Wise Money Blog- daily news on financial matters

Weak housing data dents the Pound

2008-08-29T08:57:00.002Z

Locally yesterday we saw 10% wiped off the price of homes, as house prices continue to plummet at their fastest rate for almost 2 decades.

The Nationwide survey found that more than 10% has been wiped off the price of homes since the start of the year, which has seen the steepest decline since 1990. The figures suggest that the credit crunch is still biting hard, with the number of mortgage applications tumbling while inflation sends household spending soaring.

The average property across the country is worth £164,000; £19,000 lower than a year ago. The housing market in the UK is showing little sign of stabilisation and the impact of the broader economy is expected to remain heavy as a result. The market paralysis has been dubbed 'Brick or Mortis'

On the back of BOE member Blanchflower's comments we saw cable through 1.83 yesterday. The Bank of England's dove commented that we need to see a substantial fall in interest rates and probably quickly.

With more from Blanchflower 'The question is what's going to happen to prices 18months down the road' His answer being that inflation is going to 'plummet like a rock' in the medium term.

Blanchflower also expects unemployment growth to accelerate and could hit 2 million by Christmas. Is the UK in recession, will we see an increase of large rate cuts to stop the economy heading into a deep and prolonged slump?

With US Q2 GDP continuing the recent trend of firming data out of the US, growth improved year on year by 3.3% during the quarter, well above the 1.9% initial expectation. With a big contribution seen from net exports and less of a drag from inventories. However, the figures in no way suggest the US economy has turned a corner yet.

Interest rate decisions in the upcoming weeks, in Europe in partiular, will likely confirm that other central banks will now seek a more accommodative policy as growth slows, pushing yields further in favour of the US.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Hawkish ECB comments

2008-08-28T09:25:00.002Z

In comments yesterday from the ECB, Webber from the governing council sounded out a hawkish tone, stating that much discussed rate cuts in the Eurozone are being expected too early.

The ECB has started to concentrate its concerns about operational issues on the collateral system: with comments again from Webber that 'The collateral that we take must also be traded in the market becasue only then is it priced accurately' . This may lead to ultimately tightening lending standards, showing unlikely good news for the economic growth in the EMU.

Further comments from the ECB vice-president Papademos also warned that further rate rises may be needed if second round effects materialised in the Eurozone. Remarks from the other ECB members, Bini Smaghi and Bonello, all suggested the central bank is attempting to temper market expectations of rate cuts ahead.

The USD was not helped yesterday by the hawkish comments yesterday from the ECB, raising the prospect of an interesting ECB policy decision next week, this continues the confusion over which path we will see currency rates take.

The broad decline in inflation and inflation expectations has lessened the need for rate hikes but this is evident in all G10 economies. With the US economy arguably in a more advanced stage of economic adjustment and with the Fed having already eased aggresively, the pressure is building on the Eurozone and other G10 economies to seek a more accomodative policy ahead.

The hawkish commentary will be increasingly unjustifiable and we see little scope for the significant yield gains in favour of the Euro.

Crude oil prices continue to edge higher, breaching $119/bbl off the back of feas over the disruptions from Tropical Storm Gustav, which is expected to strengthen into a major hurricane in the Gulf of Mexico.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Central Banks feel the pinch of inflation

2008-08-27T10:43:00.001Z

The start to a short week in London saw currency markets yesterday take direction from the doom & gloom released in both the Euro-zone and here in the UK with the greenback holding strong.

Yesterday morning saw the German Ifo Business climate at its lowest in three years reporting a figure of 94.8, with Current Conditions coming in at 103.2 and Business Expectations at 87.

These figures supported some economists' views that the slowdown in economic growth going forward is likely to be more protracted and that cuts in rates are now likely given speculation that a peak in inflationary pressures is now on the horizon.

Tuesday afternoon's Consumer Confidence figure came out slightly up in the States this month at 56.9, from 51.9 in July. A lower than expected drop in house prices also gave support to the dollar.

The FOMC minutes from the August 5th meeting released last night suggest rates are likely to remain on hold for the meantime. Some Fed officials remain concerned about inflation not easing in 2009 and so the next move could be a rate hike. This of course contrasts strongly with views that the next BoE move will be to cut here in the UK, and so support would seem to remain with the Dollar in the longer term.

The British Bankers Association (BBA) reported overnight that mortgage approvals for last month totalled 22,448, only just above last month's record low of 22,369. Whilst the data was slightly improved on the month, the BBA warned it did not expect to see a recovery any time soon.

