Articles from August 2012

Surprising jump in UK house prices

This was the view of Nationwide for the month of August when UK house prices rose 1.3%. Surprising jump in UK house pricesThe move was the biggest since January 2010 and means the average house price stands at £164,729.

However, we should not get too carried away with the data according to their Chief economist Robert Gardner.

“Nevertheless, the fact that the annual pace of house price decline moderated to minus 0.7% in August from minus 2.6% the previous month provides evidence that conditions remain fairly stable”.

Over to Europe and Valencia is the latest region of Spain to request a larger than expected bailout than previously thought.

Their request has increased by €4.5 billion and comes alongside the Catalan region which has also asked for access to the €18 billion Madrid public fund.

A major driver of their debt has come from failed projects such as the Castellon Airport which has cost billions yet a single flight has never taken off.

This coupled with Spain’s disappointing growth figures which shrank by 0.4% in Q2 following a contracting of 0.3% in the first leaves the country struggling to find positives in their economy.

Consumer spending dropped 2.2 percent in the second quarter compared with the same period in 2011 as median pay fell by 3.9 percent on an annual basis.

Employment, measured in terms of positions equivalent to full-time work, plunged 4.6 percent over the 12 months that ended June 30, representing the loss of more than 800,000 jobs.

These numbers are hurting the overall Eurozone’s performance and will no doubt be contributing to reports in the press that ECB Governing Council member Ewald Nowotny will cut its growth forecasts next week.

There will not be an improvement, but rather a deterioration in expectations. We have to expect negative growth rates, contraction, in practically all the southern countries in 2012, and in France roughly stagnation.

The wise money markets wait for Ben

Jackson Hole is almost upon us. The wise money markets wait for BenThe question remains whether the Chairman will make the announcement the wise money markets want – further QE – or disappoint it by “only” announcing an extension or modification to operation twist.

Market sentiment about the likelihood of this has oscillated wildly, from nailed on certainty last week (after the Fed minutes) to looking increasingly unlikely after the continuation of positive US data this week.

US growth for the second quarter was revised up as expected to 1.7% from 1.5% and positive personal consumption data is due out this afternoon.

Ben Bernanke is due to speak at 3pm tomorrow, followed by the Bank of England’s Andy Haldane and Adam Posen.

The Dollar has remained remarkably stable over the last few days, but whatever happens tomorrow we can expect increased levels of volatility as we move towards the ECB meeting next week.

Speaking of which- as we posted yesterday, the ECB President Mario Draghi is staying in Europe rather than attending the serious policy meetings taking place in America.

The thinking is that the ECB  is trying furiously to put together a plan to cap bond yields whilst placating the Germans.

Whether the ECB are able to achieve this before the upcoming meeting is still up in the air.

The market certainly hopes so, but the complex issues of conditionality (what Spain and Italy will need to agree to) and whether private investors get shunted down the pecking order if the ECB steps in, need to be ironed out.

They will both take time, suggesting it may be October before the ECB can act.

How would the markets take a double dose of disappointment?

Draghi’s absence raises ECB expectations

It was revealed that ECB president Mario Draghi will not be attending the Jackson hole summit, raising further speculation for the bond buying programme by the ECB. Draghi's absence raises ECB expectationsThere are reports that they are willing to buy bonds but with only short term maturities.

Draghi has attributed his absence in attendance at the summit to a heavy work load, with markets believing that they may announce their plans at an earlier date.

The euro has consolidated its move upwards since last week reaching a high of 1.26 against the US Dollar.

There has been some news from Spain that the banks in Catalonia, have sought a €5 billion bailout.

Spanish prime minister Rajoy, wants the EU banking union to try and implement plans to set up a single banking supervisor to cover the euro area.

Stocks in the US fell yesterday as the consumer confidence index fell by its largest margin in the last 10 months.

While confidence is at a new low, markets will look for some direction after the US GDP figures which are due to be released later today.

