The third wave advance remains in place and there is little resistance now until the FTSE 100 reaches 5000.

Friday provided a positive boost in every possible manner for equity markets. The impetus started with economic data and the much better then expected results from Euroland PMI’s and US existing home sales; and continued with the comments by both Trichet and Bernanake at the Jackson Hole conference. These comments were important as they provided reassurance that low interest rates and accommodative measures will remain in place for some time as the recovery is not expected, by central bankers at least, to be a “V” shaped but a more slow and protracted return to sustainable growth. This expectation would also support, particularly in the US, the Fed’s historical pattern on raising interest rates where they have never raised rates when unemployment was rising. In addition, if we look back at the 2001 recession it was 12 months into the recovery before the Fed started to raise rates, whilst after the 1991 recession the Fed did not remove its accommodative measures for some 17 months.

Given all this, the reaction of the short end of the treasury curve was interesting with the 2 year note rising nearly 11bps to 1.1%. On face value this again seems an over-reaction (in a similar pattern to what we witnessed in June); thus the short end of the curve and Eurodollar strips are likely to quickly take back this rise; but we learnt last year to ignore the bond market at your peril. We continue to monitor the short end strip closely as a measure of inflationary expectations.

This week, economic data of note does not really start until Tuesday with the US releasing Conference Board data. On Wednesday, we are expecting further good news from the housing data with New Home sales due for release alongside an expected improvement in durable good orders. Thursday, sees the first of Q2 GDP with an expected downward revision to -1.4% from -1%. Finally, Friday sees the release of household spending and final University of Michigan data.

In Europe, the main releases are further business and consumer sentiment reports with the most noticeable being the German IFO data. In the UK, the economic data is also light. On Thursday we see the release of CBI Distributive trade survey. Given the unexpected strength last week of retail sales rising 0.4%mom the expectation is that the survey will continue to improve to -12 from -15. However, the risk to this data currently lies on the downside if the weakness in the John Lewis data during the first two weeks of August is more widespread. Friday, the UK has the second estimate release of Q2 GDP, where the risk is skewed towards a better results then the preliminary -0.8% result given the robustness seen within the European GDP data last week.

Finally, in Japan we have a plethora of data releases starting on Tuesday with the merchandise trade balance. Thursday sees the main releases including household spending, unemployment and CPI data and of course we have the election at the end of the week.

Sources: Reuters: BBC: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia:

Please note this report provides a guide to some of the relevant areas that individual investors should consider discussing with an authorised adviser in relation to their specific circumstances, it does not constitute individual advice. As a result no action should be taken or refrained from being taken as a result of its content.