Week ahead: UK GDP, ECB forecasts and more inflation jitters

·5-min read
TOKYO, JAPAN - 2021/03/04: A man walks past a Nikkei stock index at a brokerage in Tokyo.
Japan's equity benchmark fell 2% on Thursday as investors continued to fret over rising U.S. Treasury yields, while other Asian stock markets also retreated. (Photo by James Matsumoto/SOPA Images/LightRocket via Getty Images)
Inflation will be in focus this week. Photo: James Matsumoto/SOPA Images/LightRocket via Getty Images

As we head further into June investors attention will remain firmly trained on the potential for a post-COVID bounce-back and what that might mean for measures such as inflation. 

The level of optimism amid eased restrictions has been palpable, and keeping that momentum up despite the spectre of COVID variants will be key to returning economies to their full health. 

Alongside this key policy decisions will be in the spotlight from the ECB, which has decisions to make on how it will manage both financing conditions and growth forecasts. 

As has been the case for most of 2021, cryptocurrencies will be in focus too. Bitcoin and other major cryptocurrencies continued to fall over the weekend after reports Chinese social media site Weibo suspended "key opinion leaders" (KOL), reigniting fears of further crack down in the country.

Financial releases to watch this week

  • Full-year results from Intermediate Capital (ICP.L)

  • First-half results from Paragon Banking (PAG.L)

  • Trading statement from British American Tobacco (BATS.L)

  • Full-year results from GB Group (GBG.L)

  • In the USA, quarterly results from Chewy (CHWY)

  • Full-year results from Naked Wines (WINE.L)

UK: GDP monthly readings

 Busy restaurants in Old Compton Street, Soho.
Crowds of people flocked to the cafes and restaurants in Central London as temperatures rose over the bank holiday weekend. (Photo by Vuk Valcic / SOPA Images/Sipa USA)
Busy restaurants in Old Compton Street, Soho. Crowds of people flocked to the cafes and restaurants in Central London as temperatures rose over the bank holiday weekend. Photo: Vuk Valcic / SOPA Images/Sipa USA

It will come as no surprise that the UK's reopening drive will have turbocharged the most recent GDP readings. 

The combination of non-essential retail and hospitality opening up alongside a sunny bank holiday will have got the economy moving again. This has also boosted both consumer and business confidence. 

According to analysts at ING, social spending had already exceeded last summer's levels before indoor hospitality reopened in May, while the number of job adverts in hospitality is above pre-virus levels.

This confidence is, however due to be put under pressure by the Delta COVID variant. Although there is evidence supporting the fact that vaccines protect against it, it could be around 50% more transmissible than the previously dominant strain. 

Read more: Why Babylon Health chose 'more innovative' New York over London for listing

Amid chaos surrounding travel policy this week in the UK, over the next week there will be chatter about whether concerns about the variant will push back any reopening that would have happened on 21 June. 

In a relatively light week for UK data monthly GDP readings on Friday will be one to watch, not least for the boost it might give in general confidence. 

EU: European Central Bank updates, German factory orders

International Monetary Fund Managing Director Christine Lagarde speaking at the American Enterprise Institute in Washington, DC on June 5, 2019. (Photo by Michael Brochstein/Sipa USA)
International Monetary Fund Managing Director Christine Lagarde speaking at the American Enterprise Institute in Washington, DC on June 5, 2019. Photo: Getty/ Michael Brochstein/Sipa USA

The order of the day in Europe for investors will be European Central Bank (ECB) monetary policy, with new forecasts and an assessment of financing conditions.

March's numbers were weaker-than-expected, meaning analysts predictions that growth forecasts will remain relatively unchanged for 2021 and 2022. 

The hot button topic of inflation will also be in discussion, with projections potentially revised upwards. 

The bloc will also assess financing conditions, a measure which hasn't been laid out in stone thus far but is a sort of target. 

Read more: Demand for workers rises at fastest pace for more than 23 years

Analysts at ING say the ECB will provide the first quarterly assessment of financing conditions and official comments that rising yields were a natural development at turning points in recovery already point to a possible communication line, preventing the ECB from being caught in its own logic from a few months ago.

The week will also bring German factory orders and industrial output, giving a read on the health of the manufacturing sector of Europe's largest economy. 

France and Italy's industrial production numbers for April will also be under the microscope. 

US: Business optimism and more inflation jitters

Thursday will bring the latest crop of US inflationary data, a measure that has been getting investors and central bankers hot under the collar in recent months. 

Just like China, the US inflation reading came in higher than expected in April as the consumer price index rose 4.2% year-on-year, the fastest gain in more than a decade, and producer prices surged by 6.2%.

If the inflation issue persists, history suggests that real assets — notably gold and commodities and property, or least paper claims on them through miners — are an option to consider, while bonds and cash would struggle, as would companies that lacked pricing power.

Equally, if the inflationary spike is just due to pent-up demand in the wake of the pandemic, and the deflationary pressure of debt proves too much, then cash and bonds and ‘growth’ equities could yet reassert the dominance they have shown for much of the past decade, say analysts at AJ Bell. 

Inflationary pressure could cause central banks to tighten up monetary policy, which in turn is making it harder for equities to feel the full benefit of the boost to the economy. 

Rest of world: China will also be in for an inflationary reading, due on Tuesday. These figures stoked flames in the stock market last month when they beat expectations, not in a good way. 

The Bank of Canada will also lay out its policy plans, with a roadmap for reducing stimulus spending. 

New Zealand will also release its manufacturing PMI numbers.