User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Monday January 28, 2008 - 12:36:24 GMT
Lloyds TSB Financial Markets - www.lloydstsb.com/corporatemarkets

Share This Story:
| | Email

Economics Weekly - UK economy to avoid recession in 2008; Weekly economic data preview - US Fed interest rate decision & Q4 GDP and EU-15 flash CPI feature

www.lloydstsbcorporatemarkets.

Economics Weekly

UK economy to avoid recession in 2008  28 January 2008

Growth better than expected last year…
Overall, the UK economy expanded by 3.1% in 2007, well above the 2.4% expected at the start by most forecasters. This was in a year that oil prices doubled and the currency was strong – at least for the first half. Indeed, this fast growth in the economy resulted in a widening of the current account deficit to around £68bn, 5% of the economy and the biggest ever deficit in monetary terms. How is the UK economy likely to perform in 2008?

...but there are many risks to growth in 2008 and consumer spending may hold the key to any expansion…
The UK economy is actually entering 2008 with a lot of momentum, in spite of signs the pace of growth is faltering. Despite worries about imminent recession, growth in the final quarter of 2007 was 0.6% - almost bang in line with the long run average. This is despite the credit crisis, the slowing of house price inflation, oil prices averaging over $90 dollars a barrel in the final quarter of 2007 and a rise to a mid-year peak of 5.75% in interest rates (though cut to 5.5% in December). What are the main factors driving expansion of the economy? Consumer spending remains the key, with growth of 3% in 2007, helped by rising household wealth effects – stock market and housing, see chart a. Although both of the latter are slowing down – and showing signs of vulnerability - the fact is that in the last few years, they have been supporting a fall in the saving ratio and, by implication, growth in consumer spending. But there is a slowdown in consumer spending underway, with consumer and retail confidence both sharply off  their 2007 peaks and wealth effects in retreat, alongside a rise in energy prices and mortgage payments that are sapping real income growth.

...will consumers buckle under headwinds from weaker real earnings and a slowing housing market?
After worries last year that consumer spending would buckle under the pressure of higher interest rates and a rise in inflation that would reduce real spending power, the opposite was true. Growth in consumer spending rebounded. The reason? High levels of employment and continued low unemployment combined with high wealth effects (from a rising stock market and a strengthening housing market) encouraged consumers to lower their savings ratio in order to maintain spending levels. But what will happen to consumer spending in 2008 now that the housing market is weakening, stock markets are declining and the US economy is slowing after the bursting of the housing and credit market bubbles?

A strong labour market offers support to households and the economy
However, this does not mean that consumer spending will collapse. Rather, we are looking for a slowdown, to just over 2%  growth in 2008, down from about 3.2% in 2007 and just over half the 10 year average. The reason is that the UK labour market remains very strong, with the highest ever level of employment and the lowest unemployment rate since the mid-1970s, see chart c. Earnings growth is low but positive - so long as this combination remains in remains in place, consumer spending will remain positive and the economy will avoid recession. Further, whilst the slowing housing market is a negative for the pace of economic growth, here too, there should not be a replay of the early 1990s, when prices fell for 4 years, but of 2005, when they slowed sharply. Our forecast, in chart d, for house prices shows that, although in Q4 2008 there is an outright fall in prices of 1%, the average for the year is 2% and it recovers modestly in 2009. The reason for this is that: first, we assume interest rates are cut further, to 5%; second, there is a shortage of residential housing in the UK and this supports prices; third, employment growth slows but does not fall sharply.

And company investment, government spending and the trade deficit matter as well
However, UK economic growth in 2007 was not just about personal consumption, even though it is 70% of gdp. Business investment spending went up by around 7% and government spending rose 1.7% last year. Therefore, UK economic growth in 2008 will also depend on how these other sectors perform. But fast growth resulted in a wider current account deficit, and high government spending meant a large borrowing requirement, which will also worry the financial markets, keeping the pound weak. This is a constraint on public spending, and will prevent the use of fiscal policy as a tool to expand the economy. Moreover, price inflation is still a concern, with a sliding pound exacerbating the pressure from higher commodity prices. In this environment, interest rate cuts will be modest but growth will be near the long run average as strong global growth helps UK exports at a time that labour costs should remain low.

