Wise Money sees a hint of a recovery in the US

The main focus yesterday was on the US and we saw some sign of recovery.

Stocks rebounded and closed up 276 points, 2.52%. Oil is down in value by 10% at just over $135 a barrel (if it comes down anymore maybe Mr Darling will change his mind and reverse his decision).

However, yesterday's prediction on US inflation was slightly lower than it actually was as they see inflation at its quickest in 17 years up 1.1% for the month at 5% year-on-year.

Indications from Bernanke and the FOMC minutes seem to be that inflation is going to take precedence over growth and that there would be rate hikes, though can we really expect to see them until 2009?

Today sees the US Initial jobless claims, expectations are an increase of around 40,000. We will also see US housing starts with the signs that both starts and permits are flattening. Not much else out today though tomorrow we will see German PPI.

In the UK today is the Debt Management Office Gilt auction.

On the currencies, the main focus is on the Greenback, Sterlings recovered yesterday down below $2 again and EUR/USD backed away from the 1.60 level and if we see it lower than 1.5760 we could see it much lower.

Three main reasons for the USD recovery; falling oil prices, intervention from the Fed and the FOMC minutes which indicated the view that rates may need to be hiked to curb inflation.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Does CPI at 4% guarantee an ECB hike on Thursday.

Yesterday's Euro zone inflation jumped to a record high of 4.0 percent in June, data showed on Monday, cementing expectations the European Central Bank will raise interest rates this week despite slowing economic growth.

The 4.0 percent year-on-year figure for price growth in the 15-nation eurozone represented a leap from May's 3.7 percent, moving further from the ECB's target of just below 2 percent and the highest figure since measurements started in 1997.

Following the report EUR/USD pushed up to 3 weeks highs of 1.5836, before retracing following stronger than expected Chicago PMI and a statement from U.S. Treasury Secretary Henry Paulson.

He again re-affirmed the Fed's belief in a strong US dollar and also stating that the price of oil is now creating a big burden on the world economy.

GBP/EUR remained pretty flat throughout the day and GBP/USD fell away from its day highs off 1.9966 taking its lead from EUR/USD.

Moving onto today we have already seen the release of the Nationwide building society house price survey. As expected this came out on the downside showing house prices fell 0.9% in June.

House prices have been falling non-stop since peaking last Oct at an average 186,044 pounds, according to Nationwide data, and stand 6.3% lower than a year ago in June, the weakest annual rate since Dec 1992.

Also this morning we have seen the release of Spain's PMI, falling to 40.6 in June from 43.6 in May, lowest in the survey's history.

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FED leave mortgage coalculator home loans rates Unchanged as expected

As predicted the Federal Reserve left the bench mark interest rate unchanged at 2%, ending the fastest series of rate reductions in two decades.

Although downside risks to growth remain, it appears that increasing inflation is becoming a greater concern. It has been said that this is a ‘baby step' in the direction of raising rates, as the FOMC leave their options open.

ECB President Trichet's comments during yesterday's press conference have cemented expectations that a 25bps rate rise in July is almost certain, with investors not ruling out the possibility of two rate increases this year, as inflation pressures have intensified in recent months.

Trichet told the European Parliament "€˜he did not envisage a series of increases, that being said, we never pre-commit. I said that we could increase rates by a small amount in order to secure a solid anchoring of inflation expectations'.

On the back of Trichet's comments we saw the Euro strengthen against the Dollar and the pound.

Oil dipped below $134 a barrel on Wednesday after reports showed that US Inventories had unexpectedly increased to 301.8m barrels in the week ended 20 Jun, against a forecasted decline of 1.1m barrels.

A report released by the US Energy Department yesterday has indicated that oil prices will decline to $70 a barrel by 2015 as new production begins in Azerbaijan, Canada, Brazil and Kazakhastan, however, it is predicted that this will be short lived as the price of oil will rise again to $113 a barrel by 2030 as the market remains relatively tight.

