Articles from January 2007



Federal Reserve Day

UK consumer credit and mortgage data came in higher in December. Mortgage approvals showed their weakest rise since April and came in lower than expected. Mortgage lending rose in December above market forecasts.

Sterling saw a rapid rise yesterday morning and this was rumoured to be largely due to the buying of Sterling-Yen for a merger and acquisition related transaction and we have subsequently seen profit taking overnight which has driven Sterling lower.

US consumer confidence edged higher in January. The Conference Board index rose to 110.30 from an upwardly revised 110 in December. The increase was a result of a more favourable job market component.

The FOMC decision is expected to yield an on hold result leaving interest rates at 5.25% and continued rhetoric about inflation risks and the housing market with recent economic data pointing to an economy that is pointing in a stronger than expected performance.

The Euro fell against the Yen as German Finance Minister Peer Steinbrueck said G7 officials would discuss the recent rise at their meeting next week as well as exchange rates in general.

Interestingly German CPI numbers from the six federal states showed that the pass through effect of the VAT increase may be lower than expected. Meanwhile the French jobless rate released this morning fell to 8.6% in December, the lowest level since June 2001.

A word on oil. Oil prices pulled back but remained over US$56 a barrel as cold weather hit the US and the market expects crude inventories to show a decline. Yesterday saw a jump of over 5% on Tuesday.

Some say that the spike was also caused by buying ahead of the scheduled February OPEC reduction in output of half a million barrels a day.

On the data front we have German unemployment, UK consumer confidence, US Q4 GDP, Chicago PMI and ADP employment report and of course the Fed announcement later tonight.

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.

All eyes on the Federal Reserve tomorrow

British retail sales volumes rose more than expected this month and at their fastest rate in more than two years. The Confederation of British Industry said its distributive trades survey’s reported sales balance rose to +30 in January, marking a fresh 2-year high after December’s reading of +25 and a forecast a reading of +14 and retailers’ own expectations were for a reading of +4.

It seems that consumers will keep spending despite a higher cost of living and rising borrowing costs. To that extent the market is now pricing in the best part of another two interest rate rises.

The Nationwide UK housing index released this morning showed house prices rising at their slowest pace in 8 months at 0.3% on the month and the comment that we may see a weakening of demand as a result of stretched affordability and rising interest rates.

Interestingly we have consumer credit and mortgage data due for release this morning.

The two day US FOMC meeting starts today with the statement released at 19.15 GMT tomorrow. The market expects the Fed Funds rate to remain at 5.25% and the statement to offer a balanced outlook with the caution of downside risks to growth as the housing market cools.

The Chicago Fed Reserve Bank said yesterday that the Midwest manufacturing index rose in December as the auto and machinery sectors put in a stronger showing. This afternoon sees the release of US consumer confidence.

The Japanese Yen has been a currency of interest as it continues to weaken against the USD. Weaker household spending and a slightly higher jobless rate in December have again dampened the prospect of a rate rise by the Bank of Japan as concerns continue over the strength of consumption.

On the other hand, industrial output rose by more than expected, highlighting the strength of the corporate sector.

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.

US Dollar fights back

US December Durable Goods Orders came in strong at +3.1% against expectations of +3% on Friday. New Home Sales came in stronger than expected at 4.8% in December and prices rose as the number of homes on the market decreased.

This week sees the first estimate of fourth quarter GDP and the FOMC rate announcement on Wednesday and Non-Farm Payrolls for January on Friday. If there are further signs of a soft landing from this data then we may see another push higher in the US Dollar.

The surprise voting balance which emerged last week from the Bank of England certainly took the wind out of the Sterling’s sails. Despite robust Retail Sales and GDP, the market will question the bank’s conviction going forward regarding another rate rise in March and as such we may have seen a temporary high.

BoE member David Blanchflower said he was ‘hawkish on inflation’ but he had not voted for the last three rate hikes and was dismissive of fears surrounding pay rises in the new yea pay round . A light UK economic data week with peripheral releases including PMI Manufacturing on Thursday.

ECB President Trichet commented on Sunday that there is a risk of second round effects from the increase in oil prices and a risk of starting an inflationary spiral. ECB council member Weber also reiterated Trichet’s comments and observed that most economists expect oil prices to rise again.

He stated that the Eurozone should not be satisfied with an inflation rate just below two percent if it is based on a temporary drop in oil prices. The market expects another 25 basis point interest rate rise in March.

Economic data today is sparse with only UK CBI distributive trends report due.

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.

US Dollar strength continues

The foreign exchange markets continued to be pro-USD as it sent the greenback higher against every major currency except for the Japanese Yen. With nothing meaningful to latch onto, the Yen staged another impressive rally while GBP continued to sell-off.

Jobless claims increased by 325k after remaining below 300k for the past 2 weeks while existing home sales dropped for the first time in 3 months. These disappointments still represent adjustments rather than negative implications for the US economy.

Today we have the most important piece of US data this week, durable goods orders for the month of December. Demand is expected to have been strong thanks to a big increase in aircraft and machinery orders. Unlike existing home sales, new home sales are projected to rise in the month of December, which would confirm that the housing market remains stable.

