Market News

The Pound slumped against the majority of the major currencies yesterday and the UK currency suffered the sharpest intraday loss versus the Dollar in nearly 16-years, following reports that the U.K government nationalised Bradford & Bingley Plc and seized control of the troubled lender.

The escalating financial crisis has seen banks curtail lending and Bradford & Bingley Plc, which represents Britain’s largest buy-to-let mortgage provider, is just the latest bank to succumb to the credit squeeze and follows the nationalisation of Northern Rock Plc last year.

The UK Treasury will take over Bradford & Bingley’s £41 billion in mortgage loans and in return the government will get rights to any gains as the bank sells off its assets one piece at time, including personal loans and its headquarters in Bingley.

The greatest challenge for the UK government will be to manage the bank’s bad debt while compensation rules in the UK mean that other financial firms will have to cover Bradford & Bingley’s £14 billion insurance policy to protect its depositors and a short-term loan from the BoE will initially cover the amount falling on the banks.

The break-up of Bradford Bingley has already begun with Banco Santander SA, Spain’s biggest lender, willing to pay £612 million for the 197 branches and £20 billion of deposits as the survivors of the global credit crunch recoil at the prospect of swallowing all the risks facing weaker competitors.

Bradford & Bingley is the second UK lender to fall under Santander, which became Britain’s second biggest mortgage lender and third largest deposit holder, after the Spanish bank acquired Alliance & Leicester Plc for £1.26 billion in July following its 2004 takeover of Abbey National for £9.2 billion.

The Chancellor of the Exchequer Alistair Darling made a statement prior to the opening bell and UK stocks subsequently slumped to a three-year low as the seizure of Bradford & Bingley Plc triggered a sell-off in bank shares.

The second largest UK bank, Royal Bank of Scotland Group Plc, also slumped by the most since 2000 after Belgium’s Fortis bank received a rescue package, while Man Group Plc plunged 18% after the hedge fund manager said that earnings will be lower than in 2007.

The UK currency also declined against a basket of currencies, including the Euro as a separate report from the British Banker’s Association painted a grim picture for the UK property market as mortgage approvals tumbled in September with banks approving the fewest number of home loans since records began in 1999.

The Pound declined 2.5% against the Dollar by the close of trading last night to record the biggest one day slump since June 4th 1993 while UK government bonds rallied as investors sought the safest securities.

Elsewhere, UK house prices fell by the most in at least seven years in September as the global financial crisis choked lending and the average cost of a home in Britain slipped 6.2% from this stage in 2007, according to a report from Hometrack Ltd.

The Euro rallied higher against the Dollar yesterday while the single currency also took advantage of broad Sterling weakness to test 1.2500 by the close last night despite European stocks plunging the most in eight months after bank bailouts accelerated and the $700 billion plan to rescue financial institutions failed to unlock money markets.

In addition, the Euro also stood firm as German stocks dropped by the most in eight months after the government and a group of banks had to bailout Hypo Real Estate Holding AG with a €35 billion loan guarantee.

Hypo Real Estate, Germany’s second biggest commercial property lender, posted the steepest slump since its initial public offering in 2003 after receiving emergency funding and saying that it plans to scrap its 2008 dividend.

In terms of economic data, the Euro also shrugged off reports that European retail sales fell for a fourth straight month in September as higher consumer prices and the deepening credit squeeze weighed on confidence.

The Purchasing Managers index indicated that the measure of sales in the Euro-region fell to a reading of 46.2 from 47.7 in August, while a figure below 50 indicating contraction as banks become more reluctant to lend while the U.S financial turmoil spreads to Europe.

The disruption and volatility sweeping through financial markets has seen the U.S government deliberate over the proposed $700 billion rescue plan with some Republicans arguing on whether the move would actually help financial markets in the medium to longer term.

However, reports over the weekend indicated that Congressional leaders had finally agreed on the terms of the bailout with the funds intended to bring some stability back to the market as the government inherits tainted assets from U.S banks.

Nevertheless, the financial rescue plan, which is intended to restore some sense of stability back to the market, collapsed last night as the House of Representatives turned down the proposal despite strong backing from the Bush administration and Congressional leaders on both sides.

U.S stocks and commodity prices plummeted as the House rejected, by a vote of 228 to 205, the $700 billion measure to authorise the biggest government intervention in financial markets since the Great Depression.