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MPC Hawk Argues Slower Growth Will Dampen Inflation

Sterling fell against both the dollar and the euro on Monday subsequent to an interview which appeared in the morning press with Andrew Sentance, a member of the Bank of England's monetary policy committee.

Sentance argued in the interview that the combination of a weakening housing market, the credit squeeze and higher commodity prices is placing significant pressure on consumers which should slow economic growth and so, "€œHelp to offset the upward pressure we are seeing on inflation."

Whilst not disputing the risk posed by inflation, the comparatively dovish tone of Sentance's comments, particularly on the subject of rising pay demands, contrast with those made by Mervyn King and the Chancellor at last week's Mansion House dinner.

Sentance's views on slowing growth in the UK economy were supported by a report also released yesterday by Britain's most used property website, which showed that the average asking price a home dropped 1.2% during May. On the back of these factors, EURGBP reached 0.791 in early trading before eventually closing the day down 1% at 0.789.

The pound was also weak against the dollar, slipping to 1.9586 before mounting a slight recovery to end the day down 0.5% at 1.9644.

Following the release of two reports which illustrated that the eurozone may now also be suffering similar issues to those faced by the US and UK, the euro fell against the dollar closing at 1.551, down 0.6% for the day.

Firstly the German Ifo business survey supported the results of last week's ZEW index by reporting that business confidence within Germany has fallen this month to the lowest level since 2005.

The index reported that the sharpest decline in confidence took place within the heavy industry and manufacturing sectors and this was reinforced by data from the eurozone's Manufacturing Purchasers Index, which showed that the strength of the euro combined with high oil prices is taking a considerable toll on manufacturing.

Despite this, markets are still expecting the ECB to raise interest rates to 4.25% next month.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

OPEC to boost Oil output but little impact on prices

A summit held in Jeddah over the weekend which included representatives from all the major oil producing and consuming nations resulted in somewhat of a stalemate, as few of those on the supply side agreed that action was required by producers in order to curb the rising cost of oil.

Although blaming speculators for record prices, Saudi Arabia as head of OPEC has though agreed to increase production by 200,000 barrels per day by the end of July.

Saudi King Abdullah bin Abdul-Aziz stated that he was concerned about the global economic instability caused by higher prices and reaffirmed that, "€œWe declare our readiness to meet any additional needs."

Doubts that the summit will have any significant short-term impact on prices due to the continuing attacks on infrastructure in Nigeria and growing tensions between oil companies and the Kremlin were confirmed this morning as crude remained above $136.

The weekend has also emphasised the widening rift amongst OPEC's members over how the cartel should react to the demands of consuming nations to increase supply.

Several members including Algeria and Qatar have argued against increasing supply because speculators will drive up the price of oil whatever the production levels, whilst only Kuwait has publicly declared it is willing to follow Saudi Arabia's route if required.

Gordon Brown announced during his speech to the summit that Britain's energy industry would be opened up to encourage investment from oil producing nations in order to advance alternative energy sources.

Last Friday's EU meeting in Brussels also witnessed disagreement amongst leaders on a number of issues including the Irish rejection of the Lisbon Treaty and the possible future enlargement of the bloc.

President Sarkozy expressed his belief that the EU could not be expanded to include countries such as Croatia without the treaty being in place. This view was supported by a number of leaders including Angela Merkel, however others such as Silvio Berlusconi argued that enlargement should take place sooner rather than later.

In the markets, Friday capped a miserable week for the FTSE 100 as it ended the week down 88 points at 5620. On Wall Street the Dow fared little better slipping 1.9% by close of trading on the back of growing concerns over possible further downgrades in the financial sector.

In the currency markets Sterling fell against the euro as traders became less confident in a UK rate change and ended the week down 2% at 1.26. Preceding this week's Fed announcement on interest rates the dollar posted its biggest weekly decrease (3%) against the euro as EURUSD finished at 1.56, whilst cable closed at 1.97.

There are a number of important reports due for release this week including today's German IFO business survey, which will be closely scrutinised after last week's ZEW index reported that investor confidence had fallen to its lowest level for almost 16 years.

