The Office for National Statistics estimates UK national debt to be four times as high as the previous government estimated and twice as high as yesterday’s independent analysis. Nearly £4 trillion is their figure which puts a debt of £65,000 for every known citizen in the country. It is scary stuff; the number has quadrupled in three days which makes us all dread any further calculation. This could well cause a fair bit of Sterling weakness. This comes after yesterday’s announcement of a small drop in UK inflation levels but as the result was spot on estimates, not much happened.
Things were brighter in Europe though as the Greek auction of government debt was much better received than anyone had dared hope. In their first auction since the ECB came to their financial rescue, Greece were seeking to raise €1.25 billion in loans for a period of 6 months and were hoping to have to repay interest at less than the 5% level set by the International Monetary Fund. They were delighted when the offer was oversubscribed by nearly 200% and the net interest they will pay is 4.65%; a terrific result and a very encouraging sign that the markets aren’t as negative on EU debt as the credit referencing agencies appear to be, although it is worth noting that most traders would have been more sceptical if the offering had been for 12 month bonds. In essence, as long as the EU bailout package is in place, the risk of Greek default is non-existent so the demand for Greek government debt which pays a 4.65% while the EU base rate is just 1%, will remain high. If Greece wanted to raise funds with loans extending beyond the rescue package end date (30 months away), then this would have been a very different story.
Nevertheless the Euro had a better day and is once again testing US$1.27 again in spite of one of the main credit rating agencies downgrading Portugal’s national debt and ahead of today’s release of inflation figures from across the single currency area. And that improvement in the Euro happened in spite of news from Spain where many local authorities are on the verge of bankruptcy. According to Spanish newspaper, El Economista, more than 400 of Spain’s 8,000 councils have stopped paying their utility bills and some are on the verge of not being able to pay their wage bills.
The Euro was less successful against the Pound due to the improved UK inflation numbers and ahead of today’s unemployment report which is forecast to be an upbeat one. Most analysts are expecting a small decline in the numbers claiming unemployment benefits but we have to put these numbers into context and the expected rise in unemployment resulting from the government’s spending cuts is still a worry.
Overnight news that New Zealand’s Core Retail Sales dropped by 0.2 percent in June was a bit of a shock when the general market view was that we would see a 0.6 percent rise. That is a 0.8 percent swing and enough to rattle the NZ Dollar. This was accompanied by a report showing a year on year drop of 24.3 percent in New Zealand House sales and that is the largest decline since January 2009. Fears of a double dip recession were voiced around the newswires. The Kiwi Dollar was on the back foot after the report.
Across the Tasman Sea though, Australian consumer confidence jumped at its fastest pace in more than a year; hitting 11.1 percent. Whether this was a result of the change in Prime Minister or a reflection of relief that the mining tax debate was resolved is open to debate.
There hasn’t been a lot of economic news from the US although it has started to dawn on the US administration that their barracking (pun intended) of BP (British Petroleum as they used to be known), will result in a sharp drop in tax revenues and a fall in the value of US pensions. I have little doubt measures will be taken to try to avoid BP being able to write off the costs of the cleanup and compensation against their US and UK tax but this is very definitely starting to look more like a witch hunt than anything Salem ever saw and the President is cast in the role of Witch Finder General. Today’s release of June US retail sales data will give traders something to think about. A decline of something like 0.3% is forecast and that would keep the US Dollar in weakening mode. We will also get US import and export price data as well as the May business inventories number. But the highlight of the day will be this evening’s release of the minutes from the last meeting of the Federal Reserve’s Open Market Committee. These guys set the US interest rate and the level of quantitative easing in America. Neither figure was altered last time they met but they must be nervous in light of the recent poor data; their views on that and many other matters will be closely watched.
The overall market pattern seems to be that Sterling is treading water in the middle of its ranges against the US Dollar, the Euro and the Australasian Dollars; the US Dollar is slipping as wave after wave of weak data agitates traders and investors and the Euro is doing a neat levitation job; failing to fall even though each pillar of its support is being knocked away on a daily basis.
And finally, if Peter Mandelson’s memoirs are to be believed - and to be fair, that is quite a stretch - it wasn’t just the Iraqi weapons of mass destruction that Tony Blair lied about. He told us Gordon Brown was this solid and stable chancellor and the right man to lead the country but Mandelson suggests he said Brown was "mad, bad, dangerous and beyond redemption". So he left to start his life as a globetrotting public speaker and Middle East envoy leaving us with our very own WMD in No10. Thanks a bunch Tony.