ECONOMIC UPDATE: 28 JULY 2015
DAVENHAMS WEEKLY ECONOMIC UPDATE - WITH A BIT OF U.S. EDUCATION
Welcome back to our fifth weekly update which is looking pretty thin – a reflection of the summer holidays perhaps?
The main focus for the coming week will be on the U.S. and the FOMC (Federal Open Market Committee) meeting on Wednesday 29 July, this being the last meeting before the meeting on the 17 September. Commentators are seeing the 17 September meeting as the date an announcement will be made regarding an increase in interest rates. We can only surmise if the FOMC has already made a decision on the future of interest rates however it will be keen to ensure any statements it makes prepare the markets for any movements – so any statements will be read with interest (excuse the pun). This seems a bit odd when everybody has been talking about this for a few months now – I suppose all we can say is that’s its coming from a credible source ie the people who actually make the decision.
In addition the U.S. GDP figures are due out a day after the guidance is released, which are bound to have an impact so I think it’s fair to say the FOMC will have been given a “heads up” before they issue their statement.
So what is the FOMC?
Well it’s a committee of the Federal Reserve Board that is responsible for conducting “open market operations”(OMC). The FOMC is specifically charged with guiding open market operations, the buying and selling of U.S. Treasury securities to control the money supply with the multi-faceted goalof limiting business-cycle instability and promoting economic growth. The FOMC typically meets every six weeks in Washington, D.C., more often it needed, to evaluate the course of monetary policy - hope that helps.
As mentioned above the US is also issuing its Q2 GDP figures which will hopefully confirm the economy is going in the right direction and has recovered from its “could do better” performance for the previous quarter. So, a busy week ahead for the US which will also see circa 150 key companies Reporting thus giving a further gauge as to how the economy is performing.
However, continued bad news from China regarding manufacturing output connected to equity stocks still in free-fall could see caution from both the Fed and the BOE when considering interest rate movements.
So what has happened to Greece? It appears to have gone quiet albeit you only have to scan the BBC News website to find the odd story along with articles still being reflected in a number of the broadsheets. Focus appears to be on the preparation of the Bailout Agreement with all interested parties working together to get this finalised - a good little job for the city lawyers and investment banks!
In the UK we are also expecting the GDP figures to be reported and like the US, it is hoped they show an improvement from the disappointing figures for Q1 with a well performing service sector.
And that’s about it other than a few other announcements detailed below – no news on Greece Mk II at the moment.
Weekly Indicators to be published this week include:
Tuesday – UK GDP figure Q2
The first view on Q2’s GDP’s figures will be issued on Tuesday. As noted above the service sector is expected to contribute to an increase in quarterly figures compared with Q1, although the construction and manufacturing sectors are expected to show a contraction. This seems strange, as it was expected that the construction sector would show further expansion.
The weakness of the manufacturing sector has been put down to a strengthening of sterling hampering export. The biggest impact, on the GDP figure, likely to come from the gas and oil industry reflecting a circa 13% increase in production. Commentators are already talking about a two speed economy, which will be pushed along by the service industry with manufacturing lagging behind as sterling strengthens.
Wednesday – Household Lending (June)
The market is expected to show further signs of improvement despite a backward step in May, an expectation based upon rising household incomes and that important “feel good feeling” as consumer confidence continues to grow, something we think is great news here at Davenham.
Friday – GfK Consumer Confidence (Jul)
Following on from Wednesday’s expected release concerning Household Lending, the Consumer Confidence index will be issued two days later (Friday) and is expected, whilst still positive, to be slightly less than the 15 year high seen in June.
Joe Staton, Head of Market Dynamics at GFK reported at that time: “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."
Well let’s see what July has to say and whether talk of interest rate rises and further squeezes forecast by the Government have impacted on the way people feel and spend – watch this space.
Sometime during the week as mentioned above, the view is that the housing market is beginning to plateau although this will still have regional variations. Recent RICS data has shown market prices stabilising, and commentators remain mixed over their views as to what the report is going to say, partly due to the impact of adopting a different calculation and partly the number of differing contributing factors. Overall it’s going to be between 0.1% and 0.2%.