Tuesday will see the release of data in the US on consumer confidence before Wednesday's Fed announcement on interest rates. The market is predicting that rates will be kept on hold at 2% on the back of gloomy data still emanating from the housing market.

In relation to the UK, the CBI's Distributive Trades Survey will be released on Wednesday and will be significant as it is acknowledged that both the BOE and UK government place greater weight on the report as an indicator of short-term trends in the retail sector than last week's consumer index.

The week ends with the release by the Office of National Statistics of the finalised UK GDP figures for the first quarter of 2008

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Oil reaches another record high day before CPI released

Inflation in the Eurozone during May was 3.7% according to figures released by the EU's official statistical office yesterday, up from 3.3% in April.

These levels of inflation have not been witnessed since the Eurozone was created in January 1999 and will add weight to the calls for a rate increase by the ECB as early as next month.

Soaring commodity prices combined with mounting wage pressures are creating a situation in which it looks increasingly likely that the ECB will place the combating of inflation above the need to maintain economic growth.

Despite an announcement by Saudi Arabia that it plans to boost oil production to its highest level in 25 years, oil prices jumped on Monday to a fresh record high of $140 a barrel whilst the dollar fell against sterling and the euro.

EURUSD was driven up through 1.54 and then 1.55 overnight with cable also pushed higher but was unable to beat the 1.97 upside barrier.

This continued rise in the price of oil was clearly one of the main topics of discussion at last weekend's G8 summit.

Despite the split between the finance ministers as to the cause of the record prices, all were in agreement that the inflationary effect of rising commodity prices were making the job of policy makers a lot more complicated.

Hank Paulson, the US Treasury secretary attempted to again talk up the dollar and argued that the high oil price, "€œbrings the risk that the slowdown in our economy is going to be prolonged." As mentioned yesterday, the markets are predicting an increase of 75 basis points in rates by year end, however the Fed yesterday warned that although there is a good chance rates will be increased, the markets may have got carried away as to how many hikes there will be.

Inflation will remain at the top of the agenda today with the release at 9:30am of the CPI index in the UK. If market expectations for a 3.2% y-o-y rise are correct, this will require an open letter from Mervyn King explaining why inflation has risen above 3%.

The pressure is very much on the BOE to prove it can still maintain some level of control over inflation despite what is happening in the commodity markets. The sentiment in the market is that we are reaching a point where the BOE must decide whether to sacrifice economic growth in order to prevent inflation becoming a runaway train.

However with the UK economy predicted to grow just 1.3% next year, King's words will be closely scrutinised by both the market and consumers.

Equities in both London and New York were down on Monday as the further surge in oil prices dented confidence. The FTSE ended the day down 0.14% on the first day of trading following the Chancellor's announcement that new rules were needed to ensure the ‘short selling' of shares was properly regulated.

Wall Street stocks dipped into the red as oil dependent companies and airline stocks took a hit dragging the Dow Jones down 0.3%.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Inflation Remains Top of Central Banks Agenda.

On Friday morning it was announced that inflation in Germany has accelerated more than initially reported back in May, caused mainly by the price of oil.

The Federal Statistics Office reported that consumer prices increased by 3.1% year-on-year, a 10 basis point increase from an estimate made on May 28th. This could offer further support for the ECB to raise rates sooner rather than later. Later on Friday afternoon the trend of higher inflation continued over in the US.

It was reported that the consumer price index had increased by 0.6% during May, which is the biggest monthly increase since November.

Prices climbed 4.2% in May year-on-year, leading many investors to believe that the Fed will start to raise rates as soon as August. The markets have now priced a total increase of 75 basis points by year end.

Both the ECB and BOE are clearly focused on controlling inflation caused by higher commodity prices. In a somewhat unusual move the bank released the transcript of a speech made by the Executive Director Paul Tucker back on April 28th in which he indicated that policy makers must weigh up the significant inflationary risks from the commodity-price shock against the need to ‘mop-up' after the credit crisis.

In relation to rate expectations in the Euro zone, ECB board member Jose Gonzalez-Paramo added an element of doubt by commenting that, "€œThere is a possibility, not certainty, of a rate increase at our next meeting."

