Growth The Focus This Week For The UK And Europe

Risky assets will continue to grind higher this morning as further signs that the world can still count on central banks to keep stimulus going in the short term calm investor fears. Explicit declarations have been thin on the ground but the knowledge that rates are not set to rise in the US, Eurozone, UK or Japan anytime soon for years will only ever push equities higher.

Japan’s LDP party managed to secure further strong foundations for their “3rd Arrow” of the stimulatory “Abenomics” plan. Fiscal and monetary stimulus were the first two arrows; the third is structural reform and with the LDP winning the elections for Japan’s upper house with very little difficulty, the path becomes a lot easier. The win was massively priced in by markets and hence the slight softening of USDJPY on profit taking by JPY shorts overnight.

Eurozone issues will keep the single currency honest this week with the Portuguese political situation remaining very much in flux. The President seems to be happy with guarantees from the two main political parties that they will not break their coalition before the next scheduled election in 2 years time. We think that is optimistic, and given the increased likelihood that another bailout is requested by the Portuguese authorities, the political will to simply maintain the status quo will not be enough.

UK and European growth prospects will be in focus later in the week with publication of primary readings of UK GDP alongside preliminary PMIs from the manufacturing and services sectors. We are looking for GBPEUR to gain this week on the difference in growth dynamics between the 2 economies as a result and are with the consensus in looking for a 0.6% increase in UK output.

The US housing market has begun to worry people again after the rise in US debt yields that has flowed through to mortgage rates is seen as a potential smotherer of the ongoing recovery. Existing home sales are due today and follow a disastrous new home starts release last week and a fair few consecutive declines in mortgage applications.