NEWS: 08 AUGUST 2015
OUR FIRST ECONOMIC UPDATE - AND IT'S A BIG ONE!
Welcome back to our second weekly economic update, perhaps a little bit of an anti-climax after lasts weeks “Super Thursday”, but nevertheless worth a read. We’re not sure last weeks announcements lived up to all the hype, not just due to the whole delivery of the reports but also the BOE’s view on interest rates. The monetary policy committee didn’t deliver any excitement with only one member daring to break the status quo. So are we any clearer as to when the next rise is going to be - no! We just know it will be “data dependent” - whatever that means.
We suspect the “dependent data” will include inflation rates (downgraded on Thursday) but also wage inflation which appears to be generating a little bit of a head of steam as it continues to exceed the overall inflation figure. This could possibly be helped by a further small reduction unemployment figure (or will it be an increase?) as market forces of supply and demand begin to flex their influence. For us recruitment of good sales people, this remains the biggest challenge to growing our business, and is most likely the same with the majority of businesses? So we will have to wait and see what the wage inflation figures are, which are out on Tuesday along with two other key indicators namely the retail sales monitor and the RICS’s house price monitor – both are expected to show further modest increases, although the construction output figures are little bit more of an unknown.
When it comes to the Chinese economy, commentators remain focused on its volatile equity and commodity markets. The key economic indicators are being issued this week, along with the news yesterday that the People's Bank of China is to devalue the yuan by 1.9% - something that is bound to have global ramifications. This will result in the cost of China’s exports becoming cheaper and most likely drive up the level of imports into the UK – something that could mean good news for us here at Davenham Trade Finance; a provider of trade finance to SME’s may be further in demand!
So a devalued currency will act to stimulate their economy and reinforce commentators views, the economy is not performing or balanced, so is a dose of medicine required at the expense of the UK economy? An interesting final point was raised in a note published by Angus Nicholson, a market analyst with trading firm IG, as he questioned the motives behind the currency move and whether this was a one off or more to follow adding:
"The question on everyone's mind is whether this is the awakening of the dragon - ushering in a new global currency war? If this move ushers in a new era where the Chinese yuan fixing is increasingly reflective of the spot market, it could be positive for its prospects being included in the IMF's special drawing rights basket of currencies this year."
As expected, in the Euro zone, the key focus remains on the Greek bailout where it has been announced that a bailout deal "in principle" has been agreed with its creditors. Have they ever heard of the phrase the “devil is in the detail”? Especially when the press release issued by the European Commission used the phrase a “technical agreement” – all that has to happen now is to get political approval. Greek Prime Minister Alexis Tsipras has asked parliament to convene to approve the deal. It will be interesting to see if this gets approved and if it does, does that mean it’s all over? We don’t think so.
Elsewhere in Europe, all is quiet with very little news other than preliminary GDP figures which are expected to show a slight increase.
Weekly Indicators to be published this week:
Tuesday
BRC Sales Monitor (Jul)
With rising wage inflation, low interest rates and previous data flow confirming that the UK’s consumers have never felt so good, are we in for bumper increase? One thing is for sure; the retail sector is looking in good shape so it will be interesting to see how potential cheaper imports from China will impact on statistics going forward.
Wednesday
UK Unemployment
Interestingly, some commentators are forecasting a very slight increase in the level of unemployment, despite all the good news of a growing economy. This appears strange but we will have to wait and see later today if they were right.
UK Average Earnings
As reported above and on previous weekly reports, wage inflation is expected to continue to rise as the job market continues to rise, so we have demand and no supply but unemployment is going up? Lots of factors at play here.
Thursday
RICS House Survey
A further increase in the pricing index as property is looking like a one way bet, but as I know from painful experience - what goes up does come down, but it appears this is something a lot of people have forgotten.
Friday
UK Construction Output
The figures issued are only preliminary results with actual figures not issued for a couple of weeks. An increase is expected in the level of output after a number of months of apparent decrease in output levels.
Treasury Viewpoint Exchange rate movements can be summarised as follows:
Current rates are circa 1.41 (GBP/EUR) forecast to now to remain static over the next 12 months to circa 1.41. GBP/USD currently at circa 1.55 forecast to remain relatively consistent over the next 12 months.
