UK triple-dip to be
avoided but MPC doves could get their wish
The long-awaited UK GDP figure for Q1 will be released
at 09:30 on Thursday morning and we are in line with consensus in predicting a meager
0.1% showing. Expansion in the UK services sector is likely to have bailed the
wider economy out once again. A 0.1% showing would clearly be enough to avoid a
triple-dip recession and should spare sterling a knee-jerk sell-off. A negative
figure cannot, however, be discounted and we can expect a major sterling slide
if this were revealed.
However, a 0.1% figure is unlikely to be enough to
trigger a sterling rally ahead of what could be a very interesting May MPC
meeting. Comments from one or two MPC members in the past fortnight have highlighted
the scope for a voting swing in favour of QE in May and the BoE does have a
habit of making important announcements in Inflation Report months (May being
such a month). We can’t discount the argument that the majority of MPC members will
prefer to wait for the incoming BoE Governor Mark Carney before committing to
more easing, but we do see a marginally greater chance that the doves will have
their wishes granted next month.
Eurozone
PMIs set to disappoint once again
On the eurozone front, the major news starts flowing
in early tomorrow morning. There is likely to be heightened sensitivity towards
tomorrow’s figures given the indications from the ECB this month that they are
open to an interest rate cut. On the whole, we expect tomorrow’s PMI updates
from France, Germany and the eurozone to point to a deepening recession, with
events in Cyprus likely to have weighed on business confidence.
As ever, the Asian sovereign reserve managers continue
to buy the euro on dips. We see this as a factor which will slow the euro’s
downtrend rather than sustaining the sort of rallies that characterized January’s
move above $1.35.
US GDP to rebound strongly
There has been plenty of coverage of the
soft patch that the US economy is currently enduring and there is no doubt that
bets that the Fed will wind down QE3 imminently are receding. Only today has US
housing data disappointed, whilst last week saw manufacturing data undershoot
expectations. However, the news from Q1 as a whole should be distinctly positive,
revealing an annualized pace of growth of around 3.0%, well above Q4 2012’s
0.4% pace of growth.
The big picture focus in the US remains
squarely on the labour market and we will have to wait until next Friday for
the next major announcement in that regard. With Chinese, eurozone and US growth
figures disappointing of late, global investor sentiment has turned rather
downbeat. European and US stock indices are posting losses, which has seen the dollar
bounce back a little. The except here of course is sentiment in the Asian
markets, which is still being propped up by the Bank of Japan’s recent
expansion of its QE operations.
End of week forecast
|
GBP /
EUR
|
1.1650
|
|
GBP /
USD
|
1.52
|
|
EUR /
USD
|
1.3050
|
|
GBP /
AUD
|
1.4925
|
|
|
|
Sterling has stabilized since last Friday’s AAA rating
downgrade from Fitch’s. However, we still think nerves over Thursday’s GDP
figure could kick in over the next couple of sessions. These nerves are most likely
to leave its mark on the GBP/USD pair, with the euro vulnerable to tomorrow’s
PMI figures. EUR/USD is keeping its head above $1.30 for the time being, but a
move below this big figure is “when” not “if” as far as we are concerned.