The Dow Jones industrial average fell 6.98% on the session in New York to record the biggest point drop in history while the S&P; 500 index fell 8.4% by the close last night, the biggest daily slide since October 26th 1987.

In the aftermath of the legislation’s defeat, both Republicans and Democrats were blaming each other as a member of the House, Adam Putnam, blamed Democratic House Speaker Nancy Pelosi for setting a “partisan tone”.

Data Released 30th September

U.K 00:01 Gfk Consumer Sentiment (September)

U.K 09:30 Current Account (Q2)

U.K 09:30 Final Gross Domestic Product (Q2)

GER 09:00 Unemployment (September)

EU 10:00 Final HICP (September)

U.S 14:00 Case Shiller House Price Index (July)

U.S 14:45 Chicago PMI (September)

U.S 15:00 Consumer Confidence (September)

written by Adam Solomon

The Pound tumbled against the Dollar this morning, suffering the largest intraday loss in over 15-years following reports that the U.K government nationalised Bradford & Bingley Plc and seized control of the troubled lender, which represents Britain’s biggest buy to let mortgage provider and the U.K’s eighth largest bank.

The UK currency also fell against a basket of currencies, including the Euro as a separate report on UK mortgage approvals painted a grim outlook for the property market with banks approving the fewest number of home loans since records began in 1999.

The crisis in credit has curtailed lending and Bradford & Bingley Plc are just the latest bank to succumb to the credit squeeze following the nationalisation of Northern Rock Plc last week and the move may further undermine UK consumer confidence as the bailout will be funded with taxpayers money.

Elsewhere, the disruption and volatility sweeping through financial markets has seen the U.S government deliberate over the proposed $700 billion rescue plan with some Republicans arguing whether the move would actually help stabilize financial markets.

However, reports this morning indicate that Congressional leaders have finally agreed on the details of the plan with the funds intended to bring some stability back to the market with the government inheriting tainted assets from banks.

Nevertheless, the focus this morning has been the nationalisation of Bradford & Bingley Plc and the Pound has dropped 2.3% already this session, the biggest daily decline since June 4th 1993 while UK government bonds rallied as investors sought the safest securities.

Data Released 29th September

U.K 09:30 Consumer Credit (August)

U.K 09:30 Mortgage Approvals (August)

EU 10:00 EC Business Climate (September)

EU 10:00 EC Economic Sentiment (September)

- Consumer / Industrial / Services

U.S 13:30 Personal Income / Consumption (August)

written by Adam Solomon

The Pound remained largely unchanged against the Dollar last night but the UK currency relinquished much of the earlier gains overnight as U.S lawmakers argued over the terms of the financial rescue plan, while House Republicans undercut the Bush administration and left it to congressional leaders to thrash out a compromise.

The prospective $700 billion bailout of the U.S financial system is still yet to be finalised, while the Bank of England, along with the majority of Central Banks, have said that they will allow institutions to borrow Dollars from them for a week in a fresh effort to calm the turmoil that has engulfed money markets.

The Pound is largely reactive to news coming out of the U.S and until a deal is agreed we can expect an increased level on intraday volatility and although we have fallen away from the Fibonacci retracement level above 1.8700, the Pound is still trading 0.4% higher versus the Dollar this week.

The run of increases represents the longest run of gains since May while the Pound has also risen well above 1.2600 versus the Euro amid concerns that the Euro-zone economy slipped into negative growth in the second quarter as Finance Ministers express concerns that the market turmoil will damage the global economy.

The UK Prime Minister, Gordon Brown, urged Congress yesterday to approve the plan for financial companies and Brown is due to meet President George W Bush today to discuss the escalating threats to the world economy and the best course of action to alleviate the problem.

Money market rates have soared higher in recent weeks as banks curtail lending while concerns are growing that the deepening financial crisis will increase unemployment as HSBC Holdings Plc cut 1,100 jobs in its global banking and markets division.

Nevertheless, the Bank of England have so far failed to act in terms of reducing borrowing costs and MPC member, Kate Barker, said yesterday that the threat of the fastest pace of inflation is a decade may continue despite the 30% drop in oil prices since July.

The tone of her statement seems to suggest that Barker may be reluctant to follow her colleague and staunch dove David Blanchflower in calling for an immediate and aggressive cut in interest rates as early as next month.