The announcement late last Friday afternoon that 53.4% of voters had voted against the Lisbon treaty will have significant ramifications throughout Europe.

At a two-day summit starting in Brussels this coming Thursday the EU's leaders will seek to outline a plan aimed at averting a full-on crisis, but many including the Irish PM have expressed a belief that on this occasion there is no quick fix.

The Irish vote against the Lisbon treat and slightly less hawkish comments from Gonzalez were the main forces behind the Euro's move lower on Friday. The single currency continued to weaken against the dollar as it traded down to test the 1.53 level but was unable to break below.

This also dragged GBPUSD down to briefly threaten 1.94. The weaker Euro allowed sterling to push back with EURGBP trading through 0.79.

Tuesday will see the release of the UK's Consumer Price Index. If market expectations for a 3.2% y-o-y rise are correct, this will require an open letter from Mervyn King explaining why inflation has risen above 3%.

The minutes from the Bank's meeting earlier this month will be released on Wednesday at 9:30 am. These will be closely scrutinised by market participants for in indication as to the future path of UK interest rates.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Interest rate announcements are in the spotlight

Yesterday, the GB Pound continued to decline against the Euro and US Dollar as the UK purchasing mangers' index for the services firms unexpectedly fell.
The report implies the economy is the weakest since the last recession, and whilst Governor Mervyn King has not ruled out a UK recession, faster inflation is making it harder to cut borrowing costs.

With inflation firmly in the headlights, the majority of the MPC is expected to vote in favour of leaving rates on hold at 5.00% today. The ever dovish MPC member David Blanchflower will no doubt go against the grain and argue for a rate cut. Personally I think that the gentleman (although learned) is looking for attention.

It was once the flavour of the month but the Euro may now be in the eye of the seller. Both the purchasing managers' index for the services sector and retail sales figures for the Euozone disappointed on the downside.

Today, it is expected that the ECB will leave rates steady at 4.00%. All ears will be on the post-meeting press conference, in which ECB President Trichet will be forced to comment on the topic of price stability versus deteriorating growth.

Meanwhile the USD held on to its recent gains after Bernanke once again commented on the inflationary impact of a falling USD. Market consensus seems to be that while it looks unlikely that the Fed will raise interest rates any time soon, this probably means that the downside for the USD has become more limited and reinforces the growing emphasis on inflation concerns within the Fed as risks to growth appear to have eased.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

The Pound under pressure...

The US dollar managed a slight recovery last week on economic releases that gave a welcome breather to the currency.

Durable Goods, New Home Sales and Chicago PMI were all better than expected. A key determinant of the dollar's direction going forward is likely to be the state of the US consumer which continues to suffer under spiralling gasoline prices coupled with a worsening employment situation. As such the Non Farm Payroll's due this week is eagerly anticipated.

The euro came under brief pressure on Friday following a disappointing set of German retail sales data which unexpectedly declined for the second month, down 1.7% mom and 1.0% yoy.

The recent flow of softer German data has pressured the euro lower however there remain market observers who believe we could see EURUSD trade back at the 1.60 level in the not too distant future.

Closer to home, Sterling is starting the week a touch softer on the news from Bradford & Bingley.

Rate announcements from the Bank of England and the ECB are due this week, both are expected to keep rates unchanged - The MPC is anticipated to leave rates unchanged at 5.00% on Thursday for the second month in a row as inflation pressures prevent any easing in rates to provide a stimulus to the economy.

From the eurozone the press conference that follows will likely once again provide more excitement than the announcement itself.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Inflation and oil the talk of debt consolidation

Inflation and oil continue to be the main focus of the debt consolidation markets.
Yesterday saw the US Dollar gain across the board on the back of oil retreating to as low as $126 at one point. Also supporting the USD was better than expected durable goods orders which declined less then forecasted revealing a surprisingly robust data given the current conditions while weak French consumer confidence weighed on the EUR.

The move in oil has since reversed however with Crude back through $130 a barrel on the back of Nigerian supply concerns.

