Monday In Brief
Yesterday’s trading saw Sterling benefit from some bullish (positive) inflationary data in the morning. Whilst the Producer Price Index (PPI) remained virtually unchanged between February and March (that is, for the ‘Input PPI’ –i.e. the cost of goods to manufacturers), the ‘Year on Year’ figures increased by over one percent. In addition, the ‘Output PPI’ (the price consumers pay for goods that are produced by manufacturers in the UK, leading to higher retail prices) was also up by 0.5%.
Other important data came from the U.S. yesterday, where retail sales we up by 0.6% to a still rather low 0.2%. Still, any positive news for America is very welcome at a time where further volatility is the last thing they, and in fact for the rest of the world (in general, of course) wants.
At 12.01 this morning, the Royal Institute of Chartered Surveyors released some crucial date in relation to the UK housing market. The results showed that we are continuing to experience a slow down, as has been the trend of late. More specifically, the exact figure read a slowdown of –78.5%, down from –64.1% (results obtained by a cross section of surveyors across the UK). This was the most negative result since the survey began in 1978.
If Brits predominantly put their savings into other areas of investments, we could certainly be able to take a few hits of a housing market slowdown. That said, it is quite the opposite and as a result, we tend to view the housing market as an overview of the UK economy as a whole.
Prime Minister Gordon Brown stated yesterday that “we are on the side of home owner, business and individuals” whilst discussing the current state of the UK economy.
He added that it was in fact his “sole focus” to do “everything in our power to keep the economy moving forward”. Whilst there are the usual opinions that follow such statements, his speech followed results from a poll that suggested that 68% of Brits lack confidence in him handling the current economic crisis.
By reducing the UK interest rate last week, there is no doubt that some of the strain caused by the credit crisis will be lifted in the wake, but with inflation continuing its ascent to pace quicker than that of 1991.
Worryingly, the UK seems to be stuck between a rock and a hard place; where inflation needs to be kerbed and the credit needs to be eased. The former requires an increase in the bank’s lending rate and the latter requires a reduction.
As Adam Cole (head of global currency strategy at RBC) said yesterday: “The Bank of England would have cut interest rates more aggressively were it not for the unhelpful inflation background.
A very busy day ahead
Ahead of the all important ZEW Survey (market sentiment) for Germany- Europe’s largest single economy- at 10am this morning, ECB president Jean Claude Trichet spoke to the press and will later be addressing what the survey results mean. It is anticipated that the ZEW will be slightly more positive wish may well set the Euro on a run of strength.
Data is aplenty for the UK and USA today too, with UK CPI and RPI all released at 9.30 in one hit. No doubt the Pound will see an immediate response in the follow up to the simultaneous data shot and whilst both CPI and RPI are inflationary measures the results don’t have a huge amount of time to bolster the Pound (especially against the Euro, where the ZEW results are out 30 minutes later) ahead of what the rest of the day may bring.
The USA has its PPI data at 1.30pm, which is anticipated to show a nominal improvement, a welcome one at that.
As is always the case when monitoring the economy, there is a huge degree of unpredictability in the actual results of date and just how the FX market will respond.
If 68% of Brits do not think Gordon Brown can do anything to stabilise the UK economy and the prospect of moving abroad is a case of when and not if, then the question you should ask is: ‘am I going to sit and watch whist my property loses value and my money is following suit?’
It is understandable to put off looming currency purchases given the volatile climate and the stumbling of our economy. What turns that notion into an irrational hope is the continuing flow of negative economic data for the UK, not to mention the swords’ second edge as ECB council member Yves Mersch said in a this month;
‘Policy makers can't afford to cut the region's 4 percent benchmark rate this year with inflation likely to breach the bank's 2 percent preferred limit’. A strong hint towards an increase in interest in Europe, which may well see further record lows for the pound against the Euro.
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