Corporate sector may offer strong support to the UK economy in 2008...
Investment spending in the UK has been strong in the last few years, but we are looking for a slowdown. However, that will still leave business investment spending rising by about 3% in 2008. A weaker currency, supporting export industries, and lower interest rates, supporting domestic spending, will underpin investment activity. This is made more likely by the fact that company profits are at a record high, see chart e. And this correlates well with changes in business investment spending over time. It also partly explains why, even though the company sector has become more worried about general economic conditions, it remains fairly bullish about its own trading conditions. The international background is therefore very important as well. The UK economy is very open to international trade and so a weaker currency, combined with fast growth in the world economy, offers an opportunity to UK exporters. So long as wage inflation stays low, they can gain a competitive advantage.

…but inflation is a concern and economic risks are skewed to the downside
However in 2007, the UK external deficit was the widest recorded in money terms, though not as a share of the economy. This implies that the pound will stay weak and price inflation remain a concern. Our forecast shows that the MPC inflation target may remain above 2% throughout 2008, and that the average rate will exceed the target just as it did in 2007. There may even be another open letter from the Governor to the Chancellor explaining why the upper limit of the inflation target (this happens when CPI is above 3%) has been breached. But inflation will fall back to the 2% target in 2009 so long as the economy weakens as we  expect see chart f. However, this will mean that there is little scope to cut official interest rates without the MPC losing credibility, making its task of hitting the inflation target even more difficult in future. Another clear vulnerability for the UK, and policy risk for the MPC, is that the UK is running a large budget deficit, likely to be some 3% of gdp this year and next. In this environment, cutting interest rates is even more worrisome from an MPC viewpoint, as it  could lead to a too loose overall policy stance and even higher inflation in the future. Although there are downside risks, from the credit crisis, high oil prices, greater fallout from the US slowdown and financial market turbulence, our view is that the UK economy can weather these headwinds and expand for a 16th successive year, helped by its open economy.

Trevor Williams, Chief Economist


Weekly economic data preview W/c 28 January 2008

US Fed interest rate decision & Q4 GDP and EU-15 flash CPI feature

The Fed's decision to deliver an inter-meeting interest rate cut of 0.75% to 3.5%, has taken some pressure off Wednesday's scheduled interest rate meeting. It is likely that the Fed will cut rates again, otherwise markets may fall sharply. If not, further cuts of at least 50bp are likely over the next few month. After that, more cuts will be dependent on  whether incoming data signals recession. Market futures show implied fed funds rates at 2.3% at end-year, UK base rates at 4.73% (from 5.5%) and euro rates at 3.72% (from 4.0%), see chart 1. This implies a more negative view of the US economy than our central view. However, US data this week is unlikely to improve the market view, and could worsen it. US Q4 GDP, published Wednesday, is likely to be sharply lower. On Friday, non-farm payrolls for January could increase by 80,000, compared with December's figure of 18,000, but below the recent average, see chart 2. Given the ECB's hawkish bias on interest rates, EU-15 flash CPI for January could cause a stir on Thursday should market expectations of 3.1% annual growth under- or over-shoot.

• The US Fed offers its fourth and final scheduled $30bn Term Auction Facility (TAF) at 3.00 today. Overnight, following the Bush administration's agreement on a $150bn stimulus package to boost the economy, the President delivers his State

of the Union speech to Congress which may give further clarification of the plan. Apart from that, US Fed policy and economic data releases will grip markets. Data is likely to present a weak bias, including new home sales, S & P/Case Shiller house prices, Q3 GDP and NFP jobs growth. The preliminary release of Q4 GDP could show just 1.5% annualised growth, down from 4.9% in Q3. However, the quarterly GDP deflator may rise from 1% in Q3 to 2.6% in Q4, highlighting inflation risk in some areas of the economy, and underpinning our view that monetary policy may be less aggressive than current market perceptions. Also, monthly measures of personal income and spending could show very weak growth in December. All this adds up to a picture of a weakening economy at the back end of 2007, but not necessarily recession. January surveys continue to paint a mixed picture - the Chicago PMI could stay around the 56-  57 level, the ISM manufacturing index could improve a touch from 47.7 in December to 50.0, while the University of Michigan Survey could be confirmed a touch below the first release of 80.5. The core PCE deflator, the Fed's preferred measure of inflation, may have risen to 2.4% in December from 2.2% in November. Although 1-2% is the Fed's comfort zone, this will not prevent the Fed from cutting rates further in coming months due to fears of recession.

