View the article online at http://citywire.co.uk/money/article/a583717
Week Ahead: firepower, recession and volatility
Our look ahead at the main financial events of the coming week.
The UK may return to recession, authorities in the US and Japan could signal more de-facto money-printing, and events in the eurozone – where the French elections are about to begin – could provoke more market tantrums.
Zigzagging in and out of recession
Ahead of economic growth data for the first quarter, economists are divided as to whether the UK has in fact fallen back into a double-dip recession. Concerns about weak construction activity in particular have pushed some forecasters towards a negative growth prediction, following the 0.3% decline in GDP in the last quarter of 2011.
They are grappling with conflicting data signals, though Nomura’s Philip Rush notes that in the last week: ‘The labour market and retail sector gathered more positive pace, inflation ticked up and the MPC appears to be backing away from QE.’ He expects growth of 0.2% in the quarter, averting recession. Others aren't so positive.
Whatever happens, the economy will be prone to relapse over the coming months – Mervyn King’s economic ‘zigzag’– in the face of such difficult and unpredictable global conditions.
And in any case, Wednesday’s figure will be subject to further revisions as more data comes in. But if it is negative then the damage will be done, with doom-laden double-dip newspaper headlines.
Amid a disappointing, but hopefully temporary, halt in the decline in inflation – with CPI measuring 3.5% in March – policymakers’ ability to tackle this slowdown is limited.
American waiting game
In the US, where growth has been surprisingly strong over recent months, a first-quarter GDP reading is expected to reflect a slight loss of growth momentum compared with the last quarter of 2011.
More important than backward-looking GDP figures, though, will be any indications of further help from the US Federal Reserve's decision-making committee, the FOMC, when it meets this week, with that less upbeat data feeding into its decisions.
Investors will be watching closely for further clues on future of the central bank’s quantitative easing (QE) scheme. Though QE3 is not expected to be announced at this week’s meeting, comments from chairman Ben Bernanke will be closely scrutinised, though he may provide little new information.
‘It continues to be a waiting game for the Fed. Recent Fed speeches suggest that the threshold for further easing has not yet been met and it would be premature to expect any signals from next week’s FOMC meeting,’ said Aneta Markowska of Société Générale.
The Fed is at least likely to reiterate its expectation that interest rates will remain ultra-low until the end of 2014, economists say.
Bye bye Sarko?
Concerns remain that financial markets aren’t reflecting the risks posed by the French elections, with the first round due this Sunday.
News sponsored by:
From Brazil and Mexico, to Vietnam and Nigeria, the rapidly developing economies of Latin American and frontier markets, which are some of the smaller, less developed economies in the world, provides investors with a wealth of potential opportunities. Discover why BlackRock's investment trust range is well placed to help you make more of these exciting regions.
More about this:
Look up the shares
- WPP PLC (WPP.L)
- Standard Life PLC (SL.L)
- GlaxoSmithkline PLC (GSK.L)
- British American Tobacco PLC (BATS.L)
- ARM Holdings PLC (ARM.L)
- Reed Elsevier PLC (REL.L)
- Capital Shopping Centres Group PLC (CSCG.L)
- Polymetal International PLC (POLYP.L)
- AstraZeneca PLC (AZN.L)
- Royal Dutch Shell PLC (RDSb.L)
- Meggitt PLC (MGGT.L)
- Kazakhmys PLC (KAZ.L)
- Whitbread PLC (WTB.L)
- Shire PLC (SHP.L)
- Admiral Group PLC (ADML.L)
- Unilever PLC (ULVR.L)
- Barclays PLC (BARC.L)
More from us
- UK economy to 'zig-zag', says King
- Inflation decline brought to a halt as CPI rises to 3.5%
- Japan debate intensifies after Nikkei rally
- Tough times for investors who don’t get politics
What others are saying
Tools from Citywire Money
From the Forums
Weekly email from The Lolly
Get simple, easy ways to make more from your money. Just enter your email address below
An error occured while subscribing your email. Please try again later.
Thank you for registering for your weekly newsletter from The Lolly.
Keep an eye out for us in your inbox, and please add firstname.lastname@example.org to your safe senders list so we don't get junked.