Posts belonging to Category Credit Crunch



Pound boosted by unexpected UK economic strength

While the pound might have failed to get the upper hand against the euro, upbeat UK data helped Sterling strengthen against the US, Australian, New Zealand and Canadian dollars.

While the pound might have failed to get the upper hand against the euro, upbeat UK data helped Sterling strengthen against the US, Australian, New Zealand and Canadian dollars.

The GBP/EUR exchange rate dropped from €1.1812 to €1.1753 but GBP/USD advanced from $1.2844 to $1.2941, GBP/AUD hit an eight-month high of AU$1.7530 and GBP/NZD fluctuated between NZ$1.8701 and NZ$1.8869.

 

Wise Money Market Roundup

What’s been happening?

A better-than-forecast UK services PMI gave the pound a bit of a boost on Thursday and helped the currency recover its previous Brexit-related losses.

The services report came in at 55.8 (beating predictions of 54.5) and rounding off a trio of unexpectedly perky releases.

Markit economist Chris Williamson said of the report; ‘The upturn in the services PMI rounds off a hat trick of good news after upside surprises to both the manufacturing and construction PMIs. The three surveys collectively point to GDP growing at a rate of 0.6% at the start of the second quarter.

While we expect consumer spending to slacken in coming months, with the April survey highlighting continued weakness in sectors such as hotels, restaurants and other household-facing businesses, there’s good reason to believe that at least 0.4% GDP growth can be achieved in the second quarter as a whole.’

The news that Prince Philip will be retiring from public life later this year didn’t impact the pound, but it did dominate headlines for much of the day.

Meanwhile, the belief that Centrist Emmanuel Macron won the final televised debate of the French Presidential election bolstered support for the euro ahead of Sunday’s vote, weakening GBP/EUR in the process.

What’s coming up?

The pound could extend gains against the US dollar before the weekend if the US non-farm payrolls report disappoints. Any weakness in the labour market could make the Federal Reserve think twice about raising interest rates in June.

Sunday’s French election will be the catalyst for GBP/EUR movement at the beginning of next week. The euro could rally if Macron does take the Presidency, despite his victory being so long expected.

However, if 2017 turns out to be as politically shocking as 2016 and far-right Marine Le Pen emerges triumphant, EUR exchange rates are likely to record dramatic losses.

Next week the most high-profile events on the UK’s economic calendar are the publication of UK trade data and the Bank of England’s interest rate decision/inflation report.

The BoE is highly unlikely to take any action at this juncture, and the minutes from its report may err on the side of caution in light of the upcoming UK general election.

 

 

Philip Hammond set positive economic tone

New UK Chancellor Philip Hammond took to the Conservative stage, and set a positive tone for the conference.

New UK Chancellor Philip Hammond took to the Conservative stage, and set a positive tone for the conference.

He stated that roads and railways, among other infrastructure, has been seriously under invested, and that the UK is considerably behind other dominant countries. Hammond has been assigned the task of announcing the Autumn Statement, and investors will want his positive sentiment to be more concrete on November 23.

Much needed positive wise money data for UK

With regards to data, the UK enjoyed some much needed positive news, with Manufacturing PMI rising to 55.4 in September against 53.4 in August. Exports have been enjoying a tremendous amount of added work, as the pound continues to be hit hard by most trading currencies.

That said, importers are starting to take financial hits across the board. Buying foreign currency is proving expensive for import businesses, and Teresa May’s announcement that Article 50 will be triggered Q1 2017 has found financial directors wincing that much more.

European bank job cuts

European bank job cuts have made the front pages this morning, as a number of banks are suggesting seats may be left empty in the coming years. Dutch, German and Spanish banks have all stated in recent days that a staff cut is only natural due to current market conditions, as well as some looking at a new digital age, stating a non-requirement for human resource.

UK stock exchange highs

The FTSE 100 has cleared its year high as sterling fell off a cliff in early trading, after May announced an Article 50 date, and outlined her hard stance on key issues. Today has already seen the Reserve Bank of Australia keep interest rates at 1.5%, with New Zealand sharing its Dairy Auction averages with onlookers. In the European and US markets, we have very little to mull over, with UK Construction PMI the only dish to pick.

US jobless claims drop

We are just a few hours away from the spring Bank holiday and today is expected to be a quiet day.

We are just a few hours away from the spring Bank holiday and today is expected to be a quiet day.

The main piece of news out today will be the second estimate of US growth in the first three months of the year which is scheduled at 1.30pm GMT.

The first estimate was disappointing and showed growth slowing to an annual rate of just 0.4% and with the latest sets of data; economists believe the figure could be revised up. Jobless claims dropped to 268K from 278K, durable goods orders rose 3.4% and pending home sales increased 5.1%.

