ECONOMIC UPDATE: 30 JUNE 2015
DAVENHAM'S WEEKLY ECONOMIC UPDATE - AND THE LITTLE ONE SAID 'ROLLOVER'!
Welcome to the third of our weekly economic updates.
It looks like the Greek crisis is resembling a children’s’ nursery rhyme? As the little country continues to try and negotiate a deal over its financial crisis which may see it rolling out of the Eurozone. The UK banking system is already preparing its customers having been greeted by the following message when logging on this morning:
"Important Information: with the introduction of Capital controls in Greece, all payments out of Greece have been held pending clarification. If you think these measures will affect your business please contact your relationship team who will be able to speak to you regarding these arrangements."
As we mentioned last week the crisis is changing every minute so there is little point in documenting what’s happening as it will likely be out of date as soon as it’s published. However the bottom line is the Greeks are very likely to default on their IMF loan – the first “rich” country to do so for a very long time. The people of Greece have to make a decision and the government have placed this firmly in the people’s hands through a referendum. I think we all know what the outcome is likely to be – so things are likely to get very interesting - will this result in knocking the UK economy off course?
One final point of note is what is the definition of a Greek default? Apparently a default, according to the large credit agencies is a term that can only apply to private sector creditors. The IMF is defined as a non-private sector business and therefore it’s not a default!! - even though it hasn’t paid what was due and when.
Other data coming out of the Eurozone relates to whether the economic theory many of us studied and then turned into reality, namely deflation, has been banished from the commentators vocabulary – well at least until the next recession. Signs are good and it is expected that the second month in a row will show a modest level of inflation. It’s amazing to think the mention of the word inflation was viewed historically with horror and now it’s something people are craving (within reason).
In the U.S., Independence Day gets in the way of the employment / employment costs statistics being issued, now a day earlier due to the public holiday on the Friday. The US employment market is picking up and as expected this is also linked to wage inflation which is beginning to gain its own momentum. As reported previously, commentators are expecting the FED to increase interest rates in September and this building flow of positive news makes the likelihood of a rate rise ever likely – but will the Greeks have a say in this?
On the domestic front today saw the revised GDP figures being issued which reflected a small uplift from 0.3% to 0.4%. Commentators are expecting things to continue improving over the coming months – but again what about the Greeks? Other key statistics being issued this week include the level of mortgage approvals and various PMI’s.
The housing market is expected to show a continued positive growth, so maybe that consumer feel good factor is set to return?
In other parts of the world, concern remains over the strength of the Chinese economy with expected indicators showing the manufacturing and service industry are beginning to slow. At the same time, we will see how Japan is performing with its similar statistics.
Finally, someone else who can’t pay the Governor of Puerto Rico has said they can’t pay this $70bn of debt – we will watch this space. This news comes as another jolt to the recession gripped U.S. island as well as Wales financial systems worried over it's Greek crisis. This is likely to be a big issue for U.S. bond holder.
Weekly Indicators to be published this week include:
Monday
Household Lending (May)
Monday morning saw the issue of the number of mortgage approvals for house purchases for the month of May.
The statistics issued showed the number of people who were approved for new mortgages in May rose to its highest level since March 2014, providing fresh evidence of confidence in the housing market. Almost 73,000 mortgages were approved in May by Britain’s high street banks, according to the British Bankers’ Association, compared to a 20-month low of just over 60,000 in December. The size of loan approved for a house purchase also increased to just shy of £170,000, compared to a typical loan of £159,000 just two years ago. Was this due to the Sturgeon influence? I don’t a cut in Scottish Stamp duty was going to have any material impact. Commentators are expecting this to continue with an upward trend.
Tuesday
GfK Consumer Confidence
The GfK Consumer Confidence balance was issued today and showed a 7 point increase on May’s outcome. Joe Staton, Head of Market Dynamics at GfK, said:
“We’re seeing a dramatic uptick in confidence this month, a real post-election bounce that’s put a spring in the step of consumers across the UK. June’s six-point jump takes the Overall Index Score back to levels not seen since the late Nineties or early days of the Noughties. Across all key measures we’re reporting higher levels of financial optimism for both our own personal situation and for the general economy as a whole for the coming 12 months. This renewed optimism could also translate into a busy time for retailers. The number of shoppers agreeing that “now is a good time for people to make major purchases such as furniture or electrical goods” has powered ahead by a buoyant 14 points this month compared to negative sentiment for the same period last year."
So there you go - it’s a good time to spend money!
Balance of Payments
Commentators are forecasting a marginal improvement on the last quarter figure of £25.4bn. The variables are numerous and complicated, so therefore not for discussion in this briefing update. If you are really interested just visit the Bank of England website for a detailed analysis
Wednesday
Manufacturing PMI
Before we begin - what does this mean and how is it calculated? The 'Purchasing Managers' Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. So now we all know, let’s take a look at the statistics!
The index is expected to make a small recovery to that reported over previous months. The index has also shown two distinct parts - the UK domestic demand continues to grow, tempered with weak exports. Commentators are expecting this trend to continue but again no one knows with the Greek impact.
Friday
Services PMI
Services PMI is very similar too Manufacturing PMI, and it is expected that June’s figure will improve regaining some of the ground lost during May. The provider of the statistics has pointed to continued business confidences following the pre-election uncertainty.
Nationwide House Price Index
The housing market has slowed but will June’s figure continue this trend – unlikely albeit by a very small upturn, a growth of circa 0.5% is expected.
Treasury Viewpoint
Exchange rate movements can be summarised as follows:
Current rates are circa 1.41 (GBP/EUR) and are forecast to increase slightly over the next 12 months to circa 1.48. GBP/USD currently at circa 1.57 forecast to remain relatively consistent over the next 12 months.