• We disagree with comments that the UK is slipping into recession and expect GDP growth of around 2.25% this year. But markets are looking for data with a bias towards slowdown. They may be satisfied with stable net mortgage lending and a further drop in December mortgage approvals to 79,000 from a year-to-date average of 107,000 and a peak of 131,000 in November 2006, indicating a softer market 6-9 months ahead. Nationwide house prices for January could fall another 0.4% from a fall of 0.5% in December, adding to worries about the extent of the decline. In addition, the CBI distributive trades and the GfK consumer confidence surveys may come in weak.

• With inflation the key ECB policy concern for now, the flash January release of EU-15 CPI on Thursday is the weekly highlight. We expect the annual rate of inflation to remain steady at 3.1%, well above the ECB's preferred level of 2% and explaining their reluctance to loosen monetary policy to pre-empt slower growth, unlike the UK and the US. Should CPI be weaker/ stronger, market perceptions of euro interest rates could change sharply. Other data may show that consumer confidence weakened further in January, although PMI manufacturing and industrial confidence may be more robust. Speeches by ECB members Liikanen, Tumpel-Gugerell, Hurly and Bonello will be assessed for hawkish interest rate bias.

Nichola James, Senior Economist

Economic Research,
Lloyds TSB Corporate Markets,
10 Gresham Street,
London EC2V 7AE,
Switchboard:
0207 626 - 1500

www.lloydstsb.com/corporatemarkets

Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. Expressions of opinion may be subject to change without notice. Although  warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. The facts and data contained are therefore not intended for the use of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc. Lloyds TSB Bank plc is authorised and regulated by the Financial Services Authority and is a signatory to the Banking Codes, and represents only the Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and investment business.

 

Forex Trading News

Forex Research

Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."



Elevate Your Trading With The Amazing Trader!

The Amazing Trader includes:
  • Actionable trading levels delivered to YOUR charts in real-time.
  • Live trading strategy sessions.
  • Market Updates with Trading Tools.

Register To Test Your Amazing Trader


Trading Ideas for 23 October 2017

Register for the Amazing Trader

1.

Amazing Trader EVENT RISK Calendar:

Tue 24 Oct
All Day flash PMIs
Wed 25 Oct
01:30 AU- CPI
08:00 DE- IFO Survey
08:30 GB- GDP
14:00 CA- BOC Decision
14:30 US- EIA Crude
Thu 26 Oct
11:45 EZ- ECB Decision
12:30 US- Weekly Jobless
14:00 US- Pending Homes Sales
Fri 27 Oct
12:30 US- GDP
14:00 US- final Univ of Michigan

Forex Trading Outlook


Potential Trading Opportunities


  • POTENTIAL PRICE RISK: Medium Tue-- All Day Global flash PMIs. First good look at October economic performances.



  • POTENTIAL PRICE RISK: HIGH Wed-- 01:30 GMT AU- CPI. Top Inflation indicator.

  • POTENTIAL PRICE RISK: HIGH Wed-- 08:00 GMT DE- IFO Survey. Top German indicator.


  • POTENTIAL PRICE RISK: HIGH Wed-- 14:00 GMT CA- BOC Decision. No Policy Change Expected.


  • POTENTIAL PRICE RISK: Medium Wed-- 14:30 GMT US- EIA Crude. Top Weekly WTI Statistic.



John M. Bland, MBA
co-founding Partner, Global-View.com

EXCLUSIVE: Global-View Daily Trading Chart Points Updated

EXCLUSIVE: Global-View Free Forex Database updated




TRADER ADVOCACY ARTICLES

Trader's Advocate Articles..

pic

Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

 
Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map


Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Open Forum
Futures Forum
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Online Forex Trading
Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
Forex Products
GVI Forex
Free Trials
FX Bookstore
FX Jobs and Careers
Jobs USA
Jobs UK
Jobs Canada

Forex Forum

The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.

Forex News

The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.

Currency Trading

Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.

Forex Brokers

The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.

Forex Trading

Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.

FX Trading

Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.

Forex Blog

Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.

 

WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.

Copyright ©1996-2014 Global-View. All Rights Reserved.
Hosting and Development by Blue 105