We learned from Fed President Powell that a rate hike may be appropriate fairly soon. Powell said “Depending on the incoming data and the evolving risks, another rate increase may be appropriate fairly soon”.

Many analysts agreed that Powell didn’t show any sense of great urgency to move at the June meeting and he stated that he had not made his mind up yet. He sounded cautious when he added “I can imagine the upcoming Brexit vote as presenting a factor in favour of caution about raising rates in June”.

Investors encouraged by stronger German data

No major Eurozone economic reports were released yesterday but investors were encouraged by stronger German data. Everybody seems to agree the ECB will leave interest rates unchanged but improvements in Germany and France could persuade the Central Bank to wait and see the effect of the current stimulus before deciding on the next step.

UK GDP figures released yesterday

Over in the UK, GDP figures were released yesterday and came in line at 0.4% on a quarterly basis but were slightly weaker on an annualised basis as they came in at 2.0% versus a market expectation for a 2.1% reading. Brexit is weighing on the economy as the underlying data showed weakness. Exports were down and business investment was disappointing.

The only bright spot was provided by government spending and consumer spending, which helped to offset the decline. The housing market is also showing signs of a slowdown as data from BBA Mortgage approvals showed a low at 40.8K against 45K in the previous month. This seems to indicate that the Brexit might be a drag on the housing market.

As mentioned earlier, the economic calendar is light today. In Europe business and consumer confidence surveys are due out in Italy, consumer confidence in France and retail sales in Spain.

The main focus will be in the US with Q1 GDP growth scheduled for release with analysts expecting a 0.4% upward revision. Later in the afternoon Fed Chair Yellen will also be interviewed at a Harvard event. The US and UK markets will remain closed on Monday.

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New car sales greater than expected

The new car sales figures surprised with the Society of Motor Manufacturers and Traders announcing a huge number of cars had been sold in March- the highest numbers since 1999.

The new car sales figures surprisedwith the Society of Motor Manufacturers and Traders announcing a huge number of cars had been sold in March- the highest numbers since 1999

Although March is notorious for its strong numbers, the amount which were sold had surprised some. The sector’s improvement is welcoming for the UK economy as GBP took a further nose dive yesterday against its major currency pairings as the EU Referendum inches closer.

It looks as if the voting will be fairly tight, with there now being a real possibility of a ‘Brexit’ causing uncertainty with investors and taking some of the back bone away from the pound recently.

Uncertain economic outlook

Last night the FOMC Minutes for March suggested a mixed review with regards to another possible rate hike in April. With global economic uncertainty but better domestic data, the 12 members didn’t see eye to eye which could suggest a rate hike at the end of Q1 is unlikely.

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Sterling remains flat as Osborne delivered Budget 2016

It was a big day for the UK yesterday as George Osborne released the Government’s budget for 2016.

It was a big day for the UK yesterday as George Osborne released the Government's budget for 2016.In a coup for small businesses, middle class workers, savers and energy companies, Mr Osborne’s tax cuts have been widely criticised as an attempt to woo UK voters in his last statement ahead of the EU referendum in June.

The UK economy’s growth and productivity forecasts were downgraded disguising a £56 billion ‘’black hole’’ in the Government’s finances as Osbourne favoured the more crowd pleasing approach.

Osborne warned that amidst a backdrop of slowing global growth and turbulence in financial markets, a possible Brexit would only hurt UK business and consumer confidence further.

Despite the budget receiving much attention here in the UK, foreign exchange markets refused to take notice and Sterling remained steady against all major currencies over the course of the day.

Yellen ends US interest rate rise speculation

Last night the Federal Reserve’s FOMC met in the US. Janet Yellen’s resulting speech stated that interest rates would remain unchanged for the time being and was much more dovish in tone than expected.

With all the clues suggesting that, the Fed won’t be discussing interest rates again now until June, the US dollar came under pressure. However, despite dollar weakness and the worrying state of the global economy, Yellen suggested that US economic activity had been expanding at a moderate pace.

Today markets will be spending the majority of the day deciphering Janet Yellen’s press conference from last night.

Later in the trading session, we will receive EU CPI data and an interest rate decision from the Bank of England. From the US, the Philadelphia Fed manufacturing survey and weekly Jobless Claims will be of interest.

Volatility day expected for UK Budget and FOMC meeting

Today is UK Budget day for George Osborne

Today is UK Budget day for George OsborneTonight brings us the US Federal Reserve (FOMC) interest rate decision. The FOMC are not expected to change interest rates tonight, but the meeting will give clues about the timing of the next move.

The most important aspect of tonight’s meeting will be the ‘dots’ – this closely watched graph shows the central bank’s forecast interest rates.

It’s anticipated that the rate run will contain another two or three hikes this year and four next year. The FOMC could present June as an opportunity to hike, and if so, this is likely to feed into USD strength. Overall, markets expect that the meeting’s sentiment will lean to the hawkish, with a firm focus upon the performance of global markets and the domestic labour market.

