Q2 kicks off with a weaker dollar

• US dollar sold ahead of Friday's payrolls announcement on liquidity

• Anything less than 220,00 jobs will increase fears of a Q1 slowdown

• UK GDP rise by 0.6% and 2.8% on the year, highest growth within the G7

• Chinese manufacturing PMI rebounds higher as industrial data day starts

In a turn-up for books and representing a small miracle, yesterday saw one of the Conservative and Lib Dem coalition’s common pledges actually come true. UK GDP rose by 0.6% in Q4 and therefore finishes 2014 rising by 2.8% - the fastest growth in the G7.

UK recovery getting stronger but living standards concern

The economic picture within the GDP report was rather similar to the last iteration, with consumer spending very strong and exports increasing by over 4% on the year, especially encouraging given the lack of demand that we are seeing in the Eurozone. The momentum that the UK economy has carried into first quarter of this year therefore sets us up for growth rates of around 0.7-0.8% through Q1. With the preliminary reading of Q1 GDP due about a fortnight before the election this could cause further problems for challengers to Downing Street.

The Labour party have very valid points in the fact that while GDP is higher than before the Global Financial Crisis, when it is measured per head of population that is in fact 1.2% lower. While wages will have a lot to do with this, and the Government’s influence on wages should be minimal, tax increases and benefit spending cuts will have also weighed.

Sterling moved slightly higher on the announcement, ignoring poor current account data that showed the amount that the UK has borrowed from the rest of the world sits at 5.5% of GDP – the highest since records began just after World War 2. The news that 100 business leaders, controlling some 500,000 jobs, have signed a letter supporting the Conservatives’ efforts that have “supported investment and job creation” has little effect on the pound but may on the polls in the coming days.

World manufacturing day

A further look at UK growth will come from the manufacturing sector in today’s PMI due at 09.30. Manufacturing is the first place that lower prices tend to show up and I expect poor prices components to the major laggards of most manufacturing PMIs that are due throughout the day. With China’s of the way we focus on Europe. Italy's number is due at 08.45, France at 08.50, Germany at 08.55, and the Eurozone wide measure at 09.00.

China’s measure overnight has rebounded back into growth, albeit at a very marginal rate. Any PMI reading above 50.0 is shown as growth, China’s reading came in at 50.1. Some commentators are hailing the recent stimulus as the driver of this growth, although we believe that growth remains very weak in China and that further help from the monetary policy authorities is almost guaranteed. The yuan and Australian dollar are higher following the beat of expectations.

Dollar down ahead of the Easter break

Despite this Friday being Good Friday, it remains Non-Farm Friday in the United States and we will receive the latest look at the US’s jobs markets. With London out of the office and a lot of liquidity therefore off the table we can expect that whatever the announcement, markets will be rather volatile.

It seems that investors are cutting positions in the USD to rid their portfolios of risk before the number. USD is lower overnight across the board with fears coming through that should the number disappoint, then fears over a Q1 slowdown will intensify. Markets are looking for an increase of around 245,000 while today’s private ADP measure is forecasted at around 225,000 jobs. Anything higher and we will be back to talking about a June rate rise from the Federal Reserve.

Have a great day. I am off for a fortnight from this afternoon but Greg will be ably stepping in to keep you all updated.