We have very little focus on the Economic data front for today with just the US releasing anything of note in the form of Durable Goods Orders for July. Market expectations are for a 0.1% rise in the headline figure and ex-transportation orders to fall 0.4%.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Weak IFO expected....

2008-08-26T10:36:00.000Z

The Euro fell for a third day against the dollar on speculation the IFO Business Climate report will show today that confidence has slumped in Germany to a three year low.

The currency traded near a three-month low versus most major currencies and towards a six month low against the dollar with concern credit-market losses and slowing exports will stop the European Central Bank from raising interest rates this year.

The US dollar grew stronger on Monday and early Tuesday on the speculation of a weak German IFO survey, but could well decline later today with expectation of Sales of new houses in the U.S. likely to have fallen in July as mortgage lending dried up.

US homes purchases are expected to have dropped 0.9 percent to a 525,000 annual pace. Mounting losses on subprime mortgages have caused banks to withhold credit and boost borrowing costs, hurting demand even as prices are falling and making houses more affordable.

The decrease in sales has signalled the worst real-estate slump in more than quarter of a century.

The Pound fell against the dollar again on Monday, extending a fifth week of declines, the longest continued drop since February 2006. The UK Currency, slipped to its lowest level since July 2006 as effects of last weeks government report showed economic growth stagnated in the second quarter.

The report also added pressure to the Bank of England to set aside concerns about inflation and cut its benchmark interest rate, currently at 5%. With the UK inflation rate at more than twice the 2 percent target, the Bank of England have been reluctant to lower interest rates, and understandably so.

The Australian and New Zealand dollars continued their recent declines as concerns credit-market turmoil will widen prompting investors to sell higher-yielding assets funded in the Japanese currency.

The New Zealand dollar fell to its lowest level in over a week, and the Aussie dollar to a four month low against the most traded currencies on speculation that the nations bank will cut Australian interest rates from the 12-year high of 7%.

Crude oil was little changed after rising yesterday as Tropical storm Gustav formed in the Caribbean Sea, raising concerns it may disrupt production at oil fields in the gulf of Mexico.

Gustav has strengthened to near hurricane force with winds about 70 miles an hour and was moving towards the gulf. Prices also rose after Russian lawmakers voted to recognize the independence of two breakaway Georgian regions, increasing the prospect of further tensions in the area.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Dollar rally stalls

2008-08-22T08:58:00.002Z

The dollar came off recent near term highs on the back of oil's jump to a 2 week high.

The higher oil price was prompted by a combination of heightened geopolitical uncertainty stemming from Russia's decision to halt cooperation with NATO and warning that Saudi Arabia may scale back its recent increase in production.

The once resilient Euro zone economy is succumbing to the downward pressures of a strong Euro, a slowing global economy, high oil and food prices and tight credit conditions.

According to 2007 GDP estimates, the IMF expects the world's largest economy to grow at only 1.7% in 2008 and 1.2% in 2009 compared to 2.6% in 2007.

The main reason the ECB is not cutting rates already is because inflation is well above a level consistent with price stability and the central bank wants to avoid second-round effects of energy prices in wage and price setting.

Will we see EURUSD back at 1.40? The Euro has been very weak over the past month and this trend is expected to continue.

The Eurodollar has fallen from highs following a shift of interest rate expectations in favour of rate cuts by the ECB and rate hikes by the Fed. The market is predicting the Fed to increase rates by 75bp over the next eight FOMC meetings.

Today, Fed Chairman Ben Bernanke will be scrutinized for hints on future policy moves and any indications of support for Fannie Mae and Freddie Mac.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

BoE minutes as expected...retail sales to follow.

2008-08-21T13:04:00.001Z

Yesterday, the BoE minutes confirmed what the market had been expecting with a 7-1-1 split, the majority sticking with the status quo and keeping rates on hold.

The hawk of the MPC, Tim Besley, voted for a hike arguing a pre-emptive rate rise would assist in halting inflationary pressures. David Blanchflower as usual cited downside risks to growth weighed far heavier than the inflation problem.

The rhetoric in the minutes echoed what was said in the inflation report, maintaining that there was greater downside risks to growth, that inflation would remain above the 2 percent target for the majority of the forecast horizon but that it will fall below this target at the 2-year mark.

