For the first time this week, there was a glut of significant data released on both sides of the Atlantic yesterday with the Pound coming under further pressure, particularly against the Dollar, despite the release of the Nationwide house price index, which showed that prices only rose by 0.3% in June with the year-on-year growth rate accelerating 5% in the past month. In addition, a report from the Bank of England showed that UK mortgage approvals actually rose considerably in May, coming in at 117,000, which was well above expectations and well in excess of 106,000 in April. However, with the Federal Reserve raising their benchmark interest rate for the seventeenth month in succession, the Pound has been under continued pressure in the last week but some relief may be in sight this morning with UK consumer confidence set to show a marginal improvement in the last month, primarily due to increased sales of England football shirts and high-definition televisions in preparation for the World Cup. Elsewhere, UK Gross Domestic Product is expected to remain relatively unchanged with the annual growth rate at 2.2%, slightly ahead of the government’s target.
The Euro has been heavily boosted this week after a string of positive economic data has led to fresh calls for the ECB to be more aggressive with regard monetary tightening and lift interest rates again before the next scheduled rise in August, with several members of the governing council publicly announcing their recommendation for higher rates. There was some significant data released in the Euro-zone yesterday with German unemployment falling for a third consecutive month in June and M3 money supply growth reached the highest level in 3 years for the 12 countries supporting the Euro, which strengthens the case for the central bank to continue lifting interest rates. The Euro has pushed under 1.4500 against the Pound and we may see further gains this morning with the EU Sentiment Index expected to remain high, particularly after business confidence in Germany reached the highest level in 15-years earlier this week.
The Dollar has been gaining in recent weeks in the build-up to the FOMC rate announcement where the Federal Reserve were widely expected to raise interest rates by another quarter-point to take them upto 5.25%. Last night, the Fed did indeed raise interest rates by 25 basis points but the language used in the accompanying statement differed from previous months. The FOMC declared that Productivity is holding unit labour costs in check but they remain vigiliant on inflation, saying that some inflation risks remain and that it has been elevated in recent months. Therefore, it looks increasingly likely that the Fed will lift rates once again in the coming months although the Dollar reacted surprisingly to the news, dropping back above 1.8200. There was some important inflationary data released yesterday in the States as Gross Domestic Product showed that the U.S economy expanded at a much faster rate than anticipated, rising to 5.6% in the first quarter, led by a surge in consumer spending that has since been muted by higher energy costs. Elsewhere, the weekly jobless figures were released and the number of claims made in the past week rose to 313,000. There is some hugely significant inflationary data released this afternoon with Personal Income and Expenditure, the Fed’s preferred measure of inflation, widely expected to show a modest drop of 0.3% in May.
Data Released 29th June
UK 09:30 Final GDP (Q1) UK 09:30 Current Account Balance (Q1) UK 10:30 Consumer Confidence (June)
EU 10:00 Flash Consumer Price Index (June) EU 10:00 Sentiment Index (June) - Business / Consumer Confidence
U.S 13:30 Personal Income / Expenditure (May) - Core PCE U.S 14:45 Final Michigan Sentiment (June) U.S 15:00 Chicago PMI (June)
The lack of appetite for the Pound continued yesterday despite the relatively positive CBI Distributive Trades Survey, which maintained it’s 18-month high in June as the net balance of 9 percentage points was the same as last month and the highest since December 2004. The apparent pick up in UK retail sales may prove significant in deciding monetary policy with the Bank of England expecting economic expansion to gather momentum in the second half of the year, particularly since the cut in interest rates last August had a positive effect on consumer spending, which accounts for two thirds of the economy. There is some important UK data released this morning with the nationwide house price index widely anticipated to show continued signs of growth in the housing market while elsewhere the BoE’s monthly report on mortgage approvals is expected to show a modest increase in May, jumping to 110,000 from 106,000 in April.
The Euro has been gaining in recent weeks thanks largely to renewed calls from several members of the ECB to act more aggressively to monetary tightening, which has led to speculation that the central bank will lift interest rates again before the next scheduled rise in August. However, the market was fairly quiet yesterday amid a sparse supply of economic data released but we can expect to see some movement in the figures this morning with the Euro-zone M3 money supply expected to show continued signs of growth in May from 8.8% the previous month while elsewhere German unemployment is predicted to be unchanged in June at 11.0%.