The US Dollar has remained weak in subdued trading this week as investors wait for Fed chairman Ben Bernanke’s speech at Jackson hole later this week.

There is increasing speculation, that they may announce a further round of quantitative easing, as the US economy loses confidence.

Central bankers take centre stage

The Jackson Hole symposium of central bankers is set to be the main focal point for the week ahead.  Central bankers take centre stageThe reason the event is key is that it is anticipated that the tone will be set for Fed policy going forward which is exactly what happened back in August 2010.

The market is hoping that QE3 will be implemented soon and following the last FOMC minutes hinting at further easing it is hoped that Ben Bernanke will outline this is his Jackson Hole speech.

We have a few snippets of US economic data which will keep the markets alert before the meeting.

The US Dollar has weakened last week in anticipation of more QE from the Fed- however the sentiment of a positive outcome is starting to turn more negative ahead of the symposium.

Elsewhere we saw the French and German finance ministers kiss and make up and promise to work together on a solution to the eurozone crisis. They’ve agreed to form a joint policy making body to create a more integrated economic and fiscal policy within the Eurozone and to form a new banking supervisory board.

The new policy making body will be designed to help the failing southern European states such as Greece, Italy and Spain and will help to create longer-term strategies, which the Germans hope will eventually lead to full scale political union within the Eurozone.  The Euro is holding firm on the perception that more momentum on solutions is being sought and that the ECB remain ready to step in and act in the near term.

This week we also have the German Ifo survey where a further decline is expected and German CPI which is expected to have nudged higher.  Expect the FX markets to remain range bound until we have further clarification on Friday.

UK GDP revised up- but still heading down

The actual seriousness of the UK recession is exposed when the Office for National Statistics (ONS) issues its revised numbers for Q2 this year. UK GDP revised up- but still heading downInvestors and industry are expecting the second reading of second-quarter gross domestic product (GDP).

This figures last month suggested the economy had contracted by 0.7% – a much harsher dip than expected.

There are signs those statistics might have been too pessimistic, with some experts forecasting an adjustment to 0.5%.

That 0.7% contraction figure, published last month, was received with some cynicism by a number of industry experts who claimed they had seen little sign of such a grim economic downturn.

It also seemed to be at odds with the unemployment rate which continues to fall.

The first set of figures from the ONS suggested that weak output figures in the industrial and construction sectors had been emphasised bythe Jubilee celebrations during that period.

Since however, reviewed ONS statistics for the construction industry now show that although output fell in the second quarter, the drop was less than expected.

Over to Europe and Greek PM Antonis Samaras will meet German Chancellor Angela Merkel later today he seeks more time for Greece to make spending cuts.

His journey will not stop there as he then travels to France on Saturday for talks with President Francois Hollande.

The French and German leaders met on Thursday to debate Greece and advised Athens to maintain the tough measures set by the Troika.

Greece’s on-going access to the bailout packages depends on a favourable report from the trio when they meet next month.

The country is presently trying to complete a package of €11.5bn of spending cuts over the next two years.

Coupled with this, it is also being asked to put in place economic and structural reforms, including changes to the labour market and a renewed privatisation drive.

Look for this story to dominate the Euro’s progress today which currently trades at 1.2540 against the Greenback.

The bull has been unleashed by the FED

The FED’s FOMC minutes from the July meeting yesterday painted a dovish picture from policy makers in the US with many of the FOMC members calling for additional QE as a way to bolster the US recovery, sooner  rather than later.The bull has been unleashed by the FEDThis is the move the markets were looking for with the clearest sign yet that America will step up its protection of their economy.

It will be Ben Bernanke’s address on August 31st that will be the next marker for the markets to watch to see if there is further hinting towards QE3 before the official FOMC meeting September 12-13.

This data sent the markets into a flurry in US trading with markets rallying significantly and the US Dollar dropping across the board.

