Playing a waiting game

• In a light data week, concerns about Greece will be at the forefront of market attention
• Despite Greek event risk, Eurozone activity data are expected to continue to firm
• UK retail sales and MPC minutes take on labour market trends the key domestic focus

Calm before the storm?... The coming week is a relatively quiet one for economic data and events. Nevertheless, ongoing uncertainties in a number of major markets could provide an impetus to market volatility. Speculation over the outcome of the UK election and the potential timing of any US interest rate hike will remain key themes. However, Europe and in particular Greece is likely to be the focus of attention in the short term.

Concerns over Greece build... Greek sovereign yield spreads with the rest of the euro area continue to widen as concerns about a potential default mount. Further downgrades of Greek ratings by some credit agencies helped fuel the sell-off. Yields also rose on comments by IMF Head Lagarde that she had refused Greece a grace period on its loan, although the Greek finance minister subsequently denied making any such request. Ahead of Friday’s meeting of euro area finance ministers and central bankers, speculation will mount as to whether the Syriza government can eventually put together a package that will satisfy its creditors and allow further funds to be released, with both sides for now continuing to sound intransigent. Funding will become further stretched in advance of upcoming payments to the IMF in May and June, the first of which is due on the 12th of May.

European data continue to improve... In the euro area business and consumer surveys for April will provide a first steer on whether the upturn in economic growth has continued into Q2. We expect the message to be generally positive. The ‘flash’ euro area manufacturing and services PMI for April (Thurs), and the European Commission’s measure of consumer confidence (Wed) are all expected to be up on the month. That is also forecast to be the case for the German ZEW survey (Tues), PMIs (Thurs) and IFO (Fri). Possibly the only discordant note may be the PMIs for France which are expected to show that the pace of economic activity there remains more sluggish. The survey data for Q1 point to an improved pace of GDP growth in that quarter and the expectation that this will continue. Moreover, with ECB President Draghi ruling out an early tapering of the QE programme the likelihood is that monetary policy in the euro area will remain supportive of growth for some time yet.

Quiet US week ahead of FOMC meeting... In the US, only a few ‘second tier’ data releases are scheduled. March durable goods and shipments for March (Fri) will provide an update on whether the recent weakness of manufacturing is primarily weather-related or a result of the dollar’s appreciation. We expect both to pick up modestly. The shipments data is used to calculate the investment component of GDP, and will be watched for indications of whether the current substantially reduced expectations for Q1 growth need to be lifted. Existing (Wed) and new (Thurs) home sales are both likely to show sales picking up as the weather improves. There will be no Fed speakers over the coming week as FOMC participants go into ‘purdah’ prior to the next FOMC meeting on April 28-29th. As a result, markets will have little in the way of new information to drive speculation about interest rate policy.

March UK retail sales growth likely to have been modest... Domestically it is also a light data week. The official retail sales report for March (Thurs) may attract the most interest. Measuring retail spending at this time of year is always particularly difficult due to the variable timing of Easter. Surveys have been sending mixed messages about the strength of sales. We forecast modest monthly growth of 0.3%, which would leave 2015 Q1 sales growth meaningfully below that in Q4 of last year. Meanwhile, the minutes of the April MPC meeting (Wed) seem unlikely to deliver any major surprises. Despite Andy Haldane’s comments on the potential downside risks for interest rates, we consider a formal change of stance unlikely, and expect a 9-0 consensus for unchanged policy. Of key interest could be the MPC’s take on the labour market data through to January, where earnings growth underwhelmed market expectations. Finally, public finance data (Thu) for the final month of 2014/15 will provide the starting point for the fiscal plans of any incoming government, with no Election set-piece events over the coming week.