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ECONOMIC DATA ANALYSIS - UK UNEMPLOYMENT RATE TO POST A FURTHER DECLINE
ANALYSIS FRIDAY 6 JUNE 2014
UK UNEMPLOYMENT RATE TO POST A FURTHER DECLINE
- Markets digest ECB
- UK unemployment rate set to drop
to 6.7% in April
- US May retail sales to support
expectations of Q2 GDP rebound
Post-ECB calm... Over the coming week, markets will continue to pick apart the
detail of the policy measures announced by the ECB. Judging by the reaction to
date, markets appear underwhelmed, with EUR/USD currently trading above where
it was prior to the ECB meeting. The ECB’s monthly economic report (Thurs) will
provide some further colour around the staff’s central economic projections.
With little data in the euro area, industrial production provides the main
focus in the coming week. We expect a 0.4% rise in April.
unemployment continues to drop... The contrasting policy
pressures facing the UK and euro area remain stark. In comparison with the euro
area, the domestic policy debate remains tilted towards the prospects for
tighter monetary policy. The flow of data over the coming week will do little
to change market expectations that the Bank of England will be the first of the
major central banks to raise interest rates.
The main focus in the coming week will be on the labour market data. First up
(Mon) is our own Employment Confidence survey. This will be watched closely,
alongside the official figures (Wed), for signs of labour market strength in
Q2. The official data is expected to show a further strong improvement, with
the unemployment rate forecast to drop from 6.8% to 6.7% in April. Over the
remainder of the week, releases of April industrial production (Tues) and
construction output (Fri) will provide the first official insight into economic
conditions in Q2. Both are expected to point to a firm start to the quarter.
House watched for policy clues... A relatively busy UK data week is
supplemented with the annual Mansion House event. Against a background of
firmer activity, comments from the Chancellor and BoE Governor are likely to be
more upbeat than in previous years. However, it is doubtful that the message
from Governor Carney will be materially different from those previously
delivered at the May Inflation Report press conference. Still, markets will be
scrutinising his comments for any hint of possible action from the Financial
Policy Committee, which meets on the 17th June.
economy on course for Q2 rebound... Data over the past week has
largely been consistent with the view that economic growth is picking up in the
second quarter after stagnating during the winter months. Although there is a
limited amount of data, the coming week will be watched for further signs of
this. It is also a light one for Fed speakers, as the FOMC goes into ‘purdah’
after Monday, before the policy meeting on 17/18th June.
The most significant data will be May retail sales (Thurs). We expect these to
post a strong above consensus rise of 0.9%m/m (consensus: 0.5%m/m) - driven
mainly by dealer reports of strong car sales. Excluding autos, sales are
expected to rise 0.5% (consensus 0.4%). Having risen sharply over the past two
months, May producer prices (Fri) will also be of interest. These figures were
extensively revised earlier this year and now cover a much wider cross-section
of the economy. While over time, they should become a more meaningful gauge for
inflation, to date, the outcomes have been volatile. We expect a rise of 0.2%.
Business inventories (Thurs), NFIB small business optimism (Tues) and Consumer
sentiment (Fri) are also of note.
Official data from China should indicate that economic activity stabilised in
May. External trade data (Sun) is expected to show the trade balance rose to
$21.6bn in May from $18.5bn in April. In general, other May monthly indicators,
including industrial production, are forecast to improve. The exception,
however, is likely to be fixed asset investment, which is expected to record an
eighth consecutive annual decline (on a year to date basis). May CPI is
forecast to accelerate from 1.8% to 2.3%, but this is still well below the
government's target of 3.5%.
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