In addition to the rather dovish, if not expected, remarks from last months FOMC meeting we had Chinese PMI Manufacturing data out overnight showing a weaker then expected figure for August with the figure coming in at 47.80 against last month’s contraction figure of 49.30.

This sent a bad signal through Asian trade although with inflationary pressure clearly easing in China this may be the opportunity for the republic to restart stronger monetary and policy easing.

Charles Evans, Federal Reserve Bank of Chicago president yesterday called for easing monetary policy not just in the US but globally including China.

Nearer to home, there have been mixed receptions this week for Greece who have continued asking for yet more extra time to impose the harsh reforms that are needed to receive the next vital multi-billion Euro tranche.

Mr Samaras, is asking for time to help provide growth features to the economy that is struggling with recession as markets continue to shun and put continual pressure on the ailing state.

The money markets will be watching the meetings between Greek PM and Angela Merkel tomorrow and with French president Francois Hollande on Saturday as an indicator to whether breathing room will be provided.

Statements from within Merkel’s party are saying that Greece has been given too much time already to implement the needed reforms which is casting some doubt on any extension.

Will the ECB act to save the euro?

The annual meeting of the world’s central bankers at Jackson Hole looms large on the horizon.Will the ECB act to save the euro?Two years ago FED Chairman Ben Bernanke used the symposium to launch QE2, and with the markets set to again be disappointed by the lack of announcement of another round of outright bond purchases.

Will the ECB step into the Fed’s void and announce a plan to cap bond yields in Spain and Italy?

The euro is trading up against the Dollar and Sterling after ECB executive board member Jorg Asmussen lent his support to the idea.

His opinion carries weight in the markets because of his close relationship with Angela Merkel, and it is German opposition to bond buying by the ECB that is the main reason peripheral bond buying has not already happened on a large scale.

But it still remains unclear whether the ECB will actually act.

Capping bond yields would require an open ended commitment by Mario Draghi which looks unlikely considering when the bank undertook both LTRO’s it was capped at a certain amount of the balance sheet.

Any move by the ECB would also need to be accompanied by further conditionality by the periphery, probably further austerity measures.

Both will take time to agree, which may make next month’s meeting slightly early for the ECB to act.

UK government borrowing figures were worse than expected yesterday, disappointing the market and ratcheted up the pressure of the Chancellor George Osborne to move towards policies aimed at growth.

The UK consumer continues to deleverage, firms are still hoarding cash and foreigners, especially Asian, remain heavy savers.

As long as all three above remain net savers the government will need to borrow, so it is vital the government promotes policies aimed at reducing private sector net saving, like the funding for lending scheme.

UK government unexpectedly has to borrow £600 million in July

The UK government unexpectedly had to borrow £600 million in July- which is usually a good month for tax receipts.UK government unexpectedly has to borrow £600 million in JulyAccording to the Office for National Statistics there was a surplus of £2.8 billion in the same month a year earlier.

The Treasury blamed disappointing corporation tax receipts.

Analysts suggest the government could end up borrowing about £30 billion more than last year, when official forecasts had suggested borrowing would fall this year.

The Office for Budget Responsibility, the official UK economic forecaster, said there was still “significant uncertainty” about the outlook for borrowing this year.

Four months into the financial year the government has borrowed £44.9 billion, £9.3 billion higher than the same period in 2011. That excludes banking interventions and the one-off boost in April from a transfer of Royal Mail pension assets to the public sector.

The OBR had predicted that borrowing on the same measure would be £120 million for the whole of the financial year, down from the £125 million borrowed last year.

The government received 0.8% less in tax than a year earlier due to a drop in corporation tax receipts. Income tax, national insurance and VAT held up, while spending, which includes welfare payments, was more than expected.

A Treasury spokesman said: “The government remains committed to the credible plan we have set out to deal with Britain’s debts.”

July is usually a good month for tax receipts, meaning the government normally makes a surplus, because it is the month that businesses make quarterly corporation tax payments and individuals’ tax self-assessment returns are recorded.