Although durable goods are important, any surprise may still not be significant enough to take the EUR/USD out of its 200 point trading range. However the chance of a breakout next week may be very strong as the economic calendar heats up.

GBP extended its losses against both the Euro and USD despite the lack of any meaningful economic data. The market is still reeling off from the surprise voting record at the most recent monetary policy meeting. Looking ahead, the GBP’s weakness against the USD is nearing support.

Whether this level will hold may be determined by the housing data due out today in the US. With BoE policy still in focus, further signs of weakness in the housing market could be cause for concern.

Mortgage approvals are expected to drop by a whopping 12.6 percent in the month of December. If this large drop is confirmed, further weakness in GBP could be seen.

The Euro has tumbled against the USD on the back of disappointing economic data. The potential impact of the 3 percent increase in Germany’s value added tax has been a major concern for all market watchers. When the German business confidence index hit a 16 year high last month, that concern was alleviated significantly.

However the latest pullback in both business and consumer confidence raises the question of whether the economy is no longer immune to the tax increase. Originally expected to rise, the January IFO index dropped from 108.7 to 107.9. In the grand scheme of things, business confidence still remains at healthy levels and for the time being is not expected to deter the European Central bank from lifting interest rates in the first quarter.

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.

Sterling lower on King comments/minutes

The Pound fell back from its 14 year highs yesterday after the Bank of England Minutes and comments from Bank of England Governor Mervyn King. Much of the sell off was triggered by King’s comments on Tuesday night and leading into the minutes the GBP/USD had fallen from 1.9900 to 1.9740. King suggested that earlier action by the Bank of England to counter inflation may avoid the need for larger rises in the future.

The market was looking for a 7-2 or 6-3 result from the minutes however the result was a close 5-4. GBP/USD initially fell on the release but a look at the minutes revealed that other members were not against the need to increase rates but preferred a February hike to January.

In addition the GDP data released at the same time was stronger than expected at 0.8% qoq / 3.00% yoy – the strongest growth in 2 ½ years.

The GBP/USD fell to 1.9700 but bounced back to 1.9760 on the GDP data and further analysis of the minutes. Later in the day however the GBP lost momentum and fell below 1.9700.

The market is now pricing in a further 25bp increase this quarter but nothing further. A poll of economists on Reuters showed 59% view no further rises this quarter with the remaining 41% expecting, like the market, another 25bp increase this quarter.

The major move overnight and this morning has been in the JPY. The JPY has strengthened across the board on news European Finance ministers will push for a stronger JPY at next month’s G7 meeting. The move in the JPY had begun earlier following benign inflation in Australia led to traders moving out of AUD and into JPY as proxy for the Asian economy.

Today sees the release of German Ifo data, US jobless claims and US Existing home sales.

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.

Sterling hits new 14 year high against the Dollar

Sterling climbed to a 14 year high against the dollar yesterday on continued expectations of further increases in UK interest rates. The Pound pushed through 1.9900 against the dollar, the highest levels seen since September 1992. The pound then fell against the dollar after Bank of England Governor Mervyn King said inflation may decline “quite sharply” in the second half of this year.

Oil prices hover near $55 early this morning, after jumping by 4.7 per cent following news that the U.S. will build emergency oil reserves and as cold weather took hold of the worlds top consumer.

The Bank of England minutes are published this morning and needless to say many peoples eyes will be on the report to see why the bank felt the necessity to surprise the market and raise rates in January. Also released today in the UK is GDP for Q4, with an expectation of a rise of 0.7%, with the possibility of an even stronger number.

The Norges Bank rate announcement is released this afternoon and it is expected that they will keep interest rates at 3.50 per cent, following Decembers rise of 25 basis points.

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.

Pound rises to four year high against the euro!

The Pound rose to a four year high on expectations that signs of quickening growth will prompt the Bank of England to raise interest rates again this year. The central bank’s surprise rate hike to 5.25 per cent earlier this month, followed by last week’s very strong inflation data have raised beliefs to two further rate hikes, with a back-to-back rise next month looking increasingly likely.

The currency climbed to a four year high versus the euro following an industrial survey showing house prices in January rose to a record. Against the euro, the pound rose to 0.6537, its highest level since January 31 2003. The Pound also reached a seven week high against the dollar late yesterday afternoon.

The euro advanced against the dollar on speculation a survey this week may show German business confidence rose to a record, bolstering the European Central Bank’s case for raising rates. Increased borrowing in the 13 nations sharing the euro will help raise the yields investors can earn on assets in the region.

The yen slumped to an eight year low against the Pound early this morning and held near a four-year low versus the dollar following continued pressure from both currencies since the BoJ announced they would be keeping interest rates on hold last week.

Crude oil rose this morning as Nigerian gunmen kidnapped two U.S. citizens, raising concerns that supply from the OPEC’s sixth largest oil producer may be disrupted as militants step up their attacks.

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 data unlikely to ease loans rate concerns

Data released this week is not expected to deter from the fact that further rate increases in the U.K probably still remain. The Bank of England’s growing concerns with the fact that inflation is rising faster than expected will probably be noted with the statement accompanying the minutes on Wednesday.