Staying in the UK, CBI industrial trends came in slightly below market expectations at -13 yesterday and today we look to UK retail sales to give us direction.

Market expectations are for retail sales to decline again for the month of July following other recent weak data releases. The number surprised to the upside in May so it will be interesting to see how our capacity to spend faired last month.

Today in the Euro-zone, PMI surveys will give an indication of how manufacturing and services are fairing. The Market expects numbers to marginally decrease on the month in contradiction to the upbeat numbers released in the ZEW sentiment index on Tuesday.

Recent USD strength seems to have waned following slight rises in gold and oil prices taking other commodities with them. There are concerns too for the large US mortgage institutions and their ability to raise cash which is contributing to the dollars slowing pace.

US labour market weakness is expected to continue today with the release of initial jobless claims reporting around the 43k number with continuing claims expected to show an increase to nearly 3.5m. Later in the afternoon, we'll see the Philadelphia Fed which has been soft all year but might pick up a little following recent ISM readings around the 50 level.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

BoE minutes is the focus today

2008-08-20T18:44:00.001Z

Wise Money starts with news from the US housing sector with government figures reporting the annual pace of Housing Starts at 965k in July, the lowest annual rate in 17 years.

While this was slightly more than market expectations, building permits were reported down 17.7 percent at 937k and well below forecasts of around 970k. To add to the woes for the US Fed Reserve, persistent inflationary pressures were reported in the form of the PPI figure where US wholesale prices shot up at the fastest year-on-year rate since 1981.

Prices at the factory gate climbed 1.2 percent in July but it was the core producer prices, which exclude food and energy, which had the biggest impact rising 0.7 percent after a 0.2 percent increase in June.

Market expectations here were for a rise of 0.2 percent again and this figure gave little comfort to the US Fed Reserve, which is hoping a slowing economy will stave off inflationary pressures and enable rates to stay on hold.

Recent declines in EURUSD and oil appear to have given comfort to German and Euro-zone economic sentiment. The ZEW survey was better than expected coming in at -55.7 showing market participants are not as negative on the European and German economy as before.

However, the German ZEW Current Situation figure was well below expectations at -9.2 and indicates that sentiment is still to the downside with weaker growth and higher inflation being the main drag.

Here in the UK we will see how the Bank of England's MPC voted when they met a few weeks back when the minutes are released today (9.30am). Previously the vote was split 7 to hold, 1 to cut rates and 1 in favour of an increase in rates.

As with the Fed in the US, the Bank of England faces the same concerns of persistent inflation and slowing growth but the recent Inflation report contained a dovish tone which will make it likely the bulk of the MPC voted to keep rates on hold.

Other snippets of UK data today come in the form of Public finances and CBI industrial trends but it will be the BoE minutes that the market takes direction from.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Wise Money focus turns to tomorrows UK data

2008-08-19T18:40:00.000Z

The week began with relatively little data but what was released was typically downbeat.

In the states we saw the release of the National Association of Home Builders (NAHB) housing market index, which held at 16 for the month of August matching market expectations and shows sentiment stuck at a record low.

A reading below 50 indicates US home builders view markets conditions as poor. However, the NAHB said in the report that it expects a recently enacted home buyer tax credit to boost appetite and encourage buyers to jump into the housing market. More housing data comes in the form of US building permits and housing starts this afternoon and the market expects a decrease in numbers here.

German PPI released this morning hit a 27 year high, accelerating to 8.9% in July from 6.7% in June. "As in previous months, energy prices had the biggest influence over the annual rate" the Bundesbank said.

In Germany we see the release of the ZEW survey, which is expected to follow sentiment of fading economic growth in Europe. There is reason to believe pressure will remain on the single currency and for the USD to remain strong, with support for the greenback coming from falling gold and oil prices.

Here in the UK, there isn't much to focus on in terms of data until tomorrow. Bank of England MPC member Besley writes in the Sun (that well respected financial paper) that it is "not easy in the current economic climate" to keep UK inflation at its 2% target. He added it will fall to 2% next year if inflationary wage increases do not take place.

Elsewhere the Bank of Japan kept rates on hold last night at 0.5% but downgraded its assessment of the economy for the second month running citing the risk that weakness in the US economy may trigger recession in Japan.

It remains pretty pessimistic in its view, seeing weakening export growth and domestic demand weighing on economic weakness.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

US Dollar maintains strength

2008-08-18T18:34:00.000Z

US Dollar strength continued on Friday, helped by a rise in the University of Michigan US Consumer Confidence survey.

