Sterling strengthened yesterday morning on the back of strong industrial output data boosted by a surge in oil and gas production. Industrial output rose by 0.4 on the month, above economists forecast for a 0.1% increase. The increase will raise hopes that Britain's economy picked up speed in the second quarter. Manufacturing output did actually fall, largely due to weak economic growth in the UK’s major export markets and weak investment in the oil and gas industry on the back of lower energy prices.
Sterling further strengthened in the afternoon after an estimate from the National Institute for Economic and Social Research said Britain's economic growth picked up pace in the three months to May, recovering from a weak first quarter. They estimate that gross domestic product in the three months to May was 0.6 percent higher than in the previous three-month period, the fastest growth rate since January and up from a 0.5 percent rate in the three months to April.
Yesterday there were reports of a German proposal to allow Greece to receive a drip-feed of loans in return for a staggered reform programme. According to the reports, the chancellor Angela Merkel is prepared to accept a much-reduced reform programme, slimmed down to just one or two areas as part of an initial package to salvage a deal with Greece and prevent it exiting the eurozone. The softening of the German stance towards Athens cheered investors keen to see a sustainable rescue of the debt-stricken country after more than four months of negotiating. If Greece do not receive fresh funds to enable it to make a 1.6BEUR payment to the IMF by the end of June, Greece are likely to default.
Somewhat in contrast to the potential good news, Standard and Poors revealed shortly after that they had just cut Greece's credit rating by one level to CCC. This is just two levels above a default. S&P say they downgraded Greece because they don’t see much chance of a deal in the next few days and even if a deal is agreed they don't see it lasting much beyond September.
The world bank has cut its forecasts for growth across emerging economies this year, warning they face trouble whammy from rising US interest rates and lower commodity prices. However, India is one of the few countries where the World Bank has upgraded its forecast. Modi’s government has taken advantage of cheap oil to phase out costly fuel subsidies and banked the proceeds; and its central bank governor, Raghuram Rajan, has sought to establish a more credible inflation-fighting regime. The World Bank expects India to be the fastest growing major economy in 2015, expanding by 7.5%, and to continue outpacing China in 2016 and 2017.
13:30 - USD - Retail Sales expected to
increase to 1.1% from 0%
13:30 - USD - Unemployment claims
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