The Bank of England data released yesterday morning worried traders as mortgage lending fell below the May level and consumer credit fell alongside it. This is probably a combination of banks tightening lending criteria and borrowers trying not to get into debt. It chimes with the Nationwide survey, also released yesterday, showing a fall in housing market activity. Whatever the root cause of the slowdown, Sterling slipped on the news but managed to recover in later trade.
The Pound’s rebound probably has more to do with technical trading signals than anything fundamental. Sterling starts today at the very upper end of its range against both the US Dollar and Euro and it has made gains against the Australasian currencies as well. That is prompted by fears that the Chinese economy is slowing faster than previously thought and we will get some insight into that on Monday when the Chinese Purchasing managers Index is published. China is Australia’s largest export market and New Zealand’s second largest, so a slowdown in China has a direct impact on Australasian jobs and incomes.
However, the Australian and New Zealand Dollars were both subjected to negative news in their own right. The Reserve Bank of Australia reported that lending levels grew at their slowest in 7 months and the previous day brought an interest rate hike from New Zealand but comments from the head of the reserve Bank of New Zealand that suggested we will not see anything more from them for quite some time.
The commodities market is very heavily influenced by China’s performance as well and that was shown in the general deterioration in commodity prices in the past week. That has a knock on effect into the Canadian Dollar which has also been hampered by a sequence of poorer than forecast US data releases. With American buyers accounting for more than three quarters of Canada’s exports, any slowdown in that market will dampen the Canadian economy and therefore the Canadian Dollar.
Today is hugely significant as far as the US economy is concerned; we await the release of the first estimate of America’s 2nd quarter economic growth. Most estimates suggest we will get a figure of 0.2% on the quarter which would be better than the last release of 0.0% but we will also get the personal income and expenditure data at the same time. Judging from recent releases on the employment, housing and retail sales front, this is likely to be quite a poor number. Consequently, even if the growth data is good, the personal consumption numbers will offset any gains.
But before that we will get the European unemployment report which could be quite a bad one. The unemployment rate is likely to stay around 10.0% but w are nervous that there could be a rise in benefit claimants and that would be negative for the Euro. If you need to buy Euros, this morning may be your best opportunity.
And finally, India is said to want the Koh-i-noor diamond back from the Queen’s crown. David Cameron says it isn’t going to be returned but I can’t help feeling he is missing a trick here. The Indian’s have a perfect copy of the legendary diamond. Couldn’t he sell them the original, swap the copy into the crown, tell no one and use the cash to settle some of the government’s debt. No one would be any the wiser because we never get close enough to examine the crown in detail and everyone is happy. I mean, if Gordon Brown were still in office he would have flogged it to them for twenty quid even though everyone around him was saying don’t do it.