The index improved for the second consecutive month to 61.7 from 61.2 in July, although slightly behind expectations of 62.0. The key driver behind the improvement in consumer confidence was the recent reduction in oil prices which was reflected in 1 year inflation expectations falling from 5.1% to 4.8%.

However with job losses in the US mounting, credit conditions remaining tight, and food and energy prices still relatively high, the index gauging sentiment on current economic conditions declined to 69.3 from 73.1.

This suggests that the average US consumer is not necessarily ready to head to the shops again just because oil prices are receding, and as a result, significant downside risks to growth remain.

This is reflected in overnight index swaps prices which moved sharply on Friday to price in 38bps worth of hikes by the Federal Reserve over the next 12 months, down from 71bps on Thursday.

In the US this week's focus will be on US producer prices for July and housing data out today and tomorrow. This evening the US National Association of Home Builders Index is released, expectations are for the Index to remain at a record low of 16 for August.

This will tie in with similar tones from housing start data out tomorrow with forecasts of a decline from 1.07m to 960,000 home starts in June.

There is a significant week ahead for GBP on the data front including the release of BoE minutes, UK Retail Sales and further second quarter GDP data. The markets will watch to see if there has been a change in three way split from the BoE previous meeting particularly given the negative tone on growth in last weeks inflation report.

This negative sentiment is expected to be reflected the in retail sales data as UK consumers continue to tighten their belts.

The overall market sentiment was not helped by talk over the weekend that the British Chamber of Commerce will be releasing a bearish quarterly economic forecast this week, predicting a recession and calling for the Bank of England to cut rates aggressively in the months ahead.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Dollar rally continues

2008-08-15T18:29:00.001Z

Data released yesterday showed the Eurozone was moving closer to a recession after the economy contracted for the first time since the Euros launch almost a decade ago.

Gross domestic product fell 0.2% in the second quarter of 2008 after increasing 0.7% in the first. The year on year growth rate slowed for a third straight quarter to 1.5%. Technically a recession is when an economy shrinks for two consecutive quarters.

After European Central Bank President Jean- Claude Trichet last week said growth will be "particularly weak" through the third quarter, many economists now believe the Euro is on the verge of a recession.

Euro inflation data was also released yesterday at 4%; less than the 4.1% estimated earlier but still twice the ECB's 2% target. Food price increases accelerated to 6.7% in July, while energy-price inflation soared to 17.1%.

The central bank last month raised its target rate to 4.25%, a seven-year high, to curb high inflation levels. Even with the weaker growth levels announced, financial markets are only pricing in a slim chance of a reversal of the recent rate hike.

U.S. consumer prices jumped to a 17 year high in July, reducing the scope of the Federal Reserve to lower interest rates as economic growth slows. The index rose 0.82% month on month in July, ahead of market forecasts of a 0.4% monthly increase.

The annual rate of consumer price inflation is now 5.6% year on year, up from 5.0% in June and significantly higher than the market expectation for a rise to 5.1%.

The recent dramatic retreat in energy prices and an increasingly sluggish global economy are likely to put downward pressure on headline inflation rates in coming months. The markets therefore concentrated on the weak Euro growth story taking the Euro to its lowest level in six months against the USD, below $1.48.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Pound slumps following inflation report

2008-08-14T18:26:00.000Z

The Bank of England released its quarterly inflation report yesterday giving the bleakest assessment of the UK economy for over a decade.

Mervyn King, governor of the BoE, warned that the coming year was going to be difficult and that there was "bound to be a quarter or two" of negative economic growth. This was coupled with predictions inflation would rise to over 5% in the short term before falling back to the 2% target level within 2 years.

Prior to the inflation report the July UK unemployment figures were released with unemployment increasing by 60,000 in the quarter, a sharper increase than the 13,000 reported in the first quarter.

The combination of lower growth expectations and the reversion of inflation to target levels means markets are now pricing in interest rate cuts earlier than previously estimated. Investors are pricing in a 60% chance of interest rate cuts by the end of the year as opposed to 12% prior to the report.

The pound declined to its weakest level in 22 months against the USD falling below $1.87, and fell back below â¬1.26 against the Euro.

The appreciation of the USD was tempered after US retail sales had reduced by 0.1% in July; an indication the boost to the US economy from the recent tax rebates may already be fading.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

The hawks eye the BoE's quarterly inflation report

2008-08-13T09:02:00.001Z

In the UK, the short end of the gilt market shrugged off anther set of poor inflation figures highlighting the current bullish rate sentiment.