Moving on to inflation which appears to be the main concern in the markets and whether economies can avoid the nasty Stagflation monster.

The USD has received a boost from comments made by Fed members yesterday. Fisher started last night with stating inflation is the bigger risk to the economy and a concern to all FOMC members.

Other members are also speaking today and it is expected they will reiterate the message of price stability ie controlling inflation. This change in stance, focussing on inflation, from the Fed's initial response to the credit crisis of pumping liquidity into the market and cutting rates has seen the 10yr US Treasury yield rise back above 4% for the first time this year.

Also commenting on inflation was Trichet saying that the job of the central banks is to preserve medium term price stability and keep inflation expectations well anchored. No chance of a rate cut in the Eurozone soon!

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Wise Money asks if an ECB rate cut is wishful thinking

Prominent fears of stagflation (inflation and stagnation) appeared to contribute to the Sterling weakness against the US Dollar yesterday.

Not helping the GB Pound was the release of a Hometrack survey showing a fall in house prices in England and Wales for the eighth month running and a 40% year-on-year drop in April's mortgage approvals.

Across the pond the US Dollar experienced a lift following a report showing stronger than expected US new home sales data and a retreat in oil prices. This phase did not last long however as the EUR took the lead once again.

The US Dollar fell compared to the Yen and CHF following the FBI saying that a video will be posted soon urging Islamic militants to attack the West via biological, chemical and nuclear weapons.

Oil is the key at the moment for the greenback as they seem to move inversely in recent times. If we see a fall in oil prices inflation worries will quieten down and make investors believe the worst is over.

Recent data released in Europe gave reason for concern over the health and stability of its economy. The EUR suffered following a slump in French business confidence to a 2.5 year low and an unforeseen decrease in Germany's consumer morale for the month of June.

Investors are looking for action from the ECB and a change from its neutral perspective to dovish. However ECB members themselves declare this as "wishful thinking" and a different approach to its monetary policy is yet to be seen. Looking at the global economy market participants feel that the US has seen the worst of it and that Europe is only at the start of its economic slowdown.

The FED has adopted a very dovish tone since fears of a recession first appeared and tried to counter-act with rate cuts totalling 3.25 percentage points since September however with inflation now beginning to be the main focus the market will be looking for the Fed's next move to be an increase in rates.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Soros - We face the most serious recession of our lifetime

George Soros, the phenomenally successful billionaire hedge fund manager, has said that "we face the most serious recession of our lifetime".

In short, he made his feeling perfectly clear, by saying that the United States and Britain are facing a recession of a scale greater than the early - 1990s and greater even than the 1970s.

He pointed towards the 1970s dislocations when commenting that current market conditions are worse because of the implications of the house price decline, which there wasn't in the 1970s.

Soros, who warned of the dire consequences facing the American economy years ago, when the housing bubble was still inflating, said about the UK "House prices have risen over the years and are further away from sustainable levels than in practically any other country, in terms of house indebtedness and the relationship incomes. The slump may be more gentle that the US, but it will be more drawn out".

The dollar inched back towards one-month lows against a basket of currencies today, as oil prices were near record highs and the deteriorating U.S. economy.

Activity is expected to pick up today as investors return from long weekends in both the United States and Britain, with the market looking to oil prices and stocks for clues on the dollar's near-term direction.

Expectations of the US dollars longer term direction in particular against the euro, is that we see could it rise towards the end of the year, as Federal Reserve is done with interest-rate reductions and may raise borrowing costs next year.

The U.S. currency on April 22 reached a record low of $1.6019 per euro as the Fed decreased its benchmark rate seven times since September to 2 per-cent to spur economic growth. The dollar has plunged almost 44 percent against the euro since the start of 2002.

The Australian and New Zealand dollars rose on speculation the extra yields offered by the nations' bonds attracted investors. The Australian dollar traded near the highest level in 25 years, whilst the New Zealand dollar climbed for an eighth day, in its longest rally in 14 month.

Crude oil rose above $133 a barrel as a militant attack in Nigeria disrupted supplies and on speculation fuel subsidies in Asian countries will continue to spur demand.