But some said this month’s figures should be treated with caution as corporation tax receipts are affected by the temporary closure of the Elgin gas field due to a leak.

The ONS also warned that the timing of self-assessment returns – which are recorded in August as well as July – makes direct comparisons between years difficult. More returns that usual may be recorded in August, as the deadline is the last day of July.

UK retail sales impress the wise money markets

As the UK outlook continues to fluctuate there was another spot of light at the end of the tunnel yesterday with UK retail sales impressing- coming in above expectations at .03% growth against the expected -0.1% drop in sales in July from June and compared to last July 2011 retail figure came in at 2.8%, double the consensus of 1.4%. UK retail sales impress the wise money marketsThis was positive for Sterling- building on the better then expected unemployment data out earlier in the week and is not yet expected to have shown any impact from the Olympics or the arrival of the good weather.

Also out yesterday we had the Philadelphia Fed Manufacturing Index, in the USA, which came in worse then expected at -7.1 versus consensus figure of -5 as sign that soft global conditions are affecting the US recovery.

This did however rally the markets into risk on mode with many believing this will signal a stronger call for financial stimulus in the form of QE3 to help fix the broken wings of the bald eagles recovery.

This call was not heard in China with many investors believing that the nation would start further stimulus as soon as this week although those plans have gone up in smoke as the politicians jostle on their premiership plans.

In other news German Chancellor Angela Merkel did her part to help buoy the euro and markets by supporting closer fiscal integration under the terms of ECB President Mario Draghi stated in his speech two weeks ago.

This was her first speech back from her summer holiday and was a sign that Germany is still backing the Euro and committed to doing what they can to provide a long term solution to the raging crisis.

The news yesterday sent the markets into a flurry of activity with retail figures sending GBP/EUR up over half a cent to sit just below 1.28 although later the biggest moves started to come when Philadelphia Fed Manufacturing Index emerged worse then expected sending EUR/USD above 1.23 and reversing GBP/EUR back to the pre-retail figures level but giving GBP/USD a much needed boost and moving the pair over a cent on the day.

The GBP/USD rally has transferred over into the stock markets with European stocks finishing in the Green.

MPC members paln to launch another QE

Quantitative Easing (QE) was the view according to the MPC minutes earlier this month; however these “finely balanced” considerations did not convert into actual votes. MPC members paln to launch another QEAll nine members voted to keep rates on hold and for QE levels to remain at £375 billion; however the minutes indicated that this may have to be extended in coming months.

In the meantime the MPC wants to see how successful the Funding for Lending Scheme (FLS) will be.

The scheme allows for low cost funds available to banks and building societies in an attempt to cut borrowing costs and increase lending to business and individuals.

The Bank said it was “encouraging that a number of banks had decided to cut rates on some mortgage and small-business loans” and added that the impact of the scheme could be greater than it had assumed in its latest Inflation Report.

In other UK news employment fell to 2.56 million from 8.2% to 8% in the last quarter according to the Office for National Statistics (ONS).

The figures were strong and are largely attributed tothe Olympic effect and also a number of the unemployed who took up part-time posts.

Sterling reacted well to the data almost breaching 1.57 against the Greenback but thengave those gains back at the close finishing 1.5651 yesterday.

Elsewhere, Brazil’s government announced $60bn stimulus package in an attempt to boost growth in their dwindling economy.

This is following disappointing growth figures where they are expecting less than 2% this year, which is the weakest for three years which peaked in 2010 reaching 7.5%.

The infrastructure in Brazil has needed updating for some time and the business community welcomed this decision.

This news combined with hosting the Olympics in 2016 means the South American country will be looking for a return to strong growth and economic boost following this investment.

So far this morning we have seen UK strong retail sales numbers up 3.3% per year.

Sterling has jumped following the release flirting with 1.57 mark against the Dollar.