July CPI increased to 4.4% year on year in July from 3.8% in June. Worthwhile remembering that the Bank of England had July's inflation data in its hands when policy was unchanged last week. With the latest utility price hikes still to kick in headline inflation looks set to reach 5% in September.

The Bank of England's Quarterly Inflation Report is due at 10.30 today and will be closely scrutinized. Although the BoE's latest Inflation Report looks certain to downgrade its 2009 GBP projection, the near-term inflation outlook should be revised sharply higher.

Given this, a hawkish press conference from Mervyn King is likely, keeping the door open for a possible rate hike if needed. The key issue for the markets remains whether the growth slowdown will be sufficient to push CPI below its target on a two year horizon. Labour market data should also be monitored, particularly wages.

In the US, Treasuries rallied yesterday on renewed financial worries, leading to a steepening of the yield curve. Dovish comments by Fed member Gary Stern who stated the Fed "should be patient" in raising rates were also supportive.

Fed hawk Fisher also gave relatively pessimistic remarks about the growth outlook. June's trade data was better than expected but evoked little market reaction.

Briefly on the Eurozone. Policy wise, recent ECB comments have been mixed. On the one hand, Bini-Smaghi warned that Euroland growth had worsened significantly recently. On the other hand, ECB hawk Weber continued to highlight inflation worries.

Today's Eurozone industrial production should highlight the difficult outlook for the corporate sector but this will be overshadowed by US retail sales where the market is looking for a weaker July figure signaling that the positive impact of recent tax rebates has faded.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Dollar strength prevails

2008-08-12T08:10:00.000Z

In overnight trading, the RICS House Price Balance from the UK declined less than expected in July, printing at -83.9% versus -90.0%.

On balance, the improvement is marginal considering the magnitude of the decline in prices. Real estate demand has collapsed as buyers are unable to obtain credit to finance purchases. Indeed, June's Mortgage Approvals dropped to the lowest level since at least 1999.

The U.S. dollar is maintaining a timely advantage over major currencies, as the job done by the Federal Reserve and the Treasury department to stimulate growth is beginning to produce some results.

Crude receding from recent highs (5-month low yesterday at $112.72) should support the currency over the short/medium term, while bad economic numbers are already discounted in recent lows. The European officials, at the contrary, prefer to adopt a wait and see approach.

Data released yesterday showed a record surge in the cost of production in the UK and reinforced the expectations that the inflation headline will hit 5 % over the summer.

The Bank Of England is largely expected to make a harder stance in its inflationary report. Some traders are of the opinion that the BOE has no other choice but to cut interest rates, rise inflation expectations and downgrade economic growth this year and next year in spite of mounting fears of recession.

Aside from the much headlined UK Consumer Price Index where expectations are for a 4.2% rise, the market will likely pay closer attention to the continued slide in oil prices as well as the escalating conflict between Russia and the Caucasian republic of Georgia.

The dollar tends to attract capital at times of geopolitical tension because the US remains the dominant global military power.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Wise money asks where do we go from here?

2008-08-11T09:00:00.001Z

The US Dollar broke technical levels and records last week posting the largest single day decline in Eurodollar in 7½ years. This bodes the question is this a false breakout or does this represent a fundamental shift behind a long-term trend change?

To attempt to answer that question, recall the growth outlook in the US. Recently published Q2 GDP calmed fears in the market however The Federal Reserve continues to warn about the downside risks to growth.

The housing recession is still deepening, financial conditions have deteriorated to levels not seen since the peak of the credit crunch and moreover consumer spending, which makes up 70% of the economy, is in jeopardy.

Perhaps the dominant force behind the dollar's ultimate long-term direction is through interest rate expectations. Despite economic data that has been less than impressive, the outlook for interest rate hikes has gone relatively unchanged. Overnight swaps suggest the FOMC will deliver 75bps of tightening through the coming 12 months.

Key event risk this week:
A barrage of key economic data is due to be released this week including US and UK consumer prices, US retail sales and the Bank of England's Quarterly inflation report; however the most market moving release is likely to be Euro-zone Q2 GDP as ECB President Trichet's dovish commentary last week signaled concern for expansion in the region.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Dollar gathers momentum

2008-08-08T08:39:00.003Z

The Bank of England delivered as expected yesterday; the base interest rate was left on hold at 5.00%.

