07.06.13 Friday Evening

Non-farm employment data has improved by more than was expected, with the figure beating the forecast of 167 thousand by 8 thousand. Global indices took off on the back of this with the FTSE 100 trading 50 points higher form the low of the day.

It is already being suggested that this month’s figure is not the catalyst that’s leading indices higher. The downward revision of last month’s figure from 165k to 149k perhaps played a more significant role, as the fear of an imminent withdrawal of QE by the Fed has been stifled.

After heavy losses were seen across global indices at the end of last week, markets were desperately seeking good news to help steady equity prices. With encouraging U.S data last Friday, in the form of the Chicago PMI, fears of a withdrawal of Fed stimulus had been refuelled.

Indices were however thrown into further turmoil after the release of poor data from China. The HSBC PMI manufacturing index contracted more than expected, printing at 49.2 against a 50.4 forecast. Additionally, Australia’s manufacturing activity has been hurt by the weakness seen in China, contracting for the 22nd straight month.

Atlanta Head of Fed, Lockhart, eased immediate fears of a tapering of stimulus by reassuring investors that cuts won’t be as sudden or deep as some have been speculating. Along with a decline in U.S ISM manufacturing data, these comments helped U.S indices climb.

Sentiment in Japan started to show signs of improvement after PM Abe urged government pension funds to rotate cash out of bonds by investing in domestic equities. However, Following Japanese Abe’s comments outlining his economic growth strategy, Asian shares took a turn for the worse. Traders were left dismayed by what was seemed like a lack of ingenuity with no surprises included.

Whilst sterling pushed higher on the back of improving Construction PMI data, both Germany and France received unwelcome growth forecast downgrades by the IMF. Encouragingly, both the European Central Bank and the Bank of England left interest rates unchanged at record lows.

In Governor Mervyn King’s final Monetary Policy Committee meeting, the Bank of England voted against restarting its bond buying, and in a widely expected move, took the decision to leave interest rates at 0.5 percent.

Whilst King remains as one of three policy makers who argue that an extra 25 billion pounds of bond purchases are required to boost Britain’s sluggish economy, he look set to remain in the minority on the nine-member MPC. Most seem to feel that signs of recovery in the economy means there is no need for extra stimulus now.

The European Central Bank kept its main interest rate at 0.5 percent as policy makers wait to see if the recent strong data can materialise into an economic recovery. After the previous rate cut in May, Draghi promised that the ECB would remain ready to act again if necessary; however, the pressure to do so has been removed as data continues to improve.

Looking ahead, next Tuesday will be the first day of the German constitutional court ruling. Germany's top court may for the first time defer to European judges in the euro zone crisis when it weighs the legality of participation in bailout schemes.

Investors will also be looking towards next week’s G8 meetings, a forum for the governments of the world’s eight wealthiest nations. Amongst many subjects being talked about, currency wars, global QE, bond purchases and the state of Syria are sure to be focal points.

Stock of the Week:

Tesco have seen underlying sales slip back into decline in the first quarter, raising fresh fears over the retailers costly recovery plan for its home market. The firm, whose profit fell for the first time in two decades in the year that ended February 23, has spent 1 billion pounds on a fight back plan for Britain. (Where it makes about two thirds of revenue and profit) – Down around 6.5%

Next Week’s Notable Economic Data:

Monday –

• JPY – Current Account

Tuesday –

• JPY – Monetary Policy Statement
• EUR – German Constitutional Court Ruling
• GBP – Manufacturing Production

Wednesday –

• GBP – Claimant Count Change
• NZD – Official Cash Rate

Thursday –

• AUD – Employment Change
• USD – Unemployment Claims
• USD – Retail Sales

Friday –

• CAD – Manufacturing Sales
• USD – PPI m/m
• All – G8 Meeting

Next Week’s Notable UK Earnings:

Tuesday –

• Workspace Group preliminary 2012 earnings release
• IG Group FY 2013 Pre-Close update

Wednesday –

• ASOS Q3 trading statement

Thursday –

• WH Smith interim management statement
• WS Atkins preliminary 2012 earnings release