We suspect the “dependent data” will include inflation rates (downgraded on Thursday) but also wage inflation which appears to be generating a little bit of a head of steam as it continues to exceed the overall inflation figure. This could possibly be helped by a further small reduction unemployment figure (or will it be an increase?) as market forces of supply and demand begin to flex their influence. For us recruitment of good sales people, this remains the biggest challenge to growing our business, and is most likely the same with the majority of businesses? So we will have to wait and see what the wage inflation figures are, which are out on Tuesday along with two other key indicators namely the retail sales monitor and the RICS’s house price monitor – both are expected to show further modest increases, although the construction output figures are little bit more of an unknown.
When it comes to the Chinese economy, commentators remain focused on its volatile equity and commodity markets. The key economic indicators are being issued this week, along with the news yesterday that the People's Bank of China is to devalue the yuan by 1.9% - something that is bound to have global ramifications. This will result in the cost of China’s exports becoming cheaper and most likely drive up the level of imports into the UK – something that could mean good news for us here at Davenham Trade Finance; a provider of trade finance to SME’s may be further in demand!
So a devalued currency will act to stimulate their economy and reinforce commentators views, the economy is not performing or balanced, so is a dose of medicine required at the expense of the UK economy? An interesting final point was raised in a note published by Angus Nicholson, a market analyst with trading firm IG, as he questioned the motives behind the currency move and whether this was a one off or more to follow adding:
"The question on everyone's mind is whether this is the awakening of the dragon - ushering in a new global currency war? If this move ushers in a new era where the Chinese yuan fixing is increasingly reflective of the spot market, it could be positive for its prospects being included in the IMF's special drawing rights basket of currencies this year."
As expected, in the Euro zone, the key focus remains on the Greek bailout where it has been announced that a bailout deal "in principle" has been agreed with its creditors. Have they ever heard of the phrase the “devil is in the detail”? Especially when the press release issued by the European Commission used the phrase a “technical agreement” – all that has to happen now is to get political approval. Greek Prime Minister Alexis Tsipras has asked parliament to convene to approve the deal. It will be interesting to see if this gets approved and if it does, does that mean it’s all over? We don’t think so.
Elsewhere in Europe, all is quiet with very little news other than preliminary GDP figures which are expected to show a slight increase.
Weekly Indicators to be published this week:
Tuesday
BRC Sales Monitor (Jul)
With rising wage inflation, low interest rates and previous data flow confirming that the UK’s consumers have never felt so good, are we in for bumper increase? One thing is for sure; the retail sector is looking in good shape so it will be interesting to see how potential cheaper imports from China will impact on statistics going forward.
Wednesday
UK Unemployment
Interestingly, some commentators are forecasting a very slight increase in the level of unemployment, despite all the good news of a growing economy. This appears strange but we will have to wait and see later today if they were right.
UK Average Earnings
As reported above and on previous weekly reports, wage inflation is expected to continue to rise as the job market continues to rise, so we have demand and no supply but unemployment is going up? Lots of factors at play here.
Thursday
RICS House Survey
A further increase in the pricing index as property is looking like a one way bet, but as I know from painful experience - what goes up does come down, but it appears this is something a lot of people have forgotten.
Friday
UK Construction Output
The figures issued are only preliminary results with actual figures not issued for a couple of weeks. An increase is expected in the level of output after a number of months of apparent decrease in output levels.
Treasury Viewpoint Exchange rate movements can be summarised as follows:
Current rates are circa 1.41 (GBP/EUR) forecast to now to remain static over the next 12 months to circa 1.41. GBP/USD currently at circa 1.55 forecast to remain relatively consistent over the next 12 months.
With regard to interest rates the current forward curve is as follows showing potential SWAP rates:
We hope you have found this second update useful and it has given you further insight to the economic week ahead. However if you would like to discuss something specific in respect of trade finance, please get in touch with our Head of Commercial Funding, Vince Tovey, at vincetovey@davenham.co.uk.
In the meantime have a great week, and due to the holiday season our next economic blog won’t be until early September, so enjoy the rest of the ‘summer’!
In the meantime have a great week, and due to the holiday season our next economic blog won’t be until early September, so enjoy the rest of the ‘summer’!