The UK has a significant stake in the outcome of the U.S financial market rescue plan and while the details of the bailout are still yet to be clarified, the stability proffered to the global credit market could potentially help avoid a severe global recession.

The UK economy is on course for its first recession since the early 1990s as the major slum in housing and contraction in household spending brings growth to a grinding halt and the volatility sweeping through credit markets means that Bank’s are not prepared to lend while rising default rates and expensive mortgage will prevent a recovery in the property market.

Another concern for Sterling sentiment is that the overnight index swaps are pricing in over 100 basis points of monetary easing over the coming year as policy makers weigh up the crippling outlook for growth and the potential for consumer price inflation to subsequently undershoot the Central Bank’s 2.0% target.

The Euro has made robust gains against the Sterling on Thursday but the single currency again failed to consolidate on the recent move against the Dollar amid surprisingly bearish comments from ECB policy maker Nout Wellink.

Not sharing the same optimism as his colleagues, Wellink insisted that market uncertainty and volatility will last for ‘some time’ and although the ECB’s governing council members have advocated the need to maintain risks to price stability, the deepening financial crisis may just create a division within the Central Bank.

Data Released 26th September

GER 07:00 Import Prices (August)

U.S 13:30 Final Gross Domestic Product (Q2)

U.S 14:55 Michigan Sentiment (September Final)

written by Adam Solomon

The Pound resumed the upside momentum against the Dollar yesterday while the UK currency also rallied higher versus the Euro after Bank of England policy maker Andrew Sentence said that the MPC must temper its response to the financial crisis and focus on the inflation mandate.

Policy makers have faced a difficult balancing act in recent months, balancing the upside threat of inflation against the looming threat of a recession but in a speech yesterday, Sentence warned that “allowing the economic slowdown to develop into a deflationary spiral” would not help achieve the government’s 2.0% target.

The Pound climbed to a high of $1.8658 versus the Dollar in early trade yesterday as the market tentatively approaches the Fibonacci retracement level above 1.8700 despite an increased probability that the Bank of England will lower interest rates in its October meeting.

Investors are betting on an 85% chance of a reduction in October, from 60% on Tuesday and just 45% this time last week, according to Credit Suisse Group’s index of derivatives.

The 30% drop in oil prices has yet to feed through to the broader economy and interest rates have unchanged at 5.0% since April but concerns that the mounting bank losses will push the economy into a recession may mean that that MPC has little choice but to begin an aggressive period of easing.

The escalating financial crisis may see unemployment rise by as much as 0.4% this month, which translates as roughly 125,000 people losing their jobs while the same article in the Guardian newspaper also highlighted that slowing growth may cause inflation to undershoot the 2.0% target.

The declining sentiment surrounding the outlook for the Euro-zone continued yesterday German consumer confidence unexpectedly rose for the first time in five months after falling fuel costs left people with more to spend of food and clothing.

The price of oil has fallen almost a third from its record high in July but at more than $100 a barrel, the cost still remains 30% from a year ago and that is eroding consumer’s spending power.

The Euro recorded sharp intraday losses against the Pound yesterday but the single currency continues to benefit from broad Dollar weakness as the focus this morning falls on the M3 index of money supply, which is forecasted to decline 0.3% in August.

The declining appetite for the Dollar continued yesterday as the U.S currency fell across the board after the U.S President George W Bush said that the economy may a “painful” recession over the coming as traders bet on a Fed interest rate cut next month.

The Dollar has struggled to revive sentiment since the events of last week and the U.S currency may continue to struggle today as a government report is expected to show that home sales dropped in August, extending the worst decline in housing for 17-years.

Data Released 25th September

GER 07:00 Gfk Consumer Confidence (October)

EU 09:00 M3 – Money Supply (August)

– 3 Month Moving Average

U.S 13:30 Durable Goods Orders (August)

U.S 13:30 Initial Jobless Claims (w/e 19th September)

U.S 15:00 New Home Sales (August)

written by Adam Solomon

The Pound bounced back against the Euro yesterday while the UK currency also held on to the recent gains made versus the Dollar amid concerns that the U.S government’s plan to buy $700 billion in bad debt will fail to bolster the global economy.

