Weekly Economic Data Preview

UK RICS and BRC Surveys May Show a Thaw in Economic Activity

The British may be obsessed with the weather, but unusually cold conditions in January certainly affected some highfrequency economic indicators, weighing on UK retail sales and mortgage approvals. However, the arctic weather is likely to have supported January industrial production, due this week, via a boost to utilities output, while manufacturing output is forecast to have been more subdued. Some February data are due from the British Retail Consortium (BRC) and Royal Institute of Chartered Surveyors (RICS) and the better weather should have supported activity. Indeed, the CBI distributive sales survey was surprisingly strong in February and we should get a rebound in the new buyer enquiries index in the RICS survey, though the house price balance may be little changed. Overall, it looks as if the economy continued to expand in the first quarter, but there are certainly good reasons to be cautious about prospects, not least because underlying domestic demand is likely to remain subdued and export growth has yet to benefit fully from the weaker pound. MPC members, including Barker and Dale, will provide their thinking on economic prospects this week. Following Greece's bond sale success last week (see below), it will be the turn of the UK this week to offer £3bn of 2022 nominal bonds and £0.9bn of 2032 linkers.

Last week saw a generally higher level of confidence in euro-zone government bond markets as Greece announced a further €4.8bn of fiscal consolidation measures and launched a keenly anticipated €5bn 10-year bond issue. In response, the spread of 10-year Greek government bond yields over comparable German bunds has narrowed further to around 290bp, compared with 350bp or so a week earlier. But for all this relief, Greece remains under pressure from the ratings agencies and so must adhere to the fiscal consolidation plan in its enhanced form. That will involve considerable sacrifice for some time to come. Following March's ECB monetary policy decision where the main refinancing rate was left on hold at 1% but further steps were taken to unwind 'unconventional' policy stimulus measures, this week sees a fairly light economic data calendar. The main highlight is likely to be January industrial production figures for the eurozone along with associated national data in a variety of countries including Germany, France and Italy. Exports - widely acknowledged as a volatile driver of overall economic activity - remain healthy and we look for January euro-zone industrial production to rise by 1.3% month-on-month following a decline of 1.6% previously. Beyond this, final Q4 GDP data will be released for Italy, following the preliminary Q4 estimate of a 0.2% quarter-on-quarter contraction.

The relative excitement of the US labour market report last week gives way to retail sales, consumer confidence and trade data this week, while the Treasury will issue $74bn of notes and bonds. The near 10-point fall in the Conference Board's consumer confidence index in February caused jitters in the financial markets, though this was not reflected in the University of Michigan (UoM) consumer sentiment survey. We will get the preliminary March reading of the UoM survey this week. Official February retail sales are also due and may fall back after a stronger-than-expected monthly rise of 0.5% in January. US trade data are also due and may show a widening of the deficit in January. The bottom line is that, with underlying inflation remaining low and economic recovery in its early stages, supported by an inventory rebound and policy stimulus measures, the Fed is not likely to raise interest rates until the latter part of the year at the earliest.

Full Report in PDF

Lloyds TSB Bank
http://www.lloydstsbfinancialmarkets.com

Disclaimer: Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. Expressions of opinion may be subject to change without notice. Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. The facts and data contained are therefore not intended for the use of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc. Lloyds TSB Bank plc is authorised and regulated by the Financial Services Authority and is a signatory to the Banking Codes, and represents only the Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and investment business.