UK GDP set to be revised up
By Michael Hewson (Senior Market Analyst at CMC Markets UK)
Earlier this month there was widespread consternation at the first reading of UK Q2 GDP numbers when they came in at -0.7%, confounding expectations that had suggested that while there was an expectation that Q2 would be disappointing there was disbelief even accounting for the Jubilee bank holiday, that the economy had slumped as much as the figures suggested.
Since then subsequent data revisions seem to suggest that there will be an upward revision to the numbers with construction numbers being revised higher along with two to three months of retail sales numbers.
These revisions are expected to still show a contraction but of -0.5%, or even -0.4%. Anything less than that level of adjustment would be a disappointment.
Over in Europe, Germany, despite all the problems surrounding it did much better in Q2, showing 0.3% growth, however the manufacturing and services PMI data seen yesterday suggests that Q3 will likely show a contraction as the chill winds of Europe’s woes start make the German economy sputter.
The question of whether Greece will get its way and get an extension to its bailout terms appears no nearer a resolution with the German Chancellor, Angela Merkel and French President Hollande urging Greece to stand by its commitments, in a joint statement yesterday. The German finance minister continued to insist that “more time is not a solution to Greece’s problems” given that it would mean more money, something the Germans have steadfastly refused to countenance.
Mrs Merkel, who is due to meet Greek PM Samaras today, has already said that no decision will be made with respect to any extension until the troika report has been delivered in September.
The question of whether Spain will need a sovereign bailout to go with its banking bailout continues to draw speculation from various quarters. Today’s Spanish cabinet meeting is expected to announce measures to allow FROB, the Spanish bank rescue fund to take over struggling banks and shut them down if they fail to come up with survival plans.
With Spanish banks sitting on over ?160bn of underperforming loans, the worry is that the ?100bn banking bailout will be nowhere near enough in a country where unemployment is rising and the economy is shrinking.
There has been some speculation that a request could be made for a bailout today, however that seems unlikely given that as yet any conditionality would need to be clarified, and the ESM still has to be ratified, though we may see some early outlines of the ECB’s thinking at the next scheduled meeting on 6th September.
EURUSD – the single currency continues to hold up near its highest levels for seven weeks, breaking above the trend line resistance at 1.2560 and closing within touching distance of the 100 day MA at 1.2615. A break of 1.2615 targets the June highs at 1.2750.
Given the gains seen so far this week we could well see a pullback towards the 1.2410/20 area, but if we slip below here expect to see a move back towards primary trend line support at 1.2310, from the 1.2045 lows.
The bullish weekly candle from a few weeks ago looks like it could well be playing out quite nicely with the key level on a monthly close remaining at the 200 month MA at 1.2060, the July lows.
GBPUSD – yesterday’s up move failed to break above 1.5910, the 61.8% of the 1.6305/1.5270 down move, and as such we could well see a drift back to the 1.5780 level which had acted as resistance since June and was also the 50% retracement of the same move. A break above 1.5910 brings the 1.6000 level back into play.
This week’s low at 1.5675 is also likely to act as support.
The long term trend line support lies at 1.5525 from the 1.5240 lows.
EURGBP – the single currency feels like it could be building up to test the 55 day MA at 0.7933, after pushing above the trend line resistance at 0.7920 from the February highs at 0.8505. A move above 0.7940 is likely to test the 0.8000 level.
Having overcome the 0.7880 area earlier this week pullbacks so far have found support at this level. Only a break back below retargets the 0.7820 area.
This area remains the key barrier to a test of the downside and previous lows at 0.7755.
USDJPY – the dollar continues to come under pressure as speculation about possible easing measures weighs on US bond yields, and keeps the pair below resistance at 78.80.
In the longer term the 200 day MA at 79.20 needs to be overcome to target a return towards the highs this week at 79.70. The move below 78.80 now brings with it the prospect of a move back to the range and August lows at 77.80. The key weekly cloud support remains at 77.30.
Equity market calls
FTSE100 is expected to open 10 points lower at 5,767
DAX is expected to open 10 points lower at 6,940
CAC40 is expected to open 11 points lower at 3,422
FTSEMib is expected to open unchanged at 14,954