UK stocks plummeted, led by banks, as the FTSE 100 Index fell 1.9% from the previous day’s close but the Euro bounced back above 1.2600 against the Euro last night as the shift in dialogue from the ECB’s chairman Trichet prompted investors to speculate that the hawkish Central Bank will moderate its stance over the coming months.

The Pound recorded an all time low at 1.2218 versus the Euro earlier this month but the deteriorating outlook for growth in the Euro-zone has led to concerns that Germany slipped into a recession in the second quarter, while falling commodity should feed through to the broader economy and ease inflationary pressures.

The daily fundamentals have paled in significance in recent weeks as the fallout from the U.S government’s decision to intervene in an unprecedented act to restore stability dominates current trading conditions and the Pound shrugged off reports that UK mortgage approvals fell to the lowest level in a decade.

The report from the British Bankers’ Association showed that bank’s granted the fewest number of loans for home purchases since record began in 1997 as falling property values and tighter credit conditions deterred buyers and brought the housing market “to its knees”.

A separate report from Rightmove Plc earlier this week showed that prices had declined across the country while the 64% drop in mortgage approvals this year is just the latest indication that the slump in the UK property market shows few signs of abating and that may force the
Bank of England to cut interest rates for the first time since April.

The Pound is back within the well established trading range versus the Euro but the dwindling sense of optimism surrounding the outlook for the Euro-zone may see the pair test the resistance above 1.2800 in the short-term but a break below 1.2450 would signal a further move to the downside.

In the smouldering aftermath of last week’s near financial meltdown, the declining appetite for the Euro could be considered somewhat surprising considering that none of the major European Banks hit the headlines expressing severe difficulties to the same extent that hit Lehman Brothers Plc and threatened to consume HBOS Plc.

Nevertheless, the single currency recorded losses against a basket of currencies as a report from the Royal Bank of Scotland showed that Europe’s manufacturing and service industries contracted at the fastest pace in over six years this month.

The index dropped to a reading of 47.0, the lowest since November 2001, from 48.2 in August with a reading below 50.0 indicates contraction as the seizure of credit markets intensified and slowing overseas demand saw companies rein in production.

The sustained slump in European manufacturing and service sector growth indicates that the economy isn’t recovering after shrinking in the second quarter for the first time in a decade while the ECB has cut its growth forecast for this year to just 1.4%.

However, the Central Bank are unlikely to lower interest rate immediately and will probably wait for the 30% drop in oil prices to feed through to the economy and bring consumer price inflation back from the highest level in 16-years.

The focus this morning will fall on the German Ifo sentiment index for business confidence in the region and the report is expected to confirm that expectations worsened between August and September, reflecting the dwindling outlook for growth.

The Dollar continues to struggle against the majors as economists debate on whether the government’s proposal to inject $700 billion in the failing U.S mortgage market will fail in bolstering the economy as the national debt increases by a staggering $1 trillion.

The dwindling appetite for the U.S currency is likely to continue in the short-term as the plan faces congressional scrutiny that threatens to delay passage of the rescue of financial institutions while the Senate will consider testimonies from the Fed Chairman Ben Bernanke and U.S Secretary Henry Paulson.

The tentative price action surrounding the Dollar yesterday indicates that the market is waiting for some direction regarding the details of the bailout but a separate report from Morgan Stanley forecasted that short-term Dollar pressure will subside as the market absorbs the
government’s proposal.

Data Released 24th September

U.K 11:00 CBI Distributive Trades Survey (September)

EU 09:00 Current Account (July)

GER 09:00 Ifo Index (September)

U.S 15:00 Existing Home Sales (August)

written by Adam Solomon

The Pound continued its upward surge against the Dollar yesterday as the UK currency peaked at 1.8638 by the close of trading last night as the impact of the Fed’s decision to inject $700 billion into on money market on Friday continued to hamper Dollar sentiment.

Elsewhere, the Pound actually declined against the majority of the major currencies following reports that UK house prices fell for a fourth straight month in September as the global credit crisis intensified while lenders imposed tighter lending restrictions on borrowers amid reported losses in excess of £250 Billion in the past year.

