Week Ahead 23-27 June

WEEK IN REVIEW
In Q1 2014 employment improved slightly in the Euro Area, growing 0.1%qoq and 0.2%yoy.
In Portugal employment declined 0.3%qoq but rose 1.8%yoy, a mild correction after rising 0.7%qoq and 0.5%yoy in Q4. The unemployment rate fell to 15.1% in Q1 from 15.3% in Q4. Part of the fall in the unemployment rate during the last year was actually due to higher employment, but recently improvements seem to be mainly driven by a reduction in the labor force, which has been falling for many quarters.

Inflation continued to fall. In May the Consumer Price Index was -0.4%yoy after -0.1%yoy in April. In the Euro Area inflation remained in positive territory but fell to 0.5%yoy in May after 0.7%yoy in April. The decline in inflation has been a major source of concern for the EB and has been the main reason for the recent decision to lower rates.

Portugal issued € 1500M of short-term debt, € 250M above the initial target. The operation achieved interest rates at about half of the required in the last auction back to May, resulting in 0,365% at 12 months. Portugal as other periphery countries continues to benefit increased demand for European bonds, as appetite for risk in emerging markets has faltered and short term rates are very low.

In the US, Federal Reserve’s Yellen gave an upbeat speeh about the health of the US economy but kept inflation forecasts unchanged, which suggests that it remains confortable leaving interest rates low for a prolonged period.

WEEK AHEAD
The discussion about the Portuguese Government’s fiscal measures to be implemented due to the Constitutional Court’s decision to rule out some of the 2014 Budget measures is likely to continue to rage. Besides, new data will be released:

23 June
– Euro area PMIs and US ISM indicators of activity: Markets expect a stabilisation after several months of rises.

27 June:
– National Accounts by Institutional Sector (released by INE) will provide Q1 details about Government’s net borrowing, household’s disposable income and savings. Savings are likely to have fallen slightly after have reaching historical high levels in 2013.
– European Commission Business and Consumer Surveys fo June will be released. We expect confidence indicators to continue to improve slightly, as the recovery gains further ground in Q2, after a disappointing Q1.