ECO UPDATE: 25 SEPTEMBER 2015
OUR ECONOMIC UPDATE IS BACK AFTER THE 'SUMMER' BREAK
Welcome back to our weekly economic update after the ‘summer’ break – if you can even call it summer! There have been a number of key economic events adding to the ever changing economic environment, with potentially the most concerning being the continued meltdown of Chinese equities. Questions have also been raised over the Chinese economy and their economic policy, but maybe the appointment of new Labour Leader Jeremy Corbyn could give China a run for their money as most concerning.
Staying with the issues in China, it seems that these issues will continue to be seen over the coming months as the Western economies try to assess the impact on their own economies and plan accordingly. Before the summer break there was very strong belief that US interest rates would increase, however, last week the Fed (FOMC) took the decision not to increase rates. It was said that they could be raised at an upcoming meeting in October, although no press conference seems to be scheduled for that meeting at this time.
The reasons given as to why the Federal Reserve is not raising rates surround concerns about a fragile economy (including the impact of China) and the low US inflation rate currently at circa 2%. This week will see the markets assessing the outcome of this decision and what is likely to happen in upcoming weels, with the FTSE 100 seeing a slight fall following the announcement. The Fed Chair Yellen is due to speak today, but commentators aren’t expecting anything different to previous comments.
Over in Europe, the Head of ECB will be speaking to European Parliament’s main economic committee, and again, commentators are expecting little change to previous announcements – meaning speculation is still in play that the ECB will step up its QE purchase plans.
It seems that it could be political events having the biggest impact on the economic environment lately, including;
Weekly Indicators to be published this week
Tuesday: Public Finances
Tuesday will see an update on the state of the public finances with forecasters expecting to see a budget deficit of circa £9bn - an improvement of circa £1bn compared to 12 months ago meaning the Chancellor is remaining on track for his fiscal targets.
Wednesday: Eurozone Purchasing Manager’s Index
Previous months have seen a positive outcome with some commentators being decidedly upbeat, however this month’s figures may be slightly disappointing being impacted by concerns over China and related global jitters (I suspect this will be a continued theme). Hence the index is expected to fall back – so does this indicate a slow Eurozone?
Thursday: BBA Mortgage approvals
July’s figures showed an upbeat view of mortgage lending and the desire for home ownership. Net mortgage borrowing was seen firming to £1.4bn from an average over the prior 6 months of £0.7bn, a big increase. On the approvals front, re-mortgaging shot up to stand nearly 30% up on the year whilst approvals for house purchase were 11% higher on the year at £46.0k. The increase is thought to be due to homeowners taking advantage of competitive mortgage deals, with concerns that interest rates are going to rise in the near future. Commentators however believe the market is finding recovery and buyers gaining confidence with approvals expecting to increase again for the month of August. How long will this last – an interest rise could put the brakes on everything?
Treasury Viewpoint – Exchange rate movements can be summarised as follows:
Current rates are circa 1.37 (GBP/EUR) forecast to increase to over the next 12 months to circa 1.45. GBP/USD currently at circa 1.53 forecast to increase over the next 12 months to 1.59.
Staying with the issues in China, it seems that these issues will continue to be seen over the coming months as the Western economies try to assess the impact on their own economies and plan accordingly. Before the summer break there was very strong belief that US interest rates would increase, however, last week the Fed (FOMC) took the decision not to increase rates. It was said that they could be raised at an upcoming meeting in October, although no press conference seems to be scheduled for that meeting at this time.
The reasons given as to why the Federal Reserve is not raising rates surround concerns about a fragile economy (including the impact of China) and the low US inflation rate currently at circa 2%. This week will see the markets assessing the outcome of this decision and what is likely to happen in upcoming weels, with the FTSE 100 seeing a slight fall following the announcement. The Fed Chair Yellen is due to speak today, but commentators aren’t expecting anything different to previous comments.
Over in Europe, the Head of ECB will be speaking to European Parliament’s main economic committee, and again, commentators are expecting little change to previous announcements – meaning speculation is still in play that the ECB will step up its QE purchase plans.
It seems that it could be political events having the biggest impact on the economic environment lately, including;
- Greece is once again in the spotlight (not again!) with the news that their left wing Syriza party has won the recent elections which were called after the party lost a few months ago following the signing of the unpopular new financial bailout deal with international creditors. Greece's Alexis Tsipras has said his left-wing Syriza party has a "clear mandate" after winning the country's fifth election in six years, however he said “Greeks faced a difficult road and recovery from financial crisis would only come through hard work” – and most probably through paying their taxes.
- This week will see Jeremy Corbyn continuing to set out his view of the economy for the Labour Party prior to the party’s conference at the end of the month, with key areas for discussion being the EU and the management of the UK monetary policy.
Weekly Indicators to be published this week
Tuesday: Public Finances
Tuesday will see an update on the state of the public finances with forecasters expecting to see a budget deficit of circa £9bn - an improvement of circa £1bn compared to 12 months ago meaning the Chancellor is remaining on track for his fiscal targets.
Wednesday: Eurozone Purchasing Manager’s Index
Previous months have seen a positive outcome with some commentators being decidedly upbeat, however this month’s figures may be slightly disappointing being impacted by concerns over China and related global jitters (I suspect this will be a continued theme). Hence the index is expected to fall back – so does this indicate a slow Eurozone?
Thursday: BBA Mortgage approvals
July’s figures showed an upbeat view of mortgage lending and the desire for home ownership. Net mortgage borrowing was seen firming to £1.4bn from an average over the prior 6 months of £0.7bn, a big increase. On the approvals front, re-mortgaging shot up to stand nearly 30% up on the year whilst approvals for house purchase were 11% higher on the year at £46.0k. The increase is thought to be due to homeowners taking advantage of competitive mortgage deals, with concerns that interest rates are going to rise in the near future. Commentators however believe the market is finding recovery and buyers gaining confidence with approvals expecting to increase again for the month of August. How long will this last – an interest rise could put the brakes on everything?
Treasury Viewpoint – Exchange rate movements can be summarised as follows:
Current rates are circa 1.37 (GBP/EUR) forecast to increase to over the next 12 months to circa 1.45. GBP/USD currently at circa 1.53 forecast to increase over the next 12 months to 1.59.
As you can be seen from the graphs the last couple of weeks have been pretty volatile!
When it comes to interest rates the forward curve graph below shows potential SWAP rates:
When it comes to interest rates the forward curve graph below shows potential SWAP rates:
We hope you have found this update useful and it has given you further insight to the economic week ahead. However if there is something you would like covered on an upcoming report, or would like support or advice on trade finance, please get in touch with a member of our friendly and professional team.
In the meantime, we hope you had a brilliant summer, and will be back next week.
Vince Tovey
Head of Commercial Funding, Davenham Trade Finance
In the meantime, we hope you had a brilliant summer, and will be back next week.
Vince Tovey
Head of Commercial Funding, Davenham Trade Finance