It looks like the Greek crisis is resembling a children’s’ nursery rhyme? As the little country continues to try and negotiate a deal over its financial crisis which may see it rolling out of the Eurozone. The UK banking system is already preparing its customers having been greeted by the following message when logging on this morning:
"Important Information: with the introduction of Capital controls in Greece, all payments out of Greece have been held pending clarification. If you think these measures will affect your business please contact your relationship team who will be able to speak to you regarding these arrangements."
As we mentioned last week the crisis is changing every minute so there is little point in documenting what’s happening as it will likely be out of date as soon as it’s published. However the bottom line is the Greeks are very likely to default on their IMF loan – the first “rich” country to do so for a very long time. The people of Greece have to make a decision and the government have placed this firmly in the people’s hands through a referendum. I think we all know what the outcome is likely to be – so things are likely to get very interesting - will this result in knocking the UK economy off course?
One final point of note is what is the definition of a Greek default? Apparently a default, according to the large credit agencies is a term that can only apply to private sector creditors. The IMF is defined as a non-private sector business and therefore it’s not a default!! - even though it hasn’t paid what was due and when.
Other data coming out of the Eurozone relates to whether the economic theory many of us studied and then turned into reality, namely deflation, has been banished from the commentators vocabulary – well at least until the next recession. Signs are good and it is expected that the second month in a row will show a modest level of inflation. It’s amazing to think the mention of the word inflation was viewed historically with horror and now it’s something people are craving (within reason).
In the U.S., Independence Day gets in the way of the employment / employment costs statistics being issued, now a day earlier due to the public holiday on the Friday. The US employment market is picking up and as expected this is also linked to wage inflation which is beginning to gain its own momentum. As reported previously, commentators are expecting the FED to increase interest rates in September and this building flow of positive news makes the likelihood of a rate rise ever likely – but will the Greeks have a say in this?
On the domestic front today saw the revised GDP figures being issued which reflected a small uplift from 0.3% to 0.4%. Commentators are expecting things to continue improving over the coming months – but again what about the Greeks? Other key statistics being issued this week include the level of mortgage approvals and various PMI’s.
The housing market is expected to show a continued positive growth, so maybe that consumer feel good factor is set to return?
In other parts of the world, concern remains over the strength of the Chinese economy with expected indicators showing the manufacturing and service industry are beginning to slow. At the same time, we will see how Japan is performing with its similar statistics.
Finally, someone else who can’t pay the Governor of Puerto Rico has said they can’t pay this $70bn of debt – we will watch this space. This news comes as another jolt to the recession gripped U.S. island as well as Wales financial systems worried over it's Greek crisis. This is likely to be a big issue for U.S. bond holder.
Weekly Indicators to be published this week include:
Monday
Household Lending (May)
Monday morning saw the issue of the number of mortgage approvals for house purchases for the month of May.
The statistics issued showed the number of people who were approved for new mortgages in May rose to its highest level since March 2014, providing fresh evidence of confidence in the housing market. Almost 73,000 mortgages were approved in May by Britain’s high street banks, according to the British Bankers’ Association, compared to a 20-month low of just over 60,000 in December. The size of loan approved for a house purchase also increased to just shy of £170,000, compared to a typical loan of £159,000 just two years ago. Was this due to the Sturgeon influence? I don’t a cut in Scottish Stamp duty was going to have any material impact. Commentators are expecting this to continue with an upward trend.
Tuesday
GfK Consumer Confidence
The GfK Consumer Confidence balance was issued today and showed a 7 point increase on May’s outcome. Joe Staton, Head of Market Dynamics at GfK, said:
“We’re seeing a dramatic uptick in confidence this month, a real post-election bounce that’s put a spring in the step of consumers across the UK. June’s six-point jump takes the Overall Index Score back to levels not seen since the late Nineties or early days of the Noughties. Across all key measures we’re reporting higher levels of financial optimism for both our own personal situation and for the general economy as a whole for the coming 12 months. This renewed optimism could also translate into a busy time for retailers. The number of shoppers agreeing that “now is a good time for people to make major purchases such as furniture or electrical goods” has powered ahead by a buoyant 14 points this month compared to negative sentiment for the same period last year."
So there you go - it’s a good time to spend money!
Balance of Payments
Commentators are forecasting a marginal improvement on the last quarter figure of £25.4bn. The variables are numerous and complicated, so therefore not for discussion in this briefing update. If you are really interested just visit the Bank of England website for a detailed analysis
Wednesday
Manufacturing PMI
Before we begin - what does this mean and how is it calculated? The 'Purchasing Managers' Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. So now we all know, let’s take a look at the statistics!
The index is expected to make a small recovery to that reported over previous months. The index has also shown two distinct parts - the UK domestic demand continues to grow, tempered with weak exports. Commentators are expecting this trend to continue but again no one knows with the Greek impact.
Friday
Services PMI
Services PMI is very similar too Manufacturing PMI, and it is expected that June’s figure will improve regaining some of the ground lost during May. The provider of the statistics has pointed to continued business confidences following the pre-election uncertainty.
Nationwide House Price Index
The housing market has slowed but will June’s figure continue this trend – unlikely albeit by a very small upturn, a growth of circa 0.5% is expected.
Treasury Viewpoint
Exchange rate movements can be summarised as follows:
Current rates are circa 1.41 (GBP/EUR) and are forecast to increase slightly over the next 12 months to circa 1.48. GBP/USD currently at circa 1.57 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 have produced this report to offer some current insight on the economy and hope that you have found this update useful. However if you would like to see something specific included on an upcoming report, please contact one of our team.
In the meantime, enjoy the sunshine and have a great week!
Paul Burke
Managing Director, Davenham Asset Finance
In the meantime, enjoy the sunshine and have a great week!
Paul Burke
Managing Director, Davenham Asset Finance