Gold was little changed after gaining in the past two days as higher crude oil prices and the dollar's weakness against the euro bolstered demand for the precious metal as a hedge against inflation.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Minutes and Oil highlight Fed dilemma

Congratulations to Manchester United and commiserations to Chelsea after a superb European Cup Final in Moscow last night as the Reds invade Red Square.

Another 'close call' at the Federal Reserve who released the minutes of their April 30th meeting yesterday.

Their task in controlling the US economy is not an enviable one. The decision to cut rates at that meeting was certainly not unanimous with members highlighting ongoing inflationary concerns.

Yesterday's latest surge in oil prices hardly helps their cause. Oil surged past the $133 mark fuelled by fears of a global shortage. Policymakers at the Fed are going to find it increasingly hard to weigh up the dual mandate of controlling inflation by hiking interest rates and encouraging spending and growth by cutting them. The minutes showed that the Fed's easing bias is drawing to a close with a more neutral stance to come.

The Bank of England's Money Policy Committee faces the same dilemma. The minutes of this month's meeting showed the 9-strong team voting 8-1 in favour of keeping rates on hold. Blanchflower was the predictable dissenter voting for a cut.

They also showed that there was a general reluctance to cut rates at the moment so as not to be seen specifically targeting growth which could in turn have spooked the market about future implications for inflation.

Many analysts are now targeting November for the next rate cut.

Expect sentiment on this to shift as economic data drips through in the coming months.

The Euro was the winner on the currency markets again which was not only benefiting from uncertainty surrounding future Dollar and Sterling yields but had independent support from the IFO Institute's business climate index which rose to 103.5 in May from 102.4 in April.

The survey signalled that the German economy was showing strong resilience to the US slowdown. The single currency hit one-month highs against Sterling and the Dollar.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Wise Money balances growth versus inflation

With both the US and UK economies under inflationary pressure, Central Bankers are faced with the task of stimulating growth without yielding to high inflation.

Last weeks UK CPI data damped all sprits for a rate cut next month, coming out well above expectation at 3%. Governor King has openly acknowledged the "nice" decade is over and that in the coming months he will be forced to write an open letter to Alistair Darling, when CPI breaches the 3% barrier.

In normal market conditions news that rate cuts were unlikely would have gone on to strength sterling, however, it is a sign of current market sentiment that Sterling remained under pressure and underlines the BoE's limited powers in manipulating the market to its ideal of low inflation and consistent growth.

The market is going to pay greater interest than usual to this month's BoE Minutes, with analysts predicting just arch dove Blanchflower being the only member to have voted for a 25bpts cut.

If one or more joined Blanchflower in voting for a cut then expectation for a cut in the coming months will swell.

We will also be steered on Wednesday to the course in which the Fed will be looking to follow after last months cut of 25bpts. At the time the Fed announced that it was going to be the last cut for several months.

However, traditionally the US consumer has an almighty influence on the US economy, with analysts paying particular attention to any data that suggests that the US consumer is slowing their spending.

On Friday University of Michigan Sentiment Index showed that Consumer Confidence was at a 28 year low. This compounded already gloomy US sentiment with inflationary expectation seen at 12 year highs.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Central Banks Keep Rates on Hold .. Oil surges to new record high

Yesterday we saw the MPC decide to keep UK rates at 5% for a further month. Until we get the minutes of the meeting released on the 21st May, we will not know how close a decision this was.

With the current raft of weak data coming from the UK I would imagine there was quite a battle of words between the inflation focused hawks and the doves concerned with sputtering growth.

The ECB also left rates unchanged with their reference rate held at 4% for the 11th month in a row.

The statement from ECB President John Claude Trichet, that immediately followed the meeting left the market in no doubt that the Central Bank's main concern was still very much the fight to stave off inflation.

It looks very unlikely that we will see a move in Euro rates now until well into the second half of the year even though the economic signals from the majority of the member states are getting weaker by the day. German export numbers yesterday underlined this with the strong Euro damaging business outside the region whilst weak demand from within the Eurozone accentuated the problem.

