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Markets Remain At The Mercy Of Greece

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Market Highlights:

• UK fundamentals dissapoint

• ECB increase euro zone growth forecast

• US economy shed less jobs than expected.

UK fundamentals disappoint

The British economy showed serious signs that it was slowing last week. The latest PMI reading showed a fall to the lowest level in 9 months, dropping far further than expected. As a result, Sterling fell to a three week low against the Euro, with little in the way of technical support. It appears that concern surrounding the Governments planned austerity measures is filtering through to the real economy. Lender Nationwide reported in its monthly index that house prices fell for the second consecutive month in August, posting a drop of 0.9%. The commercial property market is also stagnating, with new build projects being put on hold due to fears that impending job cuts in the private sector will dampen consumer appetite. A recent poll conducted fo the BBC illustrated that the British public are, on the whole, in agreement with the governments planned spending cuts, but the wider effects on the economy are still somewhat unknown.

There is a bearish trend against Sterling at present and any more signs that the economic recovery is slowing will likely force the value of the pound down further. It's a busy week on the economic calendar with Retail Sales, Manufacturing data and the Producer Price Index being the highlights, not to mention the monthly Bank of England interest rate decision. Expect a lot more volatility and be sure to secure your bottom line by discussing your upcoming foreign currency exposure with one of our dealers.

ECB increase euro zone growth forecast

Divergence is the term that best describes the state of the Euro zone at the moment. Economic growth is uneven to say the least, and with the manufacturing index reported at a 6-month low last week, some of the debt stricken economies continue to drag the 16-nation bloc back into recessionary territory.

At their monthly interest rate decision, the European Central Bank announced that it was to extend its credit lifeline to banks until Jan 18th 2011. Benchmark interest rates remain on hold below 1% and monetary policy remains accommodating.

Caution continues to fill the air despite Europe’s largest economy, Germany, outperforming most others in the developed world. The export powerhouse is producing encouraging manufacturing figures and consumer sentiment is improving, suggesting 'the man on the street' feels more confident about the state of the recovery. However, other nations struggling to get a grip on their own Government debt will continue to worry investors together with an already fragile banking sector still trying to find traction.

Lack of stability is holding the single currency back at the moment versus the other majors. It will be interesting to see if more positive German economic data will be able to support the euro this week, or if the ongoing concerns over Italy, Ireland, Greece, Spain and co will continue to hamper progress.

US economy shed less jobs than expected

Friday’s Non Farm Payroll figure showed that the US economy shed 54,000 jobs last month, beating analysts’ expecting 100,000 to be cut of the payroll. This initially caused a brief period of risk appetite but didn’t hide the fact that US employment fell for the third straight month and that the overall unemployment rate edged up to 9.6%.

If you look deeper into the figures, there are some signs of encouragement. The average weekly working hours crept up to 33.5 from 33.4 and the earnings per hour moved up to $19.08 from $19.05. These are reasons, together with the fact that private sector employment rose by 67,000, to believe that the Federal Reserve won’t have to add further fiscal support to the economy…..for the time being.

Labour Day means most Americans will be out of the office today, traders will look to unemployment claims and the Fed's Beige Book later in the week for short term direction of the greenback.

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  • 432 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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