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As I mentioned in the sterling update last week, we were waiting on more data to be released to show how the third quarter was shaping up. The ‘hard data’ contained the message that it seems growth has not completely dropped off but has likely slowed sharply since the fast expansion in the second quarter.  The surveys have pointed at a fairly sharp slowing in quarterly GDP growth perhaps from 1.2% to around 0.7% in Q3. If last week’s data is indicative on the Q3 performance then it may mean that an even weaker expansion is unfolding, as mentioned on Friday the Trade data released on Thursday was depressing and this was only the beginning. July’s industrial production figures hinted that any contribution from this area to growth in Q3 will be pretty non-existent. Even if we see further rises in Industrial production of 0.3% in August and September it will still only bring quarterly growth to 0.4% which is far below the 1.1% found in Q2.

Good news was to be found in the consumer data, with the BRC retails sales showing a pick-up in annual sales from 0.5% to 1% in August which was a decent monthly rise. It also means that even if sales keep steady throughout September there would still be enough growth in sales volumes to beat Q2. Q3 at the moment is looking like a rise of 0.3% GDP but the biggest risk comes later this year and in 2011.

Apparently the labour market is also slowing, the Outlook survey released by Manpower suggested that firms have little intention of hiring more staff, with the net balance being +1. In fact, as many companies plan to cut jobs rather than make them, but this is according to a guide which has missed the official measure of unemployment levels all year. REC/KPMG’s report on permanent staff placements fell for the fifth month is a row. Not all reports were negative for the labour market, as the BoE employment intentions are holding up, if levelling over the past 3 months. This doubt over employment will also worry those who believe the private sector cannot keep this labour market afloat during the public sector jobs cuts.

 There is an enormous amount of UK data being released this week which will perhaps paint a clearer picture on how Q3 is fairing, as well as shedding some more light on the risk on/off attitude of the moment. Notable releases include CPI on Tuesday which could show that July’s core inflation drop was a hiccup, and the labour market figures on Wednesday where claimant counts are expected to be circa the 5000 mark after July’s weak 3,800.

Have a super week!

Jeremy’s Trade of the Week

The ‘forward in a box’ allows you to benefit whether the rate goes up or down with overtly extreme moves only leaving the client with a forward contract slightly worse than current levels. An example given current market rates on GBP/USD would look like this. With spot trading at 1.54 this gave the client protection at 1.5050 and a ‘hinge’ at 1.53. If the market is trading above 1.53 and below 1.64, the upper barrier,  for every basis point above 1.53 we will add a basis point to 1.5050 i.e. if market was trading at 1.56 the client receives 1.5339. This also works if the rate falls as for every basis point that the market is trading below 1.53 and above 1.43 then we will add a basis point to 1.5050 i.e. if market is trading at 1.44 then the client receives a rate of 1.6036. If the market touches 1.43 or 1.64 however the client is left with a forward at 1.5050.

Have a great week