According to a report from Rightmove Plc, the average asking price for home in Britain fell 1% this month while the commercial director of the UK’s largest property website, Miles Shipside, said that “the housing market is on its knees and will remain so until financial institutions address the disastrous state of mortgage funding markets”

The deteriorating outlook for the UK property market shows few signs of improving and home owners face painful adjustments over the coming months as the market reels from the recent news that HBOS Plc agreed to a takeover by Lloyds TSB Group Plc after the share price in the struggling lender halved last week.

Home values have slumped by the most in twenty years over the past year while the worsening financial crisis destroyed the value of HBOS Plc and added to concerns that the UK economy entered a recession in July, leading to speculation that the Bank of England will cut interest rates in November.

Lenders are struggling with higher borrowing costs in interbank lending on concerns about escalating losses linked to the collapse of the U.S housing market but the U.S Treasury have announced a $700 billion rescue plan to buy troubled assets and bring the global economy back from the brink of a financial meltdown.

In a gesture of intent, the UK government suspended tax on home purchases of less than £175,000 earlier this month but the number of new listings per estate agent has still fallen to a record low and it may require an aggressive easing in borrowing costs to revive the ailing the UK property market.

The Euro continued to make robust gains against the Dollar yesterday while the single currency also took advantage of broad Sterling weakness, closing towards the daily low at 1.2535 last night after ECB board member Juergen Stark supported the Central Bank’s neutral stance on monetary policy.

In a statement to journalists, Stark said that lowering the benchmark interest rate would not “solve problems in the financial markets while the ECB will remain focused in their sole mandate to ensure that risks to price stability do not become entrenched in the broader economy.

Nevertheless, Stark did acknowledge that economic growth in Germany remains subdued throughout the third quarter as the impact from the collapse of the U.S mortgage market reverberates through money markets and continues to hamper growth in the global economy.

In a sparse week of economic data, the focus this morning will fall on the flash estimates for European manufacturing in September and the report is expected to confirm that growth slipped further into negative territory this month while industrial orders also slumped in July as demand from overseas declined.

The Dollar recorded the biggest single day drop in history against the Euro yesterday while the U.S currency also declined against a basket of currencies amid concerns that the U.S government’s plan to buy $700 billion in troubled assets from financial firms will inflate the budget deficit and increase the national debt by $1 trillion.

The Dollar has endured the longest stretch of declines since June as the Treasury’s proposal to bail out banks from the credit crunch failed to restore investor’s confidence in U.S assets.

In addition, U.S stocks also plunged and traders returned to commodities as a safe haven with oil prices rising $10 in New York to record the biggest single day increase in history.
Data Released 22nd September

EU 09:00 Flash PMI – Manufacturing (September)

- Services

EU 10:00 Industrial Orders (July)

written by Adam Solomon

The Pound gained for a second day against the Dollar yesterday, rising to a high of $1.8258 during the European session, following reports that Lloyds TSB Group agreed to buy HBOS Plc for £10.4 Billion after share prices in the ailing mortgage provider slumped 85% on Wednesday from the 2007 peak.

The Bank considered bailing out Northern Rock Plc before it collapsed last year and according to a report from the Council of Mortgage Lenders, a combination of Lloyds TSB Plc, based in London, would acquire a 28% share of the UK mortgage market and prevent Britain’s largest provider from succumbing to the worsening global credit crisis.

HBOS had lost almost half its market value in a turbulent week for financial markets that saw the collapse of the fourth biggest U.S investment bank Lehman Brother’s Plc, while the government stepped in to prevent the same fate for American International Group Inc, the biggest U.S insurer.

The current market turmoil shows few signs of abating but the Pound continued its upside momentum against a basket of currencies following a report from the Office of National Statistics, which showed that UK retail sales unexpectedly increased in July.

Sales increased 1.2% after rising 0.9% the previous month as stores attempted to revive spending by offering discounts on clothing and footwear but with unemployment rising by the most in 16-years last month, the pace of spending may dwindle as consumers become worried about their jobs.

Nevertheless, the Bank of England has still refrained from cutting interest rates since April as policy makers attempt to balance the risks to growth against rising inflationary pressures while former BoE MPC member Charles Goodhart said that the Bank will wait until November at the earliest before a likely cut.

The Dollar recorded losses against the Euro yesterday and may extend its decline versus the Pound amid speculation that the U.S government will build an agency to address the turmoil sweeping through financial markets.