The resultant FX reaction was muted although by the end of the day Sterling did weaken against both USD and Euro.

The outlook on currencies remains clouded with the Market currently making money by being long of Dollars but still unsure that both the US economy is out of the woods and that the US are supportive of a further strengthening in their currency.

Commodities, and especially oil, were the dominant movers yet again with the price of crude going above the $124 per barrel for the first time ever - suddenly, the prediction from Goldman Sachs that oil will reach $200 per barrel this year doesn't look too off the wall.

The resulting economic Global slowdown if this occurs would be severe in the extreme. On the other side, base metals fell in active trading.

Today we are light on the data front with just the US Trade Figures at 1.30 to look forward to. Given the fine weather, this might not prove a strong enough draw to keep the market bubbling into the afternoon.

Next week looks more interesting with the highlight in the UK being the release of the Bank of England's Quarterly Inflation report. The data plus the question and answer session that follows will set the stage for the MPC meeting in June and as such should provide a good clue as to which way the committee will swing.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Wise Money eyes on the BOE and the ECB today.

The Pound took a further bashing yesterday now reaching an 11 week low against the dollar.

Sterling came under severe pressure after the UK Industrial Production figures were much worse then anticipated, with a 0.5% fall month on month. The continued weak data for sterling has raised discussions that the BOE will be forced to cut rates by a further 25bp at the meeting today.

However with UK inflation data due to be released next week many economists believe the BOE will hold rates until this data is revealed. The inflation data is expected to hit 3% so it may be seen as irresponsible for the BOE to cut rates before this important data is released.

This 3% level is extremely significant because the MPC will have to write letter of explanation to the treasury explaining why inflation is so high.

A panel of 9 financial and economic experts which make up The Times Shadow MPC also recommend that the sterling base rate remains on hold at the meeting today. The votes were swayed 5 to hold and 4 to cut.

The retail sales in the euro zone were released yesterday morning, highlighting the worsening European economic performance we have seen over the last few weeks.

The retail sales fell by 0.4% in March similarly placing pressure on the ECB who are meeting today as well.

However the ECB who are also faced with similar pressures of rising inflation and slowing growth are also expected to keep rates on hold. What will be of more interest to the market will be the comments of Trichet in his press conference following the rate announcement where he is expected to emphasise the downside risks to the economy.

The dollar on the other hand has been heading towards recent highs against a basket of currencies. Fed officials have hinted that the hard-line rate cutting may be lapsing with US Treasury Secretary Henry Paulson stating in a recent Wall Street Journal interview that 'the worst seems to be behind us.'

The BOE are due to make the rate announcement at 12.00 today followed by the ECB at 12.45. Further to this data out today is the US initial jobless claims out at 13.30.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Euro Inflation takes to the stage

Euro zone inflation took centre stage yesterday as Jean-Claude Trichet spoke at a conference in Vienna. The European Central Bank President made it clear that the governing council must use interest rates to deliver price stability.

Any other considerations, such as growth and employment are secondary. These comments effectively dismiss the recent calls from French and Italian government officials for growth to be taken into account.

Inflation which reached 3.6% last month, the fastest pace in 16 years, has led to the ECB leaving rates unchanged. It appears this may be the same reason for the repo rate remaining at 4% in the near future. In the same speech, Trichet again voiced his concern about the euro's strength and the impact it has on European exports.

The euro bounced back against the dollar during yesterday's trading, after three days of declines. Yet another occasion on which Trichet talks tough on inflation, also mentions the detrimental effects of a stronger euro and the market automatically pushes the single currency higher.

There was additional evidence, provided by the Hometrack Ltd survey, that the UK housing market is correcting. The results which were released early yesterday showed the average price of a home declined a further 0.6% in April. This is the biggest month on month drop in over three years for this report.

Oil prices climbed again to reach a record $119.93 a barrel, caused by a strike at a refinery in Scotland and further violence in Nigeria.