Yesterday afternoon, the Dollar continued to strengthen further against the Pound and closed around 1.8150 last night as we draw nearer to the FOMC rate announcement this evening. It is widely anticipated that the Federal Reserve will lift borrowing costs by 25 basis points for the 18th month in succession. However, there has been calls for a more aggressive tightening of U.S interest rates from some sectors and it will be interesting to see if Ben Bernanke indicates that a further change in policy is on the horizon. Therefore, the inflationary data released this afternoon in the States will undertake added significance and it will be interesting to see if U.S Gross Domestic Product in the first quarter has continued to gather momentum. The Fed’s preferred measure of inflation is released tomorrow with the Core PCE deflator, which is widely expected to rise by 0.2% in May, leaving the year-on-year growth rate unchanged at 2.1%.
Data Released 28th June
EU 09:00 M3 / 3 Month Moving Avg (May)
UK 09:30 Mortgage Approvals BoE (May) UK 07:00 Nationwide House Prices (June)
The Euro remained relatively unchanged against the Pound yesterday despite German business confidence jumping to the highest level in 15-years, which provided yet further evidence that the ECB will need to lift interest rates as economic growth accelerates. The Ifo institute in Munich released it’s June confidence index, which actually rose to 106.8, the highest level since July 1991 despite forecasters anticipating a slight decline to 105.0. German companies have seemingly continued to increase investment even as the euros 6% gain against the dollar this year makes their goods less attractive to foreign investor’s and near-record oil prices have also added to costs. In addition, for the second day in succession a member of the ECB’s governing council has publicly announced his concerns over rising inflation. The comments from Nicholas Garganas have fuelled speculation that the central bank will be more aggressive with regard monetary tightening and he even speculated that the ECB could raise interest rates by more than 25 basis points over the coming months.
For a second consecutive day, there was no significant UK data released and the Pound has looked fairly stagnant in the market this week, dropping further against the Euro to trade well underneath 1.4500. However, there is some potentially positive data released this morning with the CBI Distributive Trades survey widely expected to show continued signs of growth in high-street trade this month as sales of England football shirts and big screen televisions peak in preparation for the World Cup. A significant pick-up in consumer confidence will undoubtedly lead to fresh calls for higher UK interest rates, which have been the topic of debate recently, particularly in the aftermath of David Walton’s untimely death.
The U.S Dollar has enjoyed a decent rally over the past couple of weeks, particularly against the Pound as we continue to trade around the 1.8200 level in the build up to the FOMC rate announcement tomorrow. The Federal Reserve are widely expected to lift interest rates by a further 25 basis points to take their benchmark rate upto 5.25%. However, their was a degree of uncertainty in the market yesterday as the Dollar reacted curiously to some positive economic data. U.S consumer confidence unexpectedly rose by more than forecast in June as an improvement in the labour market bolstered spending. The threat of higher interest rates and rising petrol costs have seemingly undeterred the American consumers although rising confidence may have a negative effect on consumer spending and therefore reduce the pace of economic growth this year. Elsewhere, sales of existing homes in the U.S fell to the lowest level since January this year, dropping by 1.2% to take the annual rate to 6.67 million, primarily due to higher mortgage rates.
Following a relatively quiet day in terms of economic data released, the Euro made further gains against the majors after several members of the European Central Bank publicly gave their support for a further tightening of monetary policy before the next scheduled rise in August. In the past 24hrs, two members of the ECB’s governing council have declared that global inflationary pressures will force the central bank to lift euro-zone interest rates above the current 2.75% with Yves Mersch enforcing the view that the ECB may raise rates by upto 50 basis points. There was increased speculation that the ECB would adopt the same policy in their June announcement and as we know when Jean Claude Trichet adopted a more cautious approach and lifted interest rates by just 25 basis points, the Euro was severely weakened, trading upto 1.4650 against the Pound. However, as a result of these comments the Euro firmed 0.3% against the Dollar and was also up by 0.3% versus the Pound at the close. There is some significant data released this morning in the Euro-zone with the German ifo Business climate index, which is expected to continue showing signs of growth in June with the staging of the World Cup likely to provide a timely boost.
The negative sentiment surrounding the Pound has continued in the beginning part of this week with the Hometrack House Price index rising 0.8% in June, which was largely in line with expectations but it seems higher unemployment and rising energy costs are having a negative impact on the housing market with UK mortgage approvals set to drop significantly in May. There is a sparse supply of important data released until Wednesday this week with the CBI Distributive Trades Survey, which is widely expected to show further signs of growth in high-street trade this month and will add weight to calls for higher UK interest rates.
