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The FTSE is currently indicating a higher opening, while traders are disseminating the worse then expected UK consumer confidence which came out while most traders were sleeping. The confidence index dropped to a record low in July, slipping below the level reached on the eve of the 1990 recession, as house prices slumped and inflation accelerated. We believe that traders believe that these figures will force the Bank of Englands hand and lower interest rates, which would be positive for the FTSE.

Oil found its footing yesterday as a surprise inventory number out of the US gave some traders reasons to believe that crude's slide was overblown and that the drop in gas supplies means prices have fallen enough to nudge Americans back onto the roads. While oil is trading at 126 dollars a barrel, it is still on the lower end of Julys trading range. We believe that oil prices will trade in a tight range until the US GDP figures come out, if the number is lower then expected, we can see oil prices fall below 120 dollars per barrel.

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The FTSE is currently indicating a lower opening, as traders are awaiting the release of the UK lending data which will come out around 8.30am GMT. Analysts are expecting another month of contracting mortgage approvals and loan issues as financial institutions are tightening the lending qualification requirements after being burned by the current credit squeeze. Banks have been announcing write downs for 3 quarters totalling more then 250 billion dollars, and some suggest that this is not over just yet. Look for the FTSE financials to take it on the chin this morning if the lending numbers come out worse then expected.

Oil stood its ground yesterday, as traders are waiting to see if demand has returned with what is now called somewhat cheap oil prices. Crude has given up more then 20 dollars since it hit an all time high earlier this month, however oil prices are up more then 75% from its August 2007 prices. If on Wednesday we do not see the return of consumer demand it is very possible for oil prices to dip below 120 dollars per barrel. Gold which lost more then 50 dollars last week due to the strength of the US dollar, seems to be recovering as some experts are saying that the selloff was overdone. We expect for gold to keep creeping up possibly hitting 940 dollars per barrel before Fridays employment numbers out of the US.
       
Predicted opens as of 06:00 GMT

FTSE: 5266.4(-43.1)
CAC: 4296.2  (-26.6)
DAX 6292.9 (-49.9)
DOW: 11152 (+24)
S&P 500: 1236.73 (+2)
Gold: 931.95 (+1.80)
Oil: 125.03 (+0.37)

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Contents This Week:
Economic calendar for week  2nd - 6th June 2008.
Commentary: The week ahead.
Economic Calendar for week 2nd - 6th June 2008

PLEASE NOTE - All times GMT not BST. BST is +1 Hr.

Monday June 2nd:

 UK - Tentative - Halifax House Price Index M/M.
 EU - 08:00 - Manufacturing PMI.
 UK - 08:30 - Manufacturing PMI.
 UK - 08:30 - Mortgage Approvals.
 UK - 08:30 - Net Lending to Individuals M/M.
 US - 14:00 - ISM Manufacturing Index & ISM Manufacturing Prices.
 US - 14:00 - Construction Spending M/M.

 Tuesday June 3rd:

 UK - 08:30 - Construction PMI.
 EU - 09:00 - PPI M/M.
 EU - 09:00 - Revised GDP Q/Q.
 US - 14:00 - Trade Balance.
 US - 15:00 - Factory Orders M/M.
 UK - 23:01 - Consumer Confidence Index.

 Wednesday June 4th:

EU - 08:00 - Services PMI.
EU - 09:00 - Retail Sales M/M.
UK - 09:30 - BRC Shop Price Index Y/Y.
US - 11:30 - Challenger Job Cuts Y/Y.
US - 12:15 - ADP Nonfarm Employment Change.
US - 12:30 - Nonfarm Productivity Q/Q.
US - 12:30 - Unit Labor Costs Q/Q.
US - 14:00 - ISM Non-Manufacturing Composite.
US - 14:30 - Crude Oil Inventories.

Thursday June 5th:

 UK - Tentative - MPC Rate Statement.
 UK - 11:00 - Official Bank Rate.
 EU - 11:45 - Minimum Bid Rate.
 EU - 12:30 - ECB Press Conference.
 US - 12:30 - Unemployment Claims.
 US - 14:30 - Natural Gas Storage.

Friday June 6th:

FR - 06:45 - French Government Budget Balance.
FR - 06:45 - French Trade Balance.
GE - 10:00 - German Industrial Production M/M.
US - 12:30 - Nonfarm Employment Change.
US - 12:30 - Unemployment Rate.
US - 12:30 - Average Hourly Earnings M/M.
US - 14:00 - Wholesale Inventories M/M.
US - 19:00 - Consumer Credit M/M.

