Marginal slowdown of economic

Tuesday 03rd May 2016 18:59 EDT

During a visit to UK, President Barack Obama discussed why the UK should stay in the EU. He said that Britain would find itself at the back of the queue for a trade deal with the United States if the UK left. Obama also stated it would be safer, more prosperous and influential if the UK stayed in the Eurozone.

Market research group ICM published an opinion poll which stated that the campaign for Britain to leave the European Union had a narrow lead over the ‘In Campaign’. 46% voted in favour of a ‘Brexit’ against 44% who wished to remain in the EU. This survey was sampled during Barack Obamas visit to the UK and possibly highlights a negative sentiment toward his intervention in UK politics.

However, many Brexit supporters, among them London Mayor Boris Johnson, point to a recently agreed free trade deal between Canada and the EU as a possible model for a post-Brexit Britain. Under the Canadian model, Britain would not be required to allow workers in from the EU or pay into its budget. However, the Canada deal with the EU took over a decade to negotiate and George Osborne said last week that a Canada style deal would leave the economy 6.2% smaller by the time it is implemented.

UK GDP figures were released in line with expectations at 0.4% and the YoY figure was slightly above expectations at 2.1%. The data release showed a marginal slowdown of economic growth compared to the growth of last year.

Following Obama’s view on Britain and the EU, the pound has found a renewed sense of positivity causing GBP strength across the board. However, Mark Carney has warned Britain’s economy appears to be slowing because of June’s referendum of the EU membership but also admitted this is likely to be a very short term slowdown. Carney said the economy was performing ‘pretty well’ with expectations for wage growth to improve over time. Nevertheless, Carney has reiterated the risks and negative impact on the British economy should a Brexit materialise.

In the Eurozone, Greece resumed talks with its creditors in Athens over reforms it must make to conclude a drawn-out review of its bailout progress and unlock more than 5 billion euros of further financial aid. The reforms under discussion include changes to pensions and taxes, plus additional measures that Athens would have to put in place for use in case it misses the budget targets. The contingent measures would kick in only if the regular measures are not enough to generate a primary budget surplus of 3.5 percent of GDP by 2018.

Discussions with Greece regarding them obtaining a further tranche of aid have received a knock back as the International Monetary Fund (IMF) is questioning whether the present cutbacks are enough. Greece and its international leaders are close to a deal on a package of bailout reforms and are working to agree further contingency steps by May 9th when an extraordinary meeting of euro zone finance ministers will be held in Brussels.

In the US, Consumer Confidence came out below expectations, falling to 94.2. With the largest share of consumers still expect business conditions to improve in the next six months, although in April the gap narrowed with those who expecting conditions to worsen. Questions about future employment also showed a growing share of pessimism. Compounding the poor sentiment, Core Durable Goods Orders came out 0.8% worse than expected. Manufacturing, which accounts for 12 percent of the U.S. economy, is struggling with the lingering effects of the dollar's past surge and sluggish overseas demand. This seems to be the strongest reason yet why the Fed will not be raising interest rates.

The FOMC held a meeting to discuss their monetary policy stance and concluded they were not to raise rates – a move that was widely expected by many market participants.

US economic output showed a sharp decrease in the first quarter posting figures 0.5% against a previous of 1.4% - the weakest since the first quarter of 2014. Growth in the economy has reportedly been held back by businesses stepping up efforts to reduce unwanted merchandise and not spending, thus causing a slowdown in all sectors of the economy for the first quarter of the year.

Cheap oil prices and a strong dollar weighed heavily on the US economy; however we are seeing a shift in momentum and a retrace in the dollar strength we have experienced since the turn of this calendar year.

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