The Dollar’s recent surge against Sterling continued yesterday after sales of new homes in the U.S unexpectedly rose to the highest level this year in May as prices tumbled in a market saturated with unsold homes. Purchases increased by 4.6% to an annual rate of 1.234 million, which was well ahead of market expectations and as a result the Dollar briefly pushed under 1.8200 against the Pound. The Federal Reserve has always monitored the U.S housing market closely and this figure will do little to ease concerns that rising interest rates are having a cooling effect on the market. There is some significant data released this afternoon in the States with U.S Consumer Confidence widely expected to decline further in June as a result of higher petrol prices and slowing economic growth. In addition, Sales of Existing Homes will provide a more complete picture of the U.S housing market and forecasters are predicting a slight decline in the figures released for June.
Data Released 27th June
GER 10:00 ifo Business Climate Index (June) GER 10:00 Consumer Confidence (June)
Following on from last week, the Dollar continued to rally against Sterling ahead of the FOMC rate announcement this Thursday and we touched new lows towards the latter part of the week, briefly trading under 1.8200 for the first time in two months. Following the untimely death of MPC member David Walton last week, the Pound has come under some intense pressure and the Dollar was given a further boost on Friday as orders for U.S durable goods excluding transportation rose 0.7% in May. This goes some way to ease concerns that higher interest rates are beginning to have a cooling effect on the U.S economy. We have a string on significant data released in the States this week and as I mentioned, the Federal Reserve will convene on Thursday to announce their latest move towards monetary tightening with many investors pricing in a quarter-point jump to 5.25% with a 50:50 chance of a further rate rise next month. There is some important data released this afternoon with New Home Sales widely anticipated to decline to 1.16 million in May as the threat of rising interest rates and higher mortgages discourage first time buyers.
The Pound has been struggling in the past week particularly since the death of David Walton, which has left UK interest rate expectations severely muted in the short term and with a light calendar this week in terms of UK economic data released, Sterling may come under further pressure against the majors as we trade down towards that significant level at 1.4500 versus the Euro. There is some UK data released on Wednesday with the CBI Distributive Trades survey and UK consumer confidence on Friday, which is expected to show a slight decline in the figures released for June.
The Euro has been steadily gaining against the Pound in the past week or so and we have a significant week ahead of us with the German ifo business climate index released tomorrow and investors are anticipating a strong figure with the consensus forecast suggesting the index dropped slightly in June from the cyclical high last month. The focal point of this week in terms of data released in the euro-zone will be the flash HICP for June and the May M3 figures on Thursday, both of which are expected to support the view of higher interest rates. Elsewhere, headline euro-zone inflation is expected to remain relatively high in June with the initial estimate coming in at 2.3%, which is still well above the ECB’s preferred measure and provides further evidence that the central bank will need to continue raising their benchmark interest rate from the current 2.50%.
The British Pound came under intense pressure yesterday amid the untimely death of David Walton, who was a member of the Bank of England’s monetary policy committee and the sole voice for a rise in UK interest rates over the past two months. As a result of the news, the Pound dropped significantly against the majors, managing to record a new low against the Dollar by dropping under 1.8300 for the first time in nearly two months. The negative sentiment surrounding the Pound continued throughout the course of the day, particularly against the Dollar, which managed to shrug off poor jobless claims data and has been boosted further on speculation it’s yield advantage will keep luring investors to U.S denominated assets. There was also some significant data released in the UK yesterday as the CBI Industrial Trends survey came out virtually in line with expectations as the recent pick-up in manufacturing continues to bolster UK GDP in the second quarter.
There has been a sparse supply of significant data released in the euro-zone this week and the euro continued to remain firm against Sterling yesterday despite some poor Italian consumer confidence data, which provided further evidence that near record oil prices are having a damaging effect on consumer sentiment. In addition, euro-zone industrial orders came out as expected, showing a 2.0% gain in new orders for the month of April and as a result, the Euro strengthened significantly against Sterling to close under 1.4550 last night.