The prospect of the U.S Treasury Secretary and the Federal Reserve formulating a “permanent” plan to limit credit market losses saw some sense of confidence return to the market as investors were encouraged to buy high-yielding assets backed by low cost loans from Japan.

The comments from the U.S senator Charles Schumer indicates that the government is assessing the need for a more “comprehensive solution” while he also said that the injection of funds into financial companies could be exchanged for equity stakes.

Elsewhere, the Dollar also came under renewed pressure against the majors after an index of leading economic indicators fell more than forecast while oil prices rose for a second day in New York as the market turbulence boost the appeal of commodities.

Data Released 19th September

GER 07:00 Producer Price Index (August)

The Pound continued to test the resistance above 1.2600 versus the Euro but the UK currency suffered a sharp intraday loss versus the Dollar, falling by the most in two weeks on the session, after the degree of volatility sweeping through financial markets continued and oil prices tumbled a further $4 in New York.

In addition, the Pound also came under renewed selling pressure after the Bank of England Governor Mervyn King, said that inflation will peak in the short-term and the slow ‘sharply” in 2009, boosting the probability of an interest rate cut over the coming months.

The Pound also recorded losses against a basket of currencies, snapping an eight day winning streak versus the Euro as King wrote a letter of explanation to the Chancellor of the Exchequer Alistair Darling, saying that inflation will peak at 5.0% this year.

The annual pace of consumer price inflation exceeded the government’s 2.0% target and jumped to 4.7% year-on-year in August, the most since records began in 1997, while near 40% drop in oil prices has yet to feed through to the broader economy and ease price pressures on the stagnant UK economy.

Nevertheless, the tone of King’s comments yesterday suggests that the Bank of England are prepared to act amid the escalating financial crisis and as inflationary pressures begin to ease, the Bank of England will then have the scope to begin cutting interest rates.

The Pound subsequently declined to a low of $1.7796 before the opening in New York, falling 1.2% from the previous day’s close as the market began factoring in the probability of an impending UK rate reduction while King stressed that the MPC will re-evaluate their current stance in the next monthly meeting.

The turmoil surrounding financial markets continued yesterday as UK stocks slumped for a second consecutive day and the FTSE 100 Index fell to a three year low amid concerns that yet another financial institution will face bankruptcy as companies struggle to raise capital and prevent share prices from plummeting.

HBOS Plc, the UK’s largest mortgage provider, plunged an incredible 22% on the session after news broke that American International Group Inc fell 34% in New York following reports that the insurer’s credit ratings were cut, threatening efforts to raise funds in order to keep the company afloat.

Over $1.1 trillion has been wiped off the value of U.K shares this year as Banks are forced to seek emergency funding from the Bank of England with companies, including Barclays Plc and RBS Plc, struggle to cope with losses linked to the collapse of the U.S subprime mortgage market that currently top $120 billion across Europe.

The uncertainty and appetite for risk aversion is spreading through financial markets as the high-yielding currencies such as the New Zealand and Australian Dollar decline heavily with traders favouring less riskier assets in Japan.

In terms of economic data, the focus this morning will fall on the release of the minutes from the Bank of England’s last policy meeting after the MPC elected to hold interest rates at 5% and traders will pay particular attention to the voting pattern of the committee to gauge the prospect of any change in policy next month.

The Euro held on to the previous day’s gains against the Dollar and also remained largely unchanged versus the Pound after a report from the ZEW Centre for European Economic Research showed that German investor confidence rose for a second consecutive month.

The index of investor and analyst expectations rose to a reading of -41.1 from -55.5 in August after the overwhelming decline in oil prices and the recent drop in the Euro helped improve the outlook for economic growth.

The price of crude oil has fallen to $90 a barrel from a high of $147.27 in July while the Euro has lost 8% in value against the Dollar in the past three months, providing some relief to companies and consumers alike and that will provide some optimism that the Euro-zone economy can weather the current financial crisis.

The Dollar advanced against the Pound yesterday while the U.S currency also made gains versus the majority of major currencies amid speculation that the Federal Reserve will bailout AIG Inc and extend a loan to the troubled insurer.

Nevertheless, the Federal Open Market Committee elected to hold interest rates at 2.0% last night despite calls from some investors for a cut after the fourth biggest U.S investment bank Lehman Brothers Holdings Inc fell into bankruptcy and rocked financial markets worldwide.