 EU - Europe wide
 FR - France
 UK - United Kingdom
 US - United States
 GE - Germany

The week ahead.

US stocks have received a slight boost as oil prices retreat and new home sales unexpectedly rose on a month on month basis. However, we shouldnt really read too much into this, as there is a margin for error in these figures and new home sales in the US are still down 42% year on year. In addition, the Case-Schiller benchmark house price index is now showing a record decline of 14%. During the early 90s housing recession, this figure reached just -2.8%, which is a real indicator of the absolute capitulation in the US housing market. Predictions of double digit losses for the UK housing market may not be far off the mark, especially in light of recent house price data showing record month on month falls.

 There isnt the immediate connection between UK house prices and the FTSE as there is with oil and equities at the moment. Before the credit crunch broke, US house prices were on the retreat, yet stock markets continued to rally. Oil currently has a more immediate relationship with equity performance because of its daily volatility and that fact that many traders have already moved to price in a UK housing slump. The banking sector itself however, does have more significant correlation between house prices and share prices. Banks were amongst the worst performing sectors last week as fears of repossessions and negative equity caused many to question the values of their loan books. RBS also dragged the sector down with rumours that its rights issue would fail.
The FTSE finished the week below its European peers and well below US markets, who actually managed a decent gain on the week. In the US, the Nasdaq led the charge with Google up on encouraging pay per click data. Ironically, it may have been lower oil prices that hit the FTSE hardest last week. Oil finished down, around $8 from the peak of $135, sending oil majors such as BP and Shell lower over the reduced trading week. Financial stocks contribute around 25% of the FTSEs total weighting and Oil & Gas stocks arent far behind at just under 20%.

 While there is still scope for oil to at least contain its price inflation, there is a long way to go before the impact of high oil prices is nullified. Todays pull back was welcomed in the short term by traders, but the realisation is setting in that sky-rocketing oil prices have left a trail of inflationary destruction in their wake that wont disappear over night, even if prices dip back below $100.

 The stand out announcements next week revolve around interest rates. On Thursday, the BoEs Monitory Policy committee will announce the latest headline interest rate decision. A rate cut seems to be off the cards given recent comments from Governor King. The most likely decision will be to keep rates at 5%, there is always a small potential for upside. In Europe, the ECB has been taking a stronger line on inflation for longer with the German central bank calling for rate hikes. Elsewhere we have important employment data from the US on Friday on top of top tier manufacturing data earlier in the week. The Halifax house price index is tentative for some time on Tuesday, an announcement that could cement the UK housing decline.
The GB Pound/ US Dollar exchange rate, known as cable was virtually unchanged over the week, but given the raft of announcements due on both sides of the pond, there could be some significant movement next week. An Up or Down trade wins if either of two barrier levels are hit within the specified time. An Up or Down trade on GBP/ USD to touch either 1.9454 or 1.992 within the next 10 days could return 11%.

It feels like oil is in a free fall, after prices dropped to 126 dollars per barrel in late New York trading. Most traders are selling the black gold, after a slow down in demand was seen from the US consumer over Memorial weekend. It seems like the 4+ dollars per gallon has consumers saying no more. We are expecting oil to fall below 125 by the end of Friday.

The FTSE is currently indicating a slightly higher open, mostly on the strength of the Japanese markets. We are expecting a low volume trading day, as most of the important economic announcements were already released this week. The only thing of note is at 12.30 GMT when US releases its Personal Consumption numbers. There is risk that they will come in lighter then expected, this will result in a sell off on the US equity side.

Posted in Market News

Oil spent another day retreating from its recent record price of $135 per barrel. Currently the WTI crude oil is trading at 130.20, and traders are expecting oil prices to fall further as demand is slowing down. Gold which has been trading in a tight range is going to be getting a lot of attention today, when US releases its GDP numbers. While most analysts are expecting inline numbers, there is a risk that a weaker then expected number will push gold higher as traders will be selling US equities and buying gold.

The FTSE is currently quoted up 20 points, and will probably stay that way mainly because there are no economic news out of the UK. This all will change when US releases its GDP numbers. There will be lots of volatility when those numbers are posted, mainly because most traders are split on where the number should be.