The U.S Dollar staged a significant rally against the majors yesterday, firming by 0.6% against the Euro and 0.8% against Sterling despite the apparent cooling of the labour market with the weekly jobless claims rising to 308,000 in the week ending the 17th June. In addition, an index of U.S leading economic indicators declined in May by the most in nine months, dropping 0.6%, which indicates that higher interest rates may curb economic expansion. Nevertheless, the positive momentum surrounding the dollar can be attributed to a variety of factors including the prospect of further monetary tightening at the end of this month with many investors altering their forecast that U.S interest rates will reach 6% by the end of 2006. The Federal Reserve would ideally like to pause at 5% and it has even been argued that the Fed need a weaker dollar to make U.S exports more attractive and thusly narrow the ever widening trade deficit. However, the economic data released has pointed to rising core inflation and continued growth in the second quarter and therefore the Fed will need to continue raising interest rates in order to keep inflation under control. There is some significant data released in the States this afternoon with U.S Durable goods orders expected to increase by 1.0% in May.
We witnessed a significant day of market movement yesterday as Sterling came under pressure, particularly against the Euro, following the release of the minutes of the Bank of England’s last MPC meeting and as widely expected, policy makers voted 7-1 in favour of keeping UK interest rates at 4.50%. Once again, David Walton was the only member of the eight strong committee who voted for a rise in rates and Sterling reacted poorly against the majors as new member David Blanchflower, who was expected to join the chorus for higher interest rates, voted for a no change in UK monetary policy. There is some significant data released in the UK today with the CBI Industrial Trends survey and it is widely anticipated that the recent pickup in manufacturing will show sustained confidence in the figures released this morning, although the increased cost of raw materials and higher input prices could have a negative impact on orders.
The Euro strengthened significantly against the majors yesterday, rising 0.5% against the Pound to push the rate back under 1.4600 following comments from the ECB chairman, Jean-Claude Trichet, who reiterated that euro-zone economic growth was becoming more sustained into the second half of the year. The single currency may make further gains this morning as euro-zone industrial orders are expected to show positive signs of growth in April with forecasters are anticipating a rise of 1.8% from March. In addition, Italian Consumer Confidence is released this morning and is expected to remain unchanged in June.
The Dollar has been hampered in recent sessions as the threat of higher interest rates begins to wane on consumer sentiment and the currency sustained further losses against the Euro yesterday, dropping 0.6% to close around 1.2650. There is some significant data released in the States this afternoon with the weekly jobless report widely expected to rise to 305,000 from 295,000 last week and provides further evidence that the expansion of the U.S labour market is cooling in the second quarter, another factor that will have a damaging affect on consumer spending and retail sales. In addition, the Dollar may come under further pressure with an index of leading U.S indicators widely anticipated to show a drop of 0.5% in May, providing yet another indication of slowing economic growth.
We witnessed another quiet day in terms of market movement yesterday and Sterling continued to remain firm against the Euro despite a less than convincing report from the Chancellor, Gordon Brown, where he announced a record budget deficit for the public sector in the month of May. The UK deficit has expanded to £8.7 billion in the figures released for May, which is a £1 billion year-on-year increase. Public sector net borrowing including capital investment showed a deficit of £10 billion, the second highest on record. We may see some market movement this morning with the release of the minutes of the June MPC meeting and it is widely expected that the eight strong committee voted 7-1 in favour of keeping UK interest rates at 4.50%.
There has been a real short supply of significant data released in the euro-zone in the beginning part of this week and tomorrow is no exception but the chairman of the ECB will address the EU parliament’s economic and monetary affairs committee at midday and we will be watching closely for any news on the further tightening of euro-zone interest rates following the ECB’s decision to adopt a more measured and cautious approach earlier this month.
The U.S Dollar was given an unexpected boost yesterday as a sharp rebound in Home construction helped ease concerns that higher interest rates are beginning to wane on consumer sentiment. Housing Starts rose a greater than expected 5% to an annual rate of 1.957 million in May despite forecasters predicting a drop towards 1.84 million. As a result, the Dollar rallied against Sterling, briefly dropping under 1.8400 but any sustained Dollar gains were muted as concerns continue to surface that higher U.S interest rates will inevitably curb economic growth.
Data Released 21st June
UK 09:30 Minutes of June MPC meeting UK Chancellor, Gordon Brown, gives Mansion House Speech
Just to re-cap from last week, the Dollar received an unexpected boost on Friday as the U.S Current Account deficit narrowed by much more than forecast in the first quarter, dropping from a record high in the previous three months, led by a modest improvement in the Trade Deficit. There is a sparse supply of data released this week, both in Europe and the States, and yesterday the Dollar made further gains against the majors, firming 0.6% against the Euro and the Pound as the market has now fully priced in a rise in U.S interest rates at the end of this month and forecasters have already begun speculating that an August rate rise is on the cards. However, the aggressive and consistent monetary tightening in the States is beginning to wane on consumer sentiment and further evidence of this is expected in the Housing data released this afternoon where activity and prices have been cooling since the 33-high in January, dropping by 19.4% in just over five months. Therefore, as a direct result of higher interest rates, U.S housing starts is widely expected to decline in May to 1.84 million.