The accompanying statement was fairly cautious in tone as policy makers said that “downside risks to growth and upside risks to inflation are of significant concern” while the committee will also monitor developments closely and act as necessary to “promote sustainable economic growth and price stability”.

Data Released 17th September

U.K 09:30 BoE Minutes (3/4 September)
U.K 09:30 Average Earnings (3 Months to July)
U.K 09:30 Claimant Count Unemployment (August)

U.S 11:00 CBI Industrial Orders (September)

EU 10:00 External Trade Balance (July)

U.S 13:30 Housing Starts (August)

– Permits

U.S 13:30 Current Account (Q2)

written by Adam Solomon

The Pound relinquished earlier gains against the Dollar yesterday as the turmoil sweeping through financial markets forced the Bank of England to respond with measures to provide some short-term liquidity to the market and inject an additional £5 billion in emergency funding.

The UK currency had earlier risen to a high of $1.8127 versus the Dollar following reports that Lehman Brothers Holdings Inc, the fourth largest U.S investment bank, filed for the biggest bankruptcy in history while Merrill Lynch & Co agreed to be bailed out by Bank of America after the year-long credit crunch cost banks in excess of $515 billion.

Lehman Brothers have survived the railroad bankruptcies of the 1800s, the Great Depression that followed the Wall Street Crash in 1929 and the collapse of long term capital management but the 158-year old firm has succumbed to the collapse of the U.S subprime mortgage market.

UK stocks slumped by the most in eight months yesterday as share prices in financial companies tumbled while HBOS Plc, the UK’s biggest mortgage lender, dropping a record 27% on the session and Barclays Plc and the Royal Bank of Scotland Plc both dipped 13%, to record the steepest losses since records began in 1988.

Elsewhere, the Pound was also undermined after the Confederation of British Industry said that the Bank of England should lower interest rates aggressively in November to halt for the first recession since the early 1990s.

A number of key industries have fallen into negative growth as manufacturing output slumped in August and the CBI acknowledged that companies are having a “tough time” in the current economic climate.

The director of the CBI also told reporters that policy makers should consider a “half-point cut in November”, assuming that the inflation outlook doesn’t change as commodity prices continue to fall to the lowest level in six months.

The Bank of England have so far been reluctant to lower borrowing costs amid the fastest pace of inflation in at least a decade but the EU have recently said that the UK economy has already entered its first recession since 1991 and policy makers may be forced into action and provide some relief to the market.

In terms of economic data, the focus this morning will fall on the latest consumer price index and the report is expected to confirm that inflationary pressures increased a further 0.6% on the month in August with the annual rate rising to 4.6% from this stage in 2007.

The 30% drop in oil prices has yet to feed through to the broader economy and the outcome of the report will provide a difficult dilemma for the Bank’s Monetary Policy Committee as rising prices become embedded in the economy and weigh on consumer confidence.

The Euro has declined 10% against the Dollar since touching a record high in July and EU officials admitted yesterday that the correction is a welcome relief as the Euro-zone economy teeters on the brink of a recession.

The excessive volatility saturating the market is “undesirable for economic growth” according to the accompanying statement and the ECB will remain defiant in their quest for price stability, which may support the Euro in the short-term amid speculation of a U.S interest rate cut.

The Dollar declined against the majority of the 16 most actively traded currencies yesterday while the Australian and New Zealand Dollar struggled to stem the tide as an element of risk aversion dominated the market and traders sold higher yielding currencies in favour of cheaper loans from Japan.

The financial implications of yesterday’s news and the subsequent volatility that spread through the market in the aftermath of the announcement seems to indicate that the credit market turmoil is deepening and that may force the Federal Reserve to slash interest rates this evening.

Data Released 16th August

U.K 09:30 DCLG House Prices (August)

U.K 09:30 Consumer Price Index (August)

- Retail Price Index

GER 10:00 ZEW Index (September)

EU 10:00 HICP (August Final)

- Harmonised Index of Consumer Prices

U.S 13:30 Consumer Price Index (August)

- Ex Food & Energy

U.S 13:30 Real Earnings (August)

U.S 14:00 TICS Capital Inflows (July)

U.S 18:00 NAHB Housing Index (September)

U.S 19:15 FOMC Rate Decision

written by Adam Solomon