Quiet day of markets as Greece shows a decelerating recession

Tom Tong13/Aug/2013Currency Updates

GBP

The pound approached the strongest level in a month against the Euro after an industry report showed banks boosted mortgage approvals in June adding to the argument the UK recovery will outperform the Eurozone.

Yesterday evening the RICS Housing Price Balance for July printed at 11% above estimates, up from 25% to 36% – a huge increase in housing costs in the UK, a bullish reading. Buyers are now returning to the market in their biggest numbers for four years and are rising faster in July than at any time since the housing market peak in November 2006.

The UK goods trade deficit shrank to its smallest amount in a year for the month of June, helped by a rise in exports. The gap narrowed between imports and exports from £8.7bn to £8.1bn in May. This is an encouraging sign for the Government, which is attempting to rebalance the economy away from selling services to the EU, goods exports to non-European Union markets hit a new record of £13.2 billion in June. Our fastest growing exports of goods were aircraft and works of art – combining to a surplus of £1.1 billion. Despite this bout of positive news there is still a way to go to achieve a trade-led recovery.

Today we have an abundance of data releases coming from the UK. Markets will focus on the CPI Index forecasted to decrease from 2.9% to 2.8% and Core Consumer Price Index expected to change from -0.2% to 0.0% – both for the month of July. Other reports due today include the PPI Core Output and the PPI which is expected to increase marginally from 2.0% to 2.1% for July the month of July.

USD

During what was a relatively quiet day in terms of top-tier data, Monday saw the greenback carve out gains versus its 16 major counterparts as markets anticipated positive numbers from the Retail Sales figures due to be released later on this afternoon.

Following six days of dollar weakness, better-than-expected retail sales data from the US Department of Commerce would go a long way to reignite speculation that the Fed would begin contemplating ‘tapering’ their bond-buying programme in September. After rising by 0.4 per cent in June, the Retail Sales are expected to print gains of approximately 0.3 per cent in July and would represent a fourth consecutive month of gains in consumer spending. With market participants very much data sensitive at this time, we argue that the figures projected are likely to further stifle fears of a slowdown in the US, and in conjunction with the stronger-than-expected economic data of the past week or so, will ultimately continue to increase the likelihood of the reduction of stimulus next month.

Alongside the Retail Sales data, we have the Import Price figures (m/m) and the Business Inventories (m/m) being released later this afternoon, with both sets of figures forecasted to exceed last month’s numbers.

EUR

The euro eased on Friday after last week’s 0.5% gain following encouraging data from the Eurozone. There was also good news for Hungary as they managed to pay off the last tranche of emergency loans they received from the IMF well in advance of the 2014 deadline. Despite some encouraging news Greek GDP continues to fade despite dropping at the slowest level in the last two years. This continued retraction has led analysts to predict a new bailout for Greece in 2014 once the current rescue package and aid measures come to an end. Analysts are hoping that the muted turn in fortune for the Eurozone will help combat the slowdown in Chinese growth and global demand. A report due this week from the EU statistics office will confirm that the economy in the single currency zone has grown by 0.2% in the last quarter, with the uptick in growth set to consolidate and then continue into the rest of the year. In Germany, factory orders increased in June by the most in eight months, and industrial production rose the most since July 2011. Excluding Greece, we are also seeing green shoots of growth in the periphery with Italian Industrial output on the up and Spain’s recession easing with unemployment beginning to drop back from the 27% high’s.

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Written by Tom Tong

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