A day full of economic data

Before we get to the FOMC meeting we have plenty of economic data to digest. US CPI inflation data is projected to increase by 0.2% in February, and remain unchanged at 2.2% for the year. We also have US industrial and manufacturing production data, which is expected to weaken.

From the UK we have key unemployment data today. The unemployment rate is forecast to remain unchanged at 5.1%. Market focus will be on average earnings data; although numbers were flat in January there is optimism that wages should be now moving higher.

Finally, we get to hear Chancellor George Osborne present the Budget today. The Pound has softened in the run up to the announcement, over concerns for the potential aggressive fiscal tightening that could be delivered.

ECB lowers negative interest rates

It was a tale of two halves for the European Central Bank (ECB) meeting yesterday as interest rates were dropped.

It was a tale of two halves for the European Central Bank (ECB) meeting yesterday as interest rates were dropped.Initially they delivered a comprehensive package of easing which included a cut to the main refinancing rate from 0.05% to 0% and a deposit rate cut to -0.4% from -0.3%. QE was also increased and expanded and they introduced a new year 4 year liquidity package in the form of TLTROs.

At this point the market responded positively and the euro lost ground sharply against the US Dollar and the Pound. However, the rug was pulled by confirmation in the Q&A session from Mario Draghi that he does not expect to see any further rate cuts.

This line in the sand on no further interest rates spun the euro from weakness to strength in a very sharp about turn and led to euro gains on the day amidst huge volatility.

It seems the ECB are trying to focus their attention on the credit space through bank lending to support the recovery and to curb disinflation. The decision is effectively moving away from targeting euro weakness as a way to turn the tide of falling inflation.

The ECB has also now bought time before any additional easing would be considered. In summary they have sent the message out that they are done for now. This conclusion has been taken as a disappointment by the market which had expected the easing bias to continue with forward guidance and some are questioning if this is the ECB’s last stand and they are now out of bullets.

German inflation numbers come in weaker than expected

Today will be largely spent assessing yesterdays’ ECB decision and fallout. Elsewhere in the EU, this morning we have had German inflation numbers which have come in weaker than expected at -0.5%. Later on it’s the turn of UK trade balance which is expected to be slightly up from last month’s figure.

Aside from this there is little data out, however over the weekend we have some key Chinese data to look forward to.

British academic Angus Deaton awarded Nobel economics prize

British academic Angus Deaton has been awarded the Nobel economics prize for 2015 for his analysis of consumption, poverty, and welfare.

British academic Angus Deaton has been awarded the Nobel economics prize for 2015 for his analysis of consumption, poverty, and welfareThe 69 year old professor of economics and international affairs at Princeton University was previously at Cambridge and Bristol universities.

His research focused on health, wellbeing, and economic development.

Professor Deaton had been in the running for the prize several times in past years.

The Nobel economic sciences committee said that individuals’ consumption choices must be understood before economic policy promoting welfare and reducing poverty could be formulated.

“More than anyone else, Angus Deaton has enhanced this understanding. By linking detailed individual choices and aggregate outcomes, his research has helped transform the fields of microeconomics, macroeconomics, and development economics,” the committee members said.

The work for which Edinburgh-born Professor Deaton has been honoured revolves around three questions:

How do consumers distribute their spending among different goods?
How much of society’s income is spent and how much is saved?
How do we best measure and analyse welfare and poverty?

The secretary of the award committee, Torsten Persson, said Deaton’s research has “shown other researchers and international organizations like the World Bank how to go about understanding poverty at the very basic level.”

Persson praised Deaton’s work for illustrating how individual behavior affects a broader economy and demonstrating that “we cannot understand the whole without understanding what is happening in the miniature economy of our daily choices.”

Deaton, who was born in Edinburgh, and holds U.S. and British dual citizenship, said he was delighted to have won the prize and was pleased that the committee had awarded research that concerns the world’s poor.

“His research has uncovered important pitfalls when comparing the extent of poverty across time and place,” the committee said.

In his 2013 book, “The Great Escape,” Deaton expressed skepticism about the effectiveness of international aid.

He noted, for example, that China and India have lifted tens of millions of people out of poverty despite receiving relatively little aid money. At the same time, many African countries have remained mired in poverty despite receiving substantial aid.

“His view is that we don’t have these ready-made solutions, and money is not going to be the answer to many things,” Rodrik said.

The award includes prize money of 8m Swedish kroner (£637,000).

The economics award was not created by Alfred Nobel in 1895, but was added by Sweden’s central bank in 1968 as a memorial to the Swedish industrialist. The Nobel prizes will be given to winners on 10 December at ceremonies in Stockholm and Oslo.