Possibly of greater interest is that the EUR/ USD cross rates has had a correlation of 0.96 with the price of oil. Just a bit closer and it's a perfect hedge.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Prices the word of the money week

And that's not just for rugby world cup final tickets.

The Rightmove House Price survey released this morning indicated September house prices recovered from a -2.6% decline previously to rise 2.7% last month. Year on year growth is now 10.4%.

The increase is due to more expensive homes on the market prior to the implementation of Home Information Packs. In signs that the market may be cooling the average time homes stay on the market continues to increase, now at five year highs of 85 days.

The week ahead also sees a raft of inflation data starting with UK inflation data tomorrow with expectations of an increase in the consumer price index from 1.8% to 1.9% primarily due to increasing food prices.

Eurozone inflation data for September is also due tomorrow again expectations are for no change at 2.1%.

US core inflation is due on Wednesday with the consensus also unmoved at 2.1%. Friday saw US retail sales results come in higher than forecast increasing 0.6%.

This was against forecasts of 0.2% increase as consumers continued spending despite the deepening of the housing slump.

The above consensus of stable inflation data may undermine those hoping for interest rate cuts in the near future, the week ahead will provide greater indications of this.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Rate expectations boost Pound

The Pound climbed to a two month high against the dollar on Monday as the chances of a near term rise in UK interest rates climbed despite a report that suggested UK manufacturing growth slowed in March.

The UK purchasing managers’ index fell from 55.4 in February to 54.4 in March, a larger than expected fall.

Meanwhile, data revealed a sharp rise in UK mortgage equity withdrawal in the fourth quarter. reflecting UK households increasing willingness to translate rising household wealth into a more liquid form of spending power.

The pound rose 0.2 per cent to $1.9730 against the dollar and climbed 0.2 per cent to £0.6779 against the euro.

Elsewhere, the euro was little changed against the dollar at $1.3350 as investors shrugged off a slight dip in the eurozone manufacturing purchasing managers’ index in March.

Analysts said the market’s focus would switch to the US Institute of Supply Management’s survey of the US manufacturing sector, due at 14.00GMT, for clues as to the future path of US interest rates.

The yen was flat at Y117.80 against the dollar and unchanged at Y157.30 against the euro, showing little reaction to Japan’s quarterly Tankan report, which showed Japanese business confidence deteriorating for the first time in a year.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

UK 4th Quarter GDP revised down

The Pound was unable to advance on the exchanges as UK 2006 fourth-quarter Gross Domestic Product (GDP), the key gauge of economic growth, was revised down to 0.7% from 0.8%.

Losses were limited however as the figure still contributed to an overall growth figure of 3% for the year as a whole and did little to dampen expectation that the next move by the Bank of England’s Monetary Policy Committee will be a near-term 0.25% hike in interest rates.

Also in the UK, a survey by the Nationwide Building Society showed that annual house price inflation had slowed to 9.3% from February’s 10.2%. There are growing signs that the MPC’s three most recent quarter-point rate rises are starting to filter through into the housing market.

Nationwide said that although the rate of increase was slowing due to a fall in demand (driven by more expensive borrowing terms), a shortage of supply would see prices remain buoyant.

The Federal Reserve Chairman, Ben Bernanke, addressed Congress yesterday and he echoed recent concerns and uncertainty about the state of the US economy. He also said that recent measures of inflation were ‘uncomfortably high’. This clearly limits the FOMC’s ability to loosen monetary policy in light of the downturn in most other economic indicators.

This uncertainty spread to US Stock Markets yesterday, with the Dow Jones down over 100 points and the NASDAQ down 20. Yesterday’s US Factory Orders showed an increase of only 2.5% against expectations of a 3.5% rise.

The Japanese Yen was the beneficiary of carry-trade unwinding yesterday and rose over 1 per cent against most major high-yielding currencies. Investors, looking to increase yield by purchasing assets in high earning currencies (e.g. GBP, USD, NZD, AUD), funded by borrowing in cheaper currencies such as the JPY, reversed many of these positions yesterday as concerns about the US economy and political tension with Iran surfaced again.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.