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Last week's gains in bond and stock prices demonstrated that financial markets will continue to welcome evidence th...
Last week's gains in bond and stock prices demonstrated that financial markets will continue to welcome evidence that the UK's economic recovery is being maintained at a pace that does not threaten a rise in inflation.

There are two key indicators this week: retail sales for June, released on Wednesday, and preliminary GDP data for the second quarter, released on Friday.

Retail sales data are being watched closely for any evidence that higher taxes are impacting on consumer spending.

Markets would not react badly should sales prove to have been weaker than anticipated in June. But strong sales growth would probably lead to weakness in financial markets as some of last week's optimism about inflation evaporates.

The GDP data are expected to show annual growth exceeding 3% for the first time in the present recovery, but this is largely discounted by financial asset prices.

Instead, the focus is on the composition of growth. The markets would welcome signs of larger contributions from private investment spending and exports and relatively less from consumer spending.

The key international indicator will be the first estimate of German M3 growth in June (this is always quoted as the rate of increase since the fourth quarter of last year, at an annual rate).

Markets, especially bond markets in Europe, are looking for signs that M3 growth is slowing, so helping to create the conditions in which the Bundesbank might cut its official interest rates again.

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