Treasury Viewpoint Exchange rate movements can be summarised as follows:
The main focus for the coming week will be on the U.S. and the FOMC (Federal Open Market Committee) meeting on Wednesday 29 July, this being the last meeting before the meeting on the 17 September. Commentators are seeing the 17 September meeting as the date an announcement will be made regarding an increase in interest rates. We can only surmise if the FOMC has already made a decision on the future of interest rates however it will be keen to ensure any statements it makes prepare the markets for any movements – so any statements will be read with interest (excuse the pun). This seems a bit odd when everybody has been talking about this for a few months now – I suppose all we can say is that’s its coming from a credible source ie the people who actually make the decision.
In addition the U.S. GDP figures are due out a day after the guidance is released, which are bound to have an impact so I think it’s fair to say the FOMC will have been given a “heads up” before they issue their statement.
So what is the FOMC?
Well it’s a committee of the Federal Reserve Board that is responsible for conducting “open market operations”(OMC). The FOMC is specifically charged with guiding open market operations, the buying and selling of U.S. Treasury securities to control the money supply with the multi-faceted goalof limiting business-cycle instability and promoting economic growth. The FOMC typically meets every six weeks in Washington, D.C., more often it needed, to evaluate the course of monetary policy - hope that helps.
As mentioned above the US is also issuing its Q2 GDP figures which will hopefully confirm the economy is going in the right direction and has recovered from its “could do better” performance for the previous quarter. So, a busy week ahead for the US which will also see circa 150 key companies Reporting thus giving a further gauge as to how the economy is performing.
However, continued bad news from China regarding manufacturing output connected to equity stocks still in free-fall could see caution from both the Fed and the BOE when considering interest rate movements.
So what has happened to Greece? It appears to have gone quiet albeit you only have to scan the BBC News website to find the odd story along with articles still being reflected in a number of the broadsheets. Focus appears to be on the preparation of the Bailout Agreement with all interested parties working together to get this finalised - a good little job for the city lawyers and investment banks!
In the UK we are also expecting the GDP figures to be reported and like the US, it is hoped they show an improvement from the disappointing figures for Q1 with a well performing service sector.
And that’s about it other than a few other announcements detailed below – no news on Greece Mk II at the moment.
Weekly Indicators to be published this week include:
Tuesday – UK GDP figure Q2
The first view on Q2’s GDP’s figures will be issued on Tuesday. As noted above the service sector is expected to contribute to an increase in quarterly figures compared with Q1, although the construction and manufacturing sectors are expected to show a contraction. This seems strange, as it was expected that the construction sector would show further expansion.
The weakness of the manufacturing sector has been put down to a strengthening of sterling hampering export. The biggest impact, on the GDP figure, likely to come from the gas and oil industry reflecting a circa 13% increase in production. Commentators are already talking about a two speed economy, which will be pushed along by the service industry with manufacturing lagging behind as sterling strengthens.
Wednesday – Household Lending (June)
The market is expected to show further signs of improvement despite a backward step in May, an expectation based upon rising household incomes and that important “feel good feeling” as consumer confidence continues to grow, something we think is great news here at Davenham.
Friday – GfK Consumer Confidence (Jul)
Following on from Wednesday’s expected release concerning Household Lending, the Consumer Confidence index will be issued two days later (Friday) and is expected, whilst still positive, to be slightly less than the 15 year high seen in June.
Joe Staton, Head of Market Dynamics at GFK reported at that time: “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."
Well let’s see what July has to say and whether talk of interest rate rises and further squeezes forecast by the Government have impacted on the way people feel and spend – watch this space.
Sometime during the week as mentioned above, the view is that the housing market is beginning to plateau although this will still have regional variations. Recent RICS data has shown market prices stabilising, and commentators remain mixed over their views as to what the report is going to say, partly due to the impact of adopting a different calculation and partly the number of differing contributing factors. Overall it’s going to be between 0.1% and 0.2%.
Treasury Viewpoint Exchange rate movements can be summarised as follows:
Current rates are circa 1.41 (GBP/EUR) 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:
With regard to interest rates the current forward curve is as follows showing potential SWAP rates:
We hope that you have found this update useful, and it has given further insight on the economy, however if you would like to see something specific included on an upcoming report or need asset finance or asset refinance support, please contact one of our team.
In the meantime, have a great week and stay tuned for next weeks update.
Paul Burke
Managing Director, Davenham Asset Finance
In the meantime, have a great week and stay tuned for next weeks update.
Paul Burke
Managing Director, Davenham Asset Finance
