Week ahead: UK unemployment, ECB rates and a quiet week in store Stateside

Lucy Harley-McKeown
·5-min read
London's financial district in Canary Wharf, London, Wednesday, March 25, 2020. The new coronavirus causes mild or moderate symptoms for most people, but for some, especially older adults and people with existing health problems, it can cause more severe illness or death.(AP Photo/Kirsty Wigglesworth)
Unemployment figures will be one of the key drivers for UK investors this week. Photo: AP Photo/Kirsty Wigglesworth

Investors will be looking to some important measures of economic health in both the UK and Europe this week, while it is set to be a quiet one stateside. 

Unemployment figures in the UK give a health check on a slowly reopening economy, while central bank activity on the continent will also show what official lines are on how the European Central Bank (ECB) intends on supporting the economy into the second quarter. 

The main refinancing rate stands at zero – as it has since September 2019, but investors will watch to see if any more quantitive easing measures will be put in place. 

As earnings season kicks into gear again, investors will also be watching for how companies have weathered the pandemic so far and whether lockdowns and reopenings have had any further impact on top lines. 

Developments to watch from the weekend

Key results to watch

Associated British Foods — H1(ABF.L)

Taylor Wimpey – Q121 (TW.L)

Coca Cola – Q1 21 (KO)

United Airlines — Q1 21 (UAL)

Netflix — Q1 21 (NFLX)

Johnson & Johnson – Q1 21 (JNJ)

Intel — Q1 21 (INTC)

UK: Unemployment data, retail sales

A general view of a sign outside a Jobcentre plus at Jarrow, England, Wednesday, Nov. 16, 2011.  (AP Photo/Scott Heppell)
The UK will look to unemployment figures for a temperature check. Photo: AP Photo/Scott Heppell

Two key measures of economic strength will be in the spotlight next week in the UK, with unemployment data and retail sales on the slate. 

January's lockdown saw a big slide in UK retail sales, which sank by 8.2% as consumers heeded government orders and stayed at home, following a small rise in December. 

February saw a modest improvement as some shops began to reopen their doors. 

Analysts predict that customers are likely to wait for further rule relaxations in April to spend their cash and that March numbers are likely to creep up in a similar manor to February. 

A strong vaccine rollout effort has buoyed consumer confidence alongside GDP, which fell much less sharply in January and February than was originally feared. 

Flash PMIs for manufacturing and services for April will give a measure on how a the solid picture from March has progressed. 

ILO unemployment figures are the second temperature check on a positive employment market. In January, unemployment stood at 5%. 

Investors will be watching for a lag in the data and any potential rough patches, despite the Bank of England's optimistic outlook and revised forecasts for the rollback of the furlough and job support schemes. 

A combination of that and the reopening of the economy mean a potentially mixed picture. 

Europe: ECB meeting, and signs of recovery on the horizon in Q2 data

European Central Bank President Christine Lagarde addresses European lawmakers during a plenary session at the European Parliament in Brussels, Monday, Feb. 8, 2021. European Union legislators will assess with European Central Bank's policy chief Christine Lagarde the impact of the COVID-19 pandemic and what measures can be taken to ease the pain of the worst economic downturn in the history of the European Union. (AP Photo/Olivier Matthys, Pool)
European Central Bank President Christine Lagarde addresses European lawmakers during a plenary session at the European Parliament in Brussels, Monday, Feb. 8, 2021. Photo: AP Photo/Olivier Matthys, Pool

The ECB is set to look through any temporary increases in headline inflation and will take a hard line on significant movs in bond yields unless linked to improved growth prospects. 

The last meeting's move to front-load asset purchases was supposed to cap the rise in yields, which tracked moves in US Treasuries. 

"The ECB’s biggest problem now is keeping yields low in the face of the sharp rise we’ve seen in longer term US yields, which are having a rising tide lifts all boats' effect on European longer-term borrowing costs," said Michael Hewson, chief market analyst at CMCmarkets.com.

The story in the European economy is improving despite prolonged lockdowns and delayed vaccine rollouts, however Spain, Greece and Italy will suffer if they miss another summer holiday tourist season. 

To offset the weakness in the services sector, which is continuing to struggle with various lockdown restrictions, the central bank has already expanded its Pandemic Emergency Asset Purchase program in December for the second time in 2020, from €1.35trn to €1.85trn, as well as extending it another 9 months until March 2022. While this buys time, it may not be enough on its own to support the economy. 

PMIs will provide more context on the health of individual nations, with analysts predicting that the second quarter will mark the start of the long road to full recovery. 

"One saving grace has been the performance of the manufacturing sector which appears to be performing well, though the recent France manufacturing data suggests that all may not be as well here as first thought," said Hewson. 

US: Biden's infrastructure plan — where has it got to?

President Joe Biden walks to a motorcade vehicle after golfing at Wilmington Country Club, Saturday, April 17, 2021, in Wilmington, Del. Biden is spending the weekend at his home in Delaware. (AP Photo/Patrick Semansky)
Joe Biden's infrastructure plan will be on the slate in a quiet week for the US. Photo: AP Photo/Patrick Semansky

It's a fairly light week for US data next week, so all eyes will be on the progress of president Joe Biden's infrastructure plan. 

The $2tn (£1.4tn) package is already plagued by many of the issues Biden had with the most recent stimulus package, in that there is currently very little bipartisan consensus. 

It would seem that the Democrats are going to push it through the reconciliation process to avoid the need for 60 Senators to agree to put it to a vote. Not all Democrats are on board yet, so there could still be more changes. 

Elsewhere across the Atlantic, Canada will look to see a big jump in annual inflation, meaning a strong chance the Bank of Canada will taper its QE purchases. 

Watch: Will interest rates stay low forever?