UK growth for the fourth quarter is also due on Wednesday, with the forecast for an increase of 0.7 per cent which would leave the year-on-year rate unchanged at 2.9 per cent. Service sector activity at a 10 year high, probably means that economic growth accelerated in the last three months of 2006.

This could underline market concerns that interest rates are to continue to rise, possibly to 5.75 per cent.

The dollar may strengthen this week as speculation grows that U.S. home sales stabilized last month and orders for durable goods jumped. The currency may extend from gains last week, where it climbed to the highest in almost four years against the yen.

Speculation that reports will show that the U.S. new home sales and consumer sentiment was stronger than forecast could cut speculation that the Federal Reserve will cut rates in coming months.

Crude oil prices are expected to grow this week on speculation that cold weather in the north east region of the U.S. will boost consumption. The northeast region of the U.S. is the biggest consumer of heating oil in the U.S

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.

U.S Economy regaining momentum

A series of reports yesterday implied the U.S. economy was regaining its vigor at the beginning of 2007 without generating a spike in inflation. Not only was there an unexpected pickup in new-home building in December but the pace of January business activity in the Philadelphia area also picked up and new claims for unemployment pay dropped to an 11-month low last week.

Nonetheless, the Labor Department said core consumer prices, which exclude food and energy costs, rose by a relatively tame 0.2 percent in December after being flat in November. The overall Consumer Price Index was up 0.5 percent after also being unchanged in the prior month.

An index prepared by the Philadelphia regional Federal Reserve bank showed business activity at its highest level since August, when concern about a slowdown was growing.

Markets are likely to see this as another sign that the economy is growing at a better-than-expected pace and will continue to dim the prospects of an easing by the Fed, at least in the near-term

Federal Reserve officials yesterday underscored concerns about nagging upside risks to inflation, especially given a wave of strong data including signs that a housing slowdown may be moderating. Fed Governor Susan Bies and Cleveland Fed President Sandra Pianalto, who is not a voting member of the policy setting Federal Open Market Committee in 2007, delivered a similar upbeat message in comments on Thursday.

Fed Chairman Ben Bernanke also spoke, but he steered clear of the interest rate debate in an appearance on Capitol Hill, instead warning lawmakers of the long-term dangers posed by fiscal deficits.

The FOMC next meets on Jan. 30-31 and policy-makers are widely expected to hold the key fed funds rate steady at 5.25 percent. The rate has been on hold now for four straight meetings.

Today sees the release of UK Retail Sales for December. Retailers have reported mixed fortunes over the Christmas season but any sign of strength in the data will only fuel fears that another interest rate rise looms. Analysts expect sales to rise 0.5 percent on the month and 3.2 percent on a year ago, suggesting consumer spending has held up in the wake of rising borrowing costs and after some initial predictions of a dismal festive season.

However, with financial markets jittery following last week’s shock rate hike to 5.25 percent, any surprise in the retail sales data is likely to inspire a strong market reaction.

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.

Finally, some good news for the Bank of England?

UK Average Earnings numbers in the three months to November came in a little lower than expected yesterday at 4.1% while the number of people claiming jobless benefits fell for a third straight month in December. The ONS said claimant count was showing the longest run of falls since the period between Oct 04 and Feb 05.

While this provides some good news for the Bank of England its influence is only limited. Far more important to inflation and interest rate prospects is what now happens to pay over the coming weeks.

The Bank of Japan kept interest rates steady overnight, sending the yen to a 13-month low and raising questions over whether the BOJ had succumbed to government pressure to hold off on a tightening. The BOJ said its board voted 6-3 in favour of keeping rates at 0.25 percent — the lowest in the developed world — and the market was now eyeing the chance of a rate rise as early as next month.

Japanese media, in the run-up to the meeting, had reported the BOJ was unlikely to raise rates. Many in the market suspected the government of trying to sway the central bank so that it would not potentially damage the economy with a hasty move. Prior to those reports, investors had been braced for a rise.

Bank of Japan governor Toshihiko Fukui responded by saying the BOJ would retain independence by taking responsibility for its own decisions. Fukui said the BOJ judged it prudent to watch for more data given that indicators had been mixed. He added that consumption was in a rising trend but the pace was only moderate.

In the U.S yesterday Producer Prices rose in December at a more moderate pace than a month earlier and industrial output ended the year on a strong note, suggesting little need for the Federal Reserve to alter its steady-as-it-goes interest-rate stance. The Labor Department’s Producer Price Index increased 0.9 percent in December.

Excluding volatile food and energy prices, the index advanced a smaller 0.2 percent. The Fed reported industrial output that was stronger than expected in December, rising 0.4 percent on robust gains in manufacturing and mining. For all of 2006, industrial output grew 4 percent, the biggest annual gain in six years.

Both reports strengthened the belief the Fed was not likely to cut interest rates over the next few months, particularly as the economy still showed some risks of inflation.

On that note the important economic release today is likely to be the U.S Consumer Price Index where a rebound in energy costs is expected to push the December reading higher. Forecasts are for the headline number to increase by 0.5% after a flat reading last 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.