ECB monetary policy left unchanged

Sterling is higher this morning against the euro, after the European Central Bank’s (ECB) meeting at lunchtime yesterday failed to deliver any significant change.

Sterling is higher this morning against the euro, after the European Central Bank’s (ECB) meeting at lunchtime yesterday failed to deliver any significant change.
The ECB left monetary policy unchanged, as expected, with the refinancing rate remaining at 0.00% and the deposit rate at -0.4%. The euro briefly spiked higher after Mario Draghi said that there was no discussion, either on tapering the QE programme or extending it beyond the original deadline of March 2017.

Whilst sterling finished strongly on the euro, it wasn’t reciprocated on the US dollar, as strong US housing data released had the greenback soaring late in the session.

Portugal’s government bond yields at six week interst rates low

This morning, Portugal’s government bond yields are hovering near six week lows, ahead of a key review by Canadian ratings firm DBRS, out after the close of play today. Whilst this is slightly concerning for Portugal, they are expected to get through the test unscathed. If it were to be downgraded, it would fall out of the ECB’s QE programme.

Wise Money news to come

Today is fairly thin in terms of wise money news data, however we do have UK public finance figures out this morning. Whilst expected in lower than last month’s number, a lower figure shouldn’t dampen Sterling’s resurgence on the euro too much. Aside from this, most of the day will be spent interpreting the ECB press conference from yesterday, with many investors keenly watching Sterling/euro advances.

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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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UK government borrowing falls in June after record tax haul

UK government borrowing fell to £9.4 billion in June, down £0.8 billion from a year earlier- as income and corporation tax receipts rose to record levels.

UK government borrowing fell to £9.4 billion in June, down £0.8 billion from a year earlierThe Office for National Statistics (ONS) said income tax receipts rose to £11.5 billion, while corporation tax brought in £1.7 billion- both record monthly highs.

It was lowest borrowing figure for June since 2008. However analysts had been expecting it to drop further to £8.5 billion.

In the financial year so date UK Government borrowing has fallen by £6.1 billion to £25.1 billion.

The ONS figures showed government finances received a £117 million boost last month from a fine paid by Lloyds Banking Group over its handling of payment protection insurance (PPI) complaints.

In the summer Budget earlier this month, the Office for Budget Responsibility (OBR) forecast public borrowing would be £69.5 billion this year.

Public sector net debt at the end of June 2015 was £1.513 trillion, or 81.5% of annual UK economic output- up from 80.8% in May.

A Treasury spokesperson said the figures showed the UK government’s deficit reduction plan was working but added “the job is not done”.

The UK government is aiming to eliminate the budget deficit by 2019 and to run a £10 billion surplus in 2020 and in subsequent years.

Chancellor George Osborne announced £37 billion of spending cuts during this parliament in the summer Budget.

In November, the government’s spending review will set out £20 billion worth of departmental budget cuts over the next five years.

Global stock markets slide on Greece debt crisis

Stock markets in Britain, Europe and the US have fallen after Greece closed its banks and imposed capital controls.

Stock markets in Britain, Europe and the US have fallen after Greece closed its banks and imposed capital controlsThe moves by the Greek authorities came after the European Central Bank decided not to extend any extra emergency funding.

London’s FTSE 100 index was down 1.47% and Germany’s Dax index fell more than 2%. In the US, the Dow Jones fell nearly 1% early in the session.

Bank stocks are among the hardest hit, with shares of Deutsche Bank and Commerzbank both losing more than 4%.

The Athens Stock Exchange and Greek banks will be closed all week.

On the money markets, the euro lost ground against other major global currencies.

The London FTSE 100 share index was down 98.47 points at 6,655.23 with other European markets seeing even bigger falls. Earlier in Asia, Japan’s Nikkei index fell nearly 3%.

On the currency markets, the euro saw volatile trading in Asia, falling by 2% at one point. However, it has since recovered some ground, with the euro down 0.15% against the dollar at $1.1149.

The euro has weakened against the pound, with one euro now worth £0.7089, while the pound buys €1.4108.

Oil prices are heading lower. Brent crude oil futures fell more than 1.5% to $62.10 a barrel.

Bond yields (an indication of borrowing costs) for Italy, Spain and Portugal – which are considered some of the weaker eurozone economies – rose sharply.