In two weeks time the minutes for the meeting will be released. The market will keen to see the voting split amongst the 9 members. Will it be similar to the bias that is showing a 0.50% cut in the next 12 months, as anticipated by the overnight index swaps?

The USD is the main story this morning. As mentioned in yesterday's wise money commentary, the greenback bulls are about and their charge continued in earnest in overnight trading. EUR/USD and GBP/USD have rocketed south.

Comments from ECB President Trichet proved to be the catalyst for the latest rally. It appears that growth concerns in the Eurozone are weighing heavy on the President's shoulders. With oil continuing to ease off there is a conviction that US will shortly see better economic times.

The ECB left interest rates steady at 4.25% yesterday. An initial strengthening of the Euro was followed by massive selling.

Once again President Trichet's comments that followed the rate announcement proved to be the market mover. The prime mandate of the ECB is price stability. However, the hawkish tone and comments about growth concerns were enough for the market to start pricing in rate cuts within the next 12 months.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

D-Day for interest rate announcements

2008-08-07T08:22:00.000Z

First up is the Bank of England at 12 noon. How will the nine policy makers call it this month?

Last month there was a split decision with one voter calling for a rate cut, one for a rate rise and seven to keep it steady. The market is expecting the base rate to remain on hold today at 5.00%. However, a rate cut bias is gathering momentum amongst traders.

According to the overnight index swaps the smart money is on a 0.50% cut within the next year. Cash placed for 3 months and out is looking very attractive.

Subsequently the Bank of England hands the baton over to the European Central Bank. At 12.45pm today the decision of a rate hold is expected to be released into the market; leaving the base interest rate at 4.25%.

The ECB President Trichet is fully aware that the Eurozone's economy is showing signs of stagnation if not deterioration but with inflation remaining rife a rate cut appears to be off the cards.

USD bulls continue to run rampant after the FOMC's policy statement failed to quell speculation of a number of rate hikes over the next 12 months. The USD made significant strides across all the majors yesterday. Few would bet against this trend continuing especially with the recent easing of oil prices.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Fed interest rates unchanged as expected

2008-08-06T12:42:00.001Z

The U.S. Federal Reserve left the Fed Funds rate unchanged at 2% as widely expected and caused little impact to the markets.

The Federal Reserve believes that growth risks are now fairly balanced with inflation concerns and the substantial easing of monetary policy to date should help to rescue the U.S. economy from technical recession.

The committee still expects inflation to moderate later this year and next but believes that the outlook still remains "highly uncertain". Economists say the statement accompanying yesterday's FOMC decision to hold rates indicates the Fed will likely hold the target rate at 2% for the rest of the year.

A similar statement to the June meeting and the same lone dissenter suggests no major tilt in the bias towards inflation or growth. Ten of the 11 Committee members voted in favour holding the Fed funds at 2%, while FOMC member Fisher favoured a rate increase.

The next FOMC meeting is on September 16 and there is a 66 percent probability the Federal Reserve will leave rates unchanged (according to Fed Funds futures). The USD remains firm against most major rivals and continues to be supported by weakness in commodity prices.

According to the Nationwide Building Society, consumer confidence in the UK continued to decline and fell to an index reading of 51 in July. Economists had expected a less severe fall to 57 after the sentiment indicator had slipped to 62 in June.

A sharper-than-expected decline in the UK's industrial and manufacturing production yesterday have economists expecting a downward revision in the UK's second quarter GDP figures.

The Office for National Statistics (ONS) said the UK's industrial production level fell 1.6% year-over-year in June, deepening the 1.7% decline seen in the previous month. Economists had expected a fall of 1.2%. Despite expectations of a 1.3% decline, euro zone retail sales also contracted by a full 3.1% in June year-over-year, adding to the 0.1% fall seen in the previous month.

The economic calendar is conspicuously bare in the today's session. German Factory Orders are expected to match the 5-year low at -4.7% in the year to June.

Commodity prices will continue to be a major driving force in the financial markets today with USD looking to maintain its pressure on both GBP and EUR. All eyes are firmly focused on tomorrow's back-to-back BoE and ECB rate announcements.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Dollar rallies ahead of FOMC meeting

2008-08-05T08:54:00.001Z

This evening's FOMC may be one of the least interesting meetings we have seen in a while.

