and the bid in bonds. Gilt s underperformed treasuries at the end of last week but we look for yields to revert and 2y yields to test 1.15% unless the data at 9.30 surprises to the upside. EU confidence data is also due. Major data and events today Today UK M4 money supply, mortgage lending, mortgage approvals EU-16 consumer and industrial confidence Japan industrial output, retail sales Tuesday UK GfK consumer confidence, Q1 GDP (final), current account, business investment US house prices, Chicago PMI, consumer confidence French producer prices German retail sales, unemployment EU-16 money supply, flash CPI Japan labour market stats Canada RMPI, IPPI, monthly GDP ECB speaker: Nowotny (10:00) BoE speaker: Tucker (10:30) US speakers: Bullard (17:00), Hoenig (21:00) Wednesday UK manufacturing PMI US ADP employment, ISM manufacturing EU-16 manufacturing PMI Japan Tankan manufacturing and services Australia retail sales US speakers: Yellen (02:00), Evans (16:15) Germany to sell €6bn of 10yr bunds (10:15) UK DMO to auction £5.25bn of gilts due 2014 (10:30) Thursday US labour market report, initial claims, factory orders EU-16 unemployment rate, producer prices ECB interest rate decision, rates expected to stay on hold at 1.0% (12:45), press conference (13:30) Japan monetary base Australia trade balance Swedish central bank interest rate decision (rates expected to stay on hold at 0.5% (08:30) BoE Credit Conditions Survey (09:30) UK DMO to auction £2.5bn of 4.25% gilts (10:30) BoE speaker: Besley (09:30) Friday UK services PMI EU-16 services PMI, retail sales Chart: Will mortgage lending and approvals data this morning provide further signs of stabilisation in the UK housing market Lloyds TSB Bank http://www.lloydstsbfinancialmarkets.com Disclaimer: Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. 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