A survey conducted by the Bank of England has showed that UK Inflation expectations for the next 12 months have dropped from February with prices expected to rise 2.5%. The governor of the BoE, Mervyn King, reiterated earlier this month that wage pressures were muted and that inflation expectations were not yet a “serious concern” for the Bank, although it would be monitored closely. The highlight of this week will undoubtedly be the minutes of the June MPC meeting on Thursday where the BoE kept UK interest rates at 4.50% for the tenth month in succession but it will be interesting to see if anymore members have joined David Walton in recommending that the bank raise interest rates to calm the threat of rising inflation. There is some significant data released in the UK this week with the CBI industrial trends survey widely expected to show continued improvement in the Manufacturing sector, although the increase in global energy costs and raw materials may have a negative impact.
There is a short supply of significant economic data released in the Euro-zone this week and the market has been relatively unchanged, hovering around 1.4650 against the Pound despite German Producer Prices accelerating at the fastest pace in 24-years led by a sharp increase in global energy costs. Goods are 6.4% more expensive than at this point last year, which is the biggest year-on-year growth since June 1982. The ECB chairman, Jean-Claude Trichet, will testify to the EU parliament on Wednesday and his comments will be watched closely as the market looks for new direction with regard monetary tightening.
Yesterday, the Pound made further gains against the Dollar and the Euro following the release of the monthly house price survey from the Royal Institution of Chartered Surveyors, which showed that prices had increased dramatically in May and the increase to 20 represented the single biggest rise in over 2 years. House prices account for 60% of UK wealth and have risen consistently almost every month since the Bank of England reduced interest rates to 4.50%, which perhaps gives a little insight as to why the BoE are hesitant in adjusting monetary policy to counter the threat of higher inflation. In addition, UK Retail Sales rose for a fourth month in May led by a sharp increase in the sales of electrical goods, such as high-definition televisions, in preparation for the World Cup. Sales increased by 0.5% from a revised 0.7% in April, which was largely in line with expectations.
There was some significant inflationary data released in the Euro-zone yesterday as the Consumer Price Index for the month of May came out as expected, showing a 0.3% month-on-month increase compared with 0.7% in April. Inflation in the Euro region is up at 2.5%, which is above the ECB’s predicted rate of 2.3% this year indicating that the central bank will need to lift interest rates once more following a quarter-point increase earlier this month. However, the Core CPI measured below expectations at 1.3% providing further evidence that higher energy and food prices are having an impact on the inflation gauge. There is some important data released this morning with Industrial Production widely expected to hold at 0.4% growth in April providing an indication that euro-zone exports will help quash the threat of higher oil prices and rising interest rates. The ECB elected to adopt a more measured approach with regard the tightening of monetary policy because the Euro has risen by 8% versus the dollar in the past six months alone and if the single currency appreciates much more, it will have a damaging effect on their exports.
As we predicted in Tuesday’s afternoon update, the recent resurgence of the U.S Dollar has seemingly come to a grinding halt as rising interest expectations failed to support the currency following a seven day winning streak over the past couple of weeks. We witnessed a significant day of market movement as the Dollar lost ground for a second day in succession with U.S net capital inflows plummeting in the figures for April, dropping to $46.7 billion, which is the lowest in over a year, and that is despite forecasters predictions that inflows remained relatively unchanged at $70.4 billion. However, even more significantly, U.S net capital inflows in April will be unable to cover the ever-widening U.S Trade Deficit, which came in at $63.4 billion.
There is some hugely significant data released this afternoon in the States with the U.S current account deficit expected to moderate to $220 billion in the first quarter of 2006 and the data will provide the final indication of U.S trade conditions following the disappointing trade deficit and investment flow balances. In addition, there is some equally important data released later this afternoon, which could potentially rock the dollar with U.S consumer confidence widely anticipated to drop for a third month in June with the University of Michigan’s preliminary index for consumer sentiment falling to 79, the lowest reading in eight months.
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