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Henk Potts' Market Review

Henk Potts' Market Review

Henk Potts – Global Investment Strategist

Henk Potts

Henk Potts is Director of Global Research & Investments for Barclays Wealth and Investment Management.

These are Barclays’ views; however, they are not a guarantee of future events – which nobody can reliably predict.

Weekly Review – Monday 10 April

Henk discusses the stories that dominated the headlines and moved the market over the previous week’s trading and also highlights the key events that are likely to dominate during the course of the week ahead.

The below content has been taken from Henk’s weekly podcast. If you’d prefer to listen to this, you can do so via Stockbrokers TV.

The latest data shows that Euro area unemployment has been falling, what did you make of the numbers?

Yes I think that’s right. Euro area unemployment fell to its lowest level in nearly eight years in February. So the jobless rate is now down to 9.5%. That compares to a peak of more than 12% remember during 2013 after the financial crisis. Unemployment fell in 26 of the 28 European Union countries, although the rate still remains elevated compared to the likes of the US and the UK as we know unemployment is below 5%.

So there are some differences in the way in which it’s calculated, but does give you an idea that there’s still an awful lot more progress as you say to be made. Even across Europe there are some big differences. So you look at countries like Germany, very low, 3.9%. France is still at 10%, Spain’s at 18%, Greece as you can imagine at the top of the leader board there at 23%. Youth unemployment is a major problem: 3.9 million under 25s without work. That equates to a rate of 17%. In Greece it’s at 45%, Spain 41%, Italy 35%.

So there are certainly some pressures to reform the labour market, to increase the flexibility, reduce the power of unions, change the tax and benefits system to try and bring that number down, because it won’t be achieved simply by economic growth that’s expected over the course of the next few years. It will show marginal improvements there, but not the wholesale change that’s required in Europe.

A recent poll of foreign exchange strategies suggest the euro will weaken over the next year, why is that?

Well the euro is likely to fall by around 5% to near 15-year lows and close to parity against the dollar in the immediate aftermath should Marine Le Pen win the French presidency in May. This is calling as you say to foreign exchange strategies polled by Reuters after falling more than 3% in 2016. The euro is actually up 2% during the course of this year. In the near term what happens during the second round of the election at the start of May in France will certainly drive the single currency. Markets as we know have been pricing in a victory for Emmanuel Macron. Beyond the election the euro is still expected to drift lower, but not dramatically. In fact many houses have actually reined in their forecast for parity in terms of euro/dollar as the euro area shows some signs of economic improvement, and the European Central Bank’s expected to slowly tighten policy over the course of the next couple of years.

What are the key events and data releases investors should be watching out for this week?

Well this week the focus very much on inflation. In the United States, we project that March CPI printed flat over the course of the month. Core CPI printed unchanged at 0.2% month-on-month; those figures out on Friday. We estimate that March retail sales contracted by 3/10ths of 1%, and expect March input prices to fall by 2/10ths of 1% month-on-month. That number out on Wednesday. In Europe not a great deal to get through. We do get industrial production figures for February out on Tuesday, where we’re looking for a rise of 2/10ths of 1%.

In the UK, it’s also about inflation. We get March CPI numbers on Wednesday, where we’re looking for 2.6% year-on-year for CPI. Core CPI to come in at 2%; RPI figure to come in at 3½%. The employment data will also be considered important on Wednesday, where we look for February ILO unemployment rate to remain unchanged at 4.7%. We look for average weekly earnings growth to come in at 2.3%.

In terms of Asia this week, the main figures to watch out for will be the trade data coming through from China, where we project March imports rose by 15%, exports rose by 1% and the trade balance came in at $7 billion.

Which European companies are reporting results?

Quite a quiet week as you’d probably expect as we’re between earnings seasons in Europe. The main weeks to watch out for between April 17th and the 1st of May, actually peaking on week commencing the 24th April with over 180 companies totalling €3.6trn in market cap reporting results. We do get numbers this week from the big US banks, so I think that will be quite important. Turning our attention back to Europe this week, we do get quarterly sales from LVMH luxury goods group on Monday. On Wednesday watch out for figures from Christian Dior, from WH Smith and from Countryside. Finishing off the week in terms of the main numbers on Thursday, where we get results from Carrefour, from Hays and from Sodexo.

I hope you’ve found this update interesting and I wish you every success for the trading week ahead.

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