The FTSE 100 struggled for momentum on Friday morning after poor UK manufacturing data and was down 16.82 points at 5839.52 on the stroke of midday (London time).
Manufacturing output in the UK fell 1.5% in April from March but was up 1.3% year-on-year according to figures released by the Office for National Statistics earlier today. The extended holiday period and the Japanese tsunami were cited as key influences.
Also influencing sentiment in London this morning was the weakening in China’s trade surplus. Chinese exports slowed to 19.4% in May from the 30% surge seen a month earlier. Imports rose 28.4% making the trade surplus $13.1 billion compared with an expected $18.6 billion.
Earlier in the week…
Trading was subdued on Monday as investors mulled the likelihood and the implications of a significant slowdown in the US economy and further eurozone debt problems arising. After the disappointing non-farms on Friday the Dow Jones dropped 61.15 points to close Monday at 12,090.11 and would make more losses on Tuesday (-19.15 points to 12,070.81), Wednesday (-21.87 to 12,048.94). The trend of six straight days of losses was bucked Thursday when it added 75.42 points to close at 12,124.36.
It will be interesting to note what affect the end of the US government’s quantitative easing programme later this month will have on the economy and on the markets of course.
The FTSE 100 closed Monday up 8.15 points at 5863.16 after finishing Friday’s session up by 0.1%. Commodity-based stocks led the gains with the recently floated Glencore up by 2% first among them. The UK’s leading index would make an even smaller gain on Tuesday (+1.49 points to 5864.65); eventually bowing to the inevitable by losing 55.76 points to finish Wednesday at 5808.89 only to rebound Thursday by adding 47.45 points to close at 5856.34.
US: Bernanke defends US economic recovery; Beige Book confirms slowing; jobless claims rise as trade gap falls
The economic recovery in the US is ‘proceeding at a moderate pace’ according to a speech made by Fed Chairman Ben Bernanke on Tuesday evening.
On Wednesday the Fed’s acecdotal Beige Book revealed more details about the widespread disruption to US supply chains after the devastating tsunami in Japan. This served as part explanation for the disappointing recent economic data.
The initial jobless claims came in worse than expected, ticking up from 426,000 to 427,000. Meanwhile the US trade gap narrowed to $43.7 billion from $46.8 billion in Arpil after a reduction in Japanese imports. The figures confirmed the disruption to supply chains caused by the tragic events in Japan.
UK: IMF supports economic policy; food inflation rises; no surprise for interest rates
On Monday the International Monetary Fund (IMF) gave the coalition in the UK’s economic policy of rapid deficit reduction its blessing. ‘The weakness in economic growth and rise in inflation over the last couple of months was unexpected,’ said the acting MD of the IMF John Lipsky.
This followed a letter from 52 left-leaning academics to the Observer on Sunday calling for an end to to the spending cuts. And it preceded the Archbishop of Canterbury Dr Rowan Williams’ criticism of the reforms on Thursday which moved Prime Minister David Cameron to retaliate by commenting that he ‘profoundly disagrees’ with the head of the Church of England.
According to the British Retail Consortium (BRC) shop price inflation slowed to 2.3% in May from 2.5% in April. Food inflation increased to 4.9% from 4.7%. And non-food inflation slowed to 0.8% in May from 1.2% in April.
‘Wheat is up 72 per cent and oil 50 per cent on a year ago while rising gas and electricity prices are pushing up costs at every stage of the supply chain,’ said Stephen Robertson, Director General of the BRC.
On Thursday the Bank of England’s Monetary Policy Committee decided that no change was needed in the UK’s interest rate. With the UK economy struggling still consensus points to a rise much later in the year.
Eurozone: No change to 2nd GDP estimate; ECB makes no changes to interest rate but signals future rise
According to Eurostat’s second estimate quarter one GDP in the eurozone rose 0.8% quarter-on-quarter and 2.5% year-on-year. Germany’s GDP rose 1.5%, France’s climbed 1%, Italy’s 0.1%, Greece’s 0.8% while Portugal’s dropped 0.6%.
On Thursday, the European Central Bank (ECB) announced that its main interest rate will remain at 1.25%. ECB chief Jean-Claude Trichet did signal that interest rates will be raised next month though.
Nick Dockerty is a financial writer and researcher for IG Markets, a leading CFD provider. The above comments do not constitute investment advice and IG Markets accepts no responsibility for any use that may be made of them.