In contrast, German bond yields fell. German bonds are seen as safer investments in times of crisis.

Greece was due to make a €1.6bn payment to the IMF on Tuesday – the same day that its current bailout expires.

Last week, talks between Greece and the eurozone countries over bailout terms ended without an agreement, and Prime Minister Alexis Tsipras then called for a referendum on the issue to be held on 5 July.

At the weekend, the Greek government confirmed that banks would be closed all week, and imposed capital controls, limiting bank withdrawals to €60 (£42) a day.

There is zero chance of the European Central Bank turning Emergency Liquidity Assistance back on – life-saving lending to banks – unless Greeks give an affirmative vote to a bailout proposal from the rest of the eurozone and the IMF, which Juncker sees as a proxy for Greece’s monetary future.

As for Athens, most of the Syriza government detests the bailout offer – for the way it pushes up VAT and cuts pensions.

So we will have the bizarre spectacle of a Prime Minister, Alexis Tsipras, arguing both against the bailout and for remaining inside the eurozone – so goodness only knows how he will vote.

And Greek people will be torn between fear and loathing of bailout proposals that will damage the living standards of many of them, and fear and loathing of abandoning the euro and seeing their banks closed.

UK trade deficit drops to £1.2 billion in April

The UK trade deficit dropped to £1.2 billion in April from £3.1 billion in March according to the Office for National Statistics.

UK trade deficit dropped to £1.2 billion in April from £3.1 billion in March An £8.6 billion deficit on goods was partially offset by an estimated surplus of £7.4 billion on services the ONS said.

The ONS added that in the quarter to April, exports were flat after 0.3% growth in the first quarter, but imports were up 2.1%, the same as in the three months to March.

UK exporters have struggled in the face of weak demand in the eurozone.

Part of the deficit dip was down to a fall in imports of art and furniture, said the ONS. Another factor was less oil being imported.

Last year, companies began stockpiling oil as the price of the commodity collapsed.

The deficit – a description of how much imports exceed exports by value – was less than economists had expected.

“Monthly trade figures are notoriously volatile but today’s significant improvement is nonetheless very welcome, but there is no room for any complacency,” said David Kern, chief economist at the British Chambers of Commerce.

“The longer term trend still shows a worsening in the trade position in recent months. It is clear that we are not making enough, sustained, progress in closing the trade gap.”

The UK’s trade deficit for 2014 widened to £34.8 billion, the biggest gap since 2010.

What these figues continue to point out is the futility of focusing our exports on countries which are struggling economically rather than English speaking countries with growing economies.

Fed’s tapering timing crucial distraction from Syrian crisis

As most politicians were divided last week on the Syrian crisis at the G20, investors and economists remain divided on the timing of the Federal Reserve’s tapering programme.
Fed's tapering timing crucial distraction from Syrian crisis
With softer than expected data out from the US non-farm payroll figures, investors looking to flock to the US with their capital suffered a setback as the tapering programme can only be put into action with stronger employment numbers.

However, since the number was not weak at 169,000 new jobs in August against an expected number of 180 000, the Federal Reserve is still expected to announce that tapering could begin this month or early October, as Ben Bernanke will reveal early next week after the interest rate decision.

As we move into this week, US stock m arkets could be faced with considerable volatility depending on if the Congress decides to authorise a military strike against Syria. We start this morning with the Greenback slightly weaker than the previous weeks at 1.5640 GBPUSD and 1.3175 EUR USD.

Amidst expectations that the Fed will curb quantitative easing as early as this month or the next, gold has extended its losses and has fallen 17% this year.

From the UK, it was further revealed that manufacturing production has also risen for the second month in July by 0.2% adding to the already accumulated positive sentiment after a spate of good data from the economy.

With no economic data out from the UK today, expect Sterling to continue to remain strong as it has surged upwards against the greenback, post the softer job numbers to a high of 1.5650 early this morning, coupled with the evidence that suggests Britain’s economy is slowly starting to recover.

George Osborne is also expected to make a statement today to reiterate that the coalition’s plans of spending cuts and policy measures were the right step in getting Britain back on its feet towards recovery.

Some good news at last

Some good news at last for the UK economy as new data suggests a welcome improvement in both sentiment and performance.Some good news at lastA growing majority of households are now feeling optimistic on the economy, according to the latest figures from YouGov, the third consecutive month that positive views have dwarfed negative ones.