The Fed looks certain keep rates unchanged and is likely to throw out the usual few warning words on inflation. It is also likely to give its negative view of the economy and the fragility of the banking system, which should dampen any thoughts about a hike in interest rates any time soon.

After all, it's only a week or so since the major Fannie/Freddie rescue operation was announced. They are also likely to breath a sigh of relief that the USD has recovered from the brink once again and that key commodity prices are tumbling - this will help seal the deal for a continuation of the 'no change and lets wait for the next financial crisis and see what we can do about that' policy.

The US July services ISM survey is due before the Fed decision and a surprise contraction in services sector employment suggests that any rebound in the ISM should be modest at best.

The UK services PMI is due this morning, market forecasts expect a further deterioration in activity and business expectations in July due to faltering demand.

However, with output prices still rising and CPI inflation already at 3.8% and still some way off its peak, it is believed that a 3rd straight reading below 50 will not sway the BoE to lower interest rates on Thursday. The euro zone services PMI is also due this morning and is also expected to decline to 48.3.

The decline in GBP/USD does not bode well and could inspire more selling this morning. With negative news looming on the UK economy, a pullback to 1.95 could well be on the cards. If services PMI forecast plunge below expectations it could trigger much broader based sterling selling. According to technical analysis the pound will be facing a support level in the mid 1.95 region.

Though the FOMC is widely expected to leave rates unchanged at 2.00 percent this will still be an event worth watching since the Committee's policy statement can be just as market-moving. One key thing to watch is the vote count: Last time round only one member was in favour of a rate increase, and if any other FOMC members join this list this could lead to speculation of increasing rates and thus, a US dollar rally. On the other hand, the opposite is also a possibility.

Last night the Reserve Bank of Australia (RBA) board decided to leave the cash rate unchanged at 7.25 percent. The Australian dollar fell lower after the accompanying statement which sounded rather dovish on growth, expecting that demand will likely remain "subdued' and economic growth will be 'fairly slow'.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Interest rate announcements the focus for wise money's week ahead.

2008-08-04T10:21:00.002Z

On Friday, a sharper than expected decline in German retail sales and the UK's manufacturing PMI were the main focus of Friday's European macroeconomic releases, along with downward revisions to some of the preliminary statistics of manufacturing in the euro zone.

German retail sales fell 1.4% month-over-month in June following May's 0.5% gain. However, economists had expected a less pronounced drop of 0.5%. UK manufacturing PMI fell to 44.3 for the month, its lowest level since December 1998. Economists had expected a less pronounced decline to 45.5 after the index had fallen to 45.9 in June.

On the data front in the US, the non-farm payroll report showed -51K contraction in July, better than expectation of -75k. Though, note that this was still the seventh consecutive negative reading in NFP. Also, unemployment rate climbed more than expected from 5.5% to 5.7%, hitting a 4 year high. Jobless claims surged sharply to 448k. The ISM employment component expanded at 51.9 in the survey, following seven months of slowdown.

Central bank meetings will take main stage this week the European Central Bank rate announcement is scheduled for August 7, as well as the subsequent press conference later on in the day.

Monetary policy will also be in the spotlight for the UK as the Bank of England MPC also meets on Thursday. Despite signs of a weakening economy, economists expect that higher inflation will keep the bank holding rates steady at 5.00%.

Although the market expects the Fed, ECB and BoE to leave rates on hold, it's the message that these central banks deliver that's important, in particular in this period of a possible major turn around in the markets.

Markets will continue to scrutinize every word from the Fed on the hints on when Fed will remove prior policy easing to fight inflation. ECB Trichet will be carefully listened to on comments on the slowdown in the economy in Eurozone.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Wise money eyes on US Non farm payrolls today

2008-08-01T08:26:00.002Z

Gloomy new housing data released by the Nationwide Building Society yesterday reporting its ninth consecutive monthly fall.

It also announced the largest year on year fall in property values since the early 1990s indicating the severity of the UK housing market can not be underestimated. UK PMI data is out today at 9.30 it is expected to show a drop to 45.5 from 45.8 in June showing further contraction.

The dollar experienced a big sell off yesterday after US weekly jobless claims came out lower then expected and further data was released showing the US economy grew less then anticipated in Q2.

The Q4 figures have now been revised to show a contraction of 0.2% rather then the expansion of 0.6% as previously set. The Labour Department reported the number of US workers filing for unemployment benefits increased by 44,000.00 last week bringing the figure up to 448,000.00. GDP grew at a 1.9% annual rate, up from the 0.9% recorded in the previous three months, down from the level of 2% forecasted.

