This week brings the first glimpse of US and UK Q1 GDP – 23.04.2013

Global equities endured a turbulent week with many key stock markets closing lower. Gold hogged the headlines, falling 9% on Monday, the biggest one-day drop in 30 years. There are concerns that Cyprus may sell down gold reserves to finance its bailout and other indebted nations may follow suit; suggestions that the US may be closer to reaching a decision to wind down its quantitative easing programme helped exacerbate the fall. China was also in focus; its economy grew 7.7% year-on-year (y-o-y) in the first quarter of 2013, less than forecast, suggesting the Chinese recovery is losing momentum. Demand for the perceived safe havens of ‘core’ government bonds caused the yield on 10-year US, UK and Japanese government bonds to end the week lower (prices rose).

US economic data was mixed; new US home construction climbed an annualised 7% in March, the highest rise in almost five years. Meanwhile, driven by weaker petrol and energy prices the consumer price index edged down 0.2% in March, following a 0.7% rise in February. However, March retail sales shrank by 0.4% and industrial production rose at a slower rate of 0.4%. The Conference Board Index of leading economic indicators fell by 0.1% in March (February +0.5%) indicating US growth remains slow.

In Europe, the ZEW investor confidence index for Germany fell from a three-year high in March to 36.3 in April, while Ireland and Portugal were given a seven-year extension to repay their bailout loans. A raft of dismal UK data renewed concerns for the strength of the economy. These included March retail sales, which fell 0.7% compared to February, while unemployment rose to 2.56 million, raising the unemployment rate to 7.9%. Adding to woes was the downgrade by Fitch, which trimmed the UK’s credit rating from AAA to AA+.

Elsewhere, the yen depreciated further against other major currencies after the G20 group of developed nations appeared to accept that Japan’s bold monetary policies were put in place to fight deflation (falling prices), rather than to promote yen weakness.

First glimpse of US and UK Q1 GDP

The much awaited first estimate of first quarter GDP (gross domestic product) growth for the UK (Thursday) and the US (Friday) will be released. Analysts are forecasting growth of 0.1% quarter-on-quarter (q-o-q) for the UK (Q4 -0.3%). On the flip side, for the US expectations are for a solid expansion of 3.0% (q-o-q) annualised (previous quarter 0.4%), reflecting a solid start to the year as stronger housing data and inventories are likely to have offset weak retail sales in March. However, durable goods and home sales are likely to have weakened in March.

Key indicators of the health of the eurozone are due to be reported this week; euro area consumer confidence (Monday) may have edged lower in April. Tuesday sees the release of the March reading for France, Germany and euro area PMI (purchasing managers’ indices) for the manufacturing and services sectors. The eurozone composite PMI is expected to be barely changed from March’s 46.5 reading (under 50 indicates contraction). Mid-week, the Ifo business climate survey will probably show a slower upturn in Germany’s economy, following the lead of last week’s weaker ZEW investor confidence survey. 

Elsewhere, in Japan core inflation is anticipated to fall by 0.5% (y-o-y) in March (Friday), continuing the deflationary trend; the Bank of Japan’s rate decision will also be closely monitored. Finally, China’s April HSBC Flash Manufacturing PMI (Tuesday) is not expected to deviate much from March’s 51.6 reading.