The figures which assess assurance about household finances, job security and house prices – also suggest people feel more confident in their jobs now than at any point since the survey began in 2009.

The news came alongside released figures yesterday the UK’s struggling construction sector has finally returned to growth.

The building industry grew in May for the first time this year after shrinking by 8.1 per cent last year. The most recent PMI improved to 50.8 in May from 49.4 the month before after house building initiatives boosted firms, leading to the quickest rise in output in 26 months.

It builds on positive manufacturing figures from Monday, which showed the sector growing at its fastest pace in 14 months.

The Aussie dropped against the majors, falling to retest the 0.96 figure against the Greenback, after first-quarter Gross Domestic Product figures disappointed below expectations.

Output added 0.6 percent in the three months through March compared with the final quarter of 2012, falling short of forecasts calling for a 0.7 percent increase.

The news fuelled speculation about another interest rate reduction from the Reserve Bank of Australia (RBA) at the July meeting.

The central bank said the outlook for inflation afforded “scope for further easing should that be required to support demand” at its latest policy announcement earlier this week.

After the ECB gave the signal for easier deficit-reduction in Italy all eyes will be on the policy statement and interest rate decision on Thursday to see what the central bank stance is towards other nations and also the concept of negative rates to stimulate lending to the real European economy.

Thursday’s Bank of England interest rate decision is the last policy meeting and statement from outgoing governor Sir Mervyn King before Mark Carney take control in July. This is unlikely to be a significant event with investors waiting until next month’s policy statement for any direction on further QE and economic health of the UK.

FED tapering fears worry wise money markets

FED induced volatility across the US Dollar crosses is the major wise money markets theme this week- after the deliberate vagueness from Chairman Bernanke over the taping of asset purchases at the end of last week.
FED tapering fears worry wise money markets
We are desperately trying to discount the effects of withdrawing stimulus, particularly withdrawing it too early, leading to whipsaw action in risk markets and across the USD pairs.

Add to the mix the best consumer confidence figure from the US since the financial crisis and the overall sentiment gets even messier to try and gauge. What exactly is the dominant trend here? An improving US economy or the Fed scaling back asset purchases, the recent volatility suggests no one is quite sure of the answer at the moment.

Apart from the usual month end flows to keep things interesting, today should be reasonably quiet because of a lack of big ticket data. Looking forward to next week there is the ECB and Bank of England monthly meetings plus US non-farm payrolls to digest.

Turning first to the central banks, both are expected to keep policy on hold, with more details from the ECB on its credit easing policy top of the agenda after announcing the bare bones of it last month. June marks the outgoing BoE governor last MPC meeting before Mr Carney takes over and he is not expected hand over with a change to the asset purchase scheme.

Non-farm payrolls for May are expected to show around 175K jobs created and the unemployment rate to continue to fall, from 7.5% to 7.4%.

Fed policy is highly unlikely to be affected to any changes to the data but the tapering effect, as the market tried to second guess the next move by the Fed is likely to be large meaning volatility is here to stay for the time being.

US Dollar gives up recent gains

The US Dollar was the main focus yesterday as US equities opened lower following on from the lower sessions in Asia and Europe.
US Dollar gives up recent gains
The fall in equities came largely from fears that the printing presses would be slowed in the US and this has largely led to a stronger US Dollar.

However comments from Fed officials soothed fears that imminent scaling back was not on the cards and this seemed to help momentum swing into USD weakness.

My thoughts are that we will need to see significant improvements above what we have seen so far in the underlying labour market conditions before the Fed commit to scaling back on asset purchases.

In Europe the European commission revealed that Spain and France are to be granted an extra two years to get their budgets into line.

The softening in tone corresponds to a change in tact away from austerity and towards growth and job creation and it will be interesting if this translates over to the UK.

Elsewhere the Bank of Canada in Mark Carney’s last meeting left rates unchanged but warned that interest rates could rise as economic conditions improved, this led to gains in the Canadian Dollar.

There is little focus for today in relation to economic data with US jobless claims the highlight with an expectation that labour market conditions should maintain their upward momentum. We also have preliminary US GDP with the expectation that the quarter on quarter figure will maintain at 2.5%.