The Commerce Department announced âfor economic growth to pick up later in 2008 and in the years ahead, we must have good tax and energy policies.' This also impacted on US stock which opened lower in the market yesterday. US non farm payrolls will be out at 13.30, the market median is expect to show a decline of 70,000-75,000. Following on from this data the ISM manufacturing data will out at 15.00.

This morning it was reported that German retail sales fell more then expected by 1.4% for the month of June with consumption, investment productions and exports all weakening for this period. Euro zone inflation escalated to another record high in July coming out at 4.1% year on year.

The inflation level seems to be moving further away from the ECB's target inflation level of 2%. This inflation level is the highest since 1997 and will leave the ECB with a tough judgement next week.

Oil fell to $124.08 per barrel yesterday; this has been the biggest one month fall for oil since December 2004 off the back of negative US data.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

The central banks are working together

2008-07-31T08:23:00.001Z

The dollar was given a boast by the US ADP employment change reporting 9000 jobs were added to the private employers sector for the month of July.

The ADP report which was forecast to show a fall of 60,000.00 jobs surprised the market with the figures hitting the positive mark. For a further day the dollar has exceeded expectation to bring some well needed assurance back to the market; however this is not to be mistaken as a future trend for the dollar.

Importantly this report comes in advance of Non farm payrolls on Friday where analysts are already predicting a loss of 75,000 jobs.

The Fed revealed a strategy to expand its lending scheme for the fourth time in five months to struggling financial institutions. This scheme was set to mature in September but the Fed has decided to expand it for a further six months.

Also the scheme which allows investment banks to swap their badly trading securities for treasury bonds under the Term Security Lending Facility will be permitted until January of next year. The Fed has also expanded its loans under the Term Auction Facility for banks selling 84 days loans in addition to their 28 day loans.

It suggest that despite positive US employment figures the Fed who are the best placed to access the US economy still views it as very much a fragile market.

The European confidence figures were released yesterday; the figures were much worse then expected toppling five year lows. The European Commission said confidence fell to 89.5 points it's lowest since March 2003.

These figures have been the latest in a long line of negative data for the eurozone and will weight heavily on the ECB's decision on Euro interest rates next month. The expectation in the market is still for interest rates to remain stagnant for the next few months at 4%.

Important to note the ECB and Swiss Central Banks in conjunction with the Fed have also extended liquidity policies. In particular they are to auction dollar loans to European institutions for the 84 days alongside the 28 day loans.

The speculation around oil is still apparent with oil rising to $4.58 to $126.77 yesterday. News that crude oil inventories declined by 100,000 last week seems to be the main driver of this market movement.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

The Dollar brings some confidence back into the market

2008-07-30T08:08:00.000Z

After the release of the Confederation of British industry retail data yesterday sterling immediately weakened against the USD.

The market had already anticipated the data to be lower for the month of July at -15% following on from -9% in the previous month. However the result of -36% had an immediate impact on sterling and caused it to fall.

It is clear that every part of the high street is feeling the crunch at present. Sterling also had another blow as the mortgage approvals data fell to 36,000 with the new home loans reaching a record low in June.

This bleak data concerning the UK housing market is not expected to improve in months to come. Sir James Crosby the former Chief Exec of HBOS suggested in the press this morning that the new liquidity scheme introduced in April allowing banks to exchange mortgages for treasury bills to raise funds should be broadened to include mortgages underwritten since 2007.

On a brighter note the Conference Board announced that US Consumer Confidence increased slightly in July. Analysts believe the increase relates to oil prices heading lower boasting the dollar and diverting from the record highs we have been experiencing of late.

The US Consumer Confidence had hit 16 year lows last month so this improvement is a comfort. However it must be mentioned that this figure of 51.9 is a far cry from a figure of 111.90 in July 2007. It is apparent that consumers still very much see the current economic conditions as unstable and the US S&P home price index for May certainly would reinforce any doubts.

This index yesterday reported that US home process fell at a record pace in May. Out of the 20 metropolitan areas included in this survey all showed annual declines for a further month.

However the markets reaction to a further fall in the price of oil, currently at $121 per barrel, along with sale of debt from Merrill Lynch saw the dollar rally for most of the day. US stocks were up on the day and brought some much needed optimism to the market.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.