User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Monday May 12, 2008 - 14:55:10 GMT
Lloyds TSB Financial Markets - www.lloydstsb.com/corporatemarkets

Share This Story:
| | Email

Economics Weekly – Interest rate cycles compared – only modest signs of credit crunch? Weekly economic data preview - Bank of England Inflation Report to highlight upside risks

Economics Weekly 12 May 2008

Interest rate cycles compared – only modest signs of credit crunch?

Little sign of credit crisis in this rate cycle...
There has been a lot of debate about the impact of the credit crisis on the UK economy, with any new sign of weakness in economic data automatically laid at its door. We will not attempt in this piece to try and disentangle whether weakness in the economy is due to the credit crisis or to other factors. But it might be useful to compare the evolution of a number of key economic variables in the current interest rate cycle (we define a cycle as a move from one trough to another) in the UK with the previous cycle.

The question then is: is the path of key variables in the current rate cycle significantly different from that of the last cycle? If they are, we could draw some inferences about why this may be - perhaps the credit crisis if they are significantly worse - as well as make observations about whether the economic impact of the current interest rate cycle is more or less severe than the last one. Since there are an almost infinite number of variables we could look at we have used the economic indicators that we think are most informative, including, inflation activity, and monetary data.

...interest rates are still above the last peak, even though they have been cut
In the last interest rate cycle, bank rate was raised from a trough of 3.5% in 2003 to a peak of 4.75% and then left there through to August 2005 when it was cut by 0.25% to 4.5%. In the current cycle, rates were raised from 4.5% in August 2006 to a peak of 5.75% last year with cuts starting in December. The current bank rate of 5% is therefore 1/2% above the peak reached in the last interest rate cycle. Clearly this must be down to greater inflation pressures,as the credit crisis would imply lower interest rates than the current rate.

The reason is that inflation is higher now than in the last rate cycle
Chart a shows that consumer price inflation has remained higher over the entire period of this base rate cycle than in the 2003 to 2005 cycle, though both seem to have a similar pattern in that there has been a fall from a peak to a trough followed by a rise. The problem is that the increasing trend being shown by consumer price inflation in the current phase of this rate cycle is from a much higher level than in the last interest rate cycle. The good news though is shown in chart b, which is that wage inflation is very subdued in the current rate period relative to the last one. In fact, since economic growth started losing momentum in the second half of 2007, wage inflation has almost immediately slowed down as well. It is not clear why this should be so, although a clue may be in the fact that the influx of migrants from Eastern Europe has occurred during the current interest rate cycle. Moreover, unemployment is also currently lower than in the period November to 2003 to August 2005, see chart c, making it even more remarkable that wage inflation remains so weak. Despite the fact that wage inflation is lower than in last rate cycle, volume growth of retail sales is higher as is manufacturing output growth, see charts d and e – both of which may also help explain why price inflation is higher. So far it has to be said that none of these charts suggest that the credit crisis is impacting the UK economy particularly hard, though it may admittedly be too soon to be sure.

Monetary data show few effects from the credit crisis...
What about the monetary data? M4 money supply growth is currently faster than that in the last rate cycle, as should perhaps be expected given that inflation is higher and retail sales and manufacturing output growth faster. Despite the worry about the economic side effects of recent falls in house price inflation, on the official data there does not appear to be much of a difference between the current deceleration in house price inflation in this rate cycle compared with the last one, see chart f. In fact, house price inflation is currently a little higher than in the 2003 to 2005 interest rate cycle. Mortgage and credit lending growth is slightly weaker in the current cycle than in the last one (charts not shown), but not by much. However, the housing data offers the strongest evidence of any effect from the credit crisis, which has seen libor rates remain higher than normal against base rates, amid the withdrawal of a range of mortgage offers. The spread between 3 month libor and bank rate so far this year has been 52 basis points, well above the 16 basis point average during the 10 years previous to the onset of the credit crisis last June.

...but is it turning up in some mortgage data?
The final chart, g, looks at mortgage approvals, which should reflect the withdrawal of offers in the current rate cycle compared with the last one. This chart does indeed show that this rate cycle is having a worse impact on approvals than the last one, although interest rates are higher and so one would have expected approvals to fall back more sharply, especially since the chart also shows that they took a long time to fall back in this rate cycle compared with the last one. Nevertheless, this does suggest that the credit crisis is having a unique impact, and that there may be worse to come. However, on balance, the economic data we have looked at would not suggest that the reaction to the current rate cycle is significantly worse than in the last cycle, except that growth and inflation appear rather more robust. But, the credit crisis complicates this analysis, as the possibility remains that its full negative effect has not yet come through to the economy. This makes the job of setting interest rates for UK economic conditions even more challenging than usual.
Trevor Williams, Chief Economist, LTSB Corporate Markets

 

Weekly economic data preview W/c 12 May 2008

Bank of England Inflation Report to highlight upside risks

The UK Inflation Report is due this week and will take the lion share of attention as we look for the BoE's updated projections for growth and inflation. UK economic data features consumer prices and employment. Our forecast is for a rise in annual CPI to above 2.5% in April. It is a busy week too for US indicators where releases of retail sales and consumer prices data for April may indicate that sales are resilient and inflation is still worrying. A litany of Fed speakers may drop some hints on how close US interest rates are to a bottom. The preliminary Q1 gdp estimate will be published in the euro zone and may show that growth stabilised at 0.4% q/q compared to the final quarter of 2007.

• A busy week for UK financial markets lies ahead as the BoE prepares to publish its quarterly Inflation Report on Wednesday. The report compiles the Bank's forecasts for inflation and economic growth, based on a number of assumptions. A revision of the February forecasts appears on the cards as the Bank takes stock of a number of economic variables released since the last Report. The 35% jump in crude oil prices and higher food prices stand out and may lead the Bank to change both its forecasts for growth (down) and inflation (up). The fact that the logjam in money markets has not been resolved, and that 3-month Libor has actually drifted up over the past quarter - although rates have come off their highs since the start of Q2 - is likely to dampen domestic demand and could persuade the Bank to publish a more downbeat outlook for gdp growth. The Bank of course last week kept base rate on hold at 5.0% and it will be interesting to hear from governor King how he believes the economy will develop, based on the implied market interest rate of 4.75% (July forward Sonia). Sentiment towards a rate cut in June firmed following the release of a weak services PMI survey last week - the index fell to a 5-year low. This scenario may be tested on Wednesday, but also on Tuesday when inflation data for April will be published. Annual CPI was unchanged in March at 2.5% but is forecast to have resumed an upward path in May. We forecast a rise to 2.6/2.7%, a 12-month high. Based on our forecast of a rise in CPI above 3.0% later this year, the chart below shows how CPI may catch up with the Bank's own inflation expectations. This should limit the Bank's ability to cut interest rates. Unemployment data is due on Wednesday prior to the Inflation Report. The fact that unemployment has remained low and that the private sector is still adding jobs reinforces our view that the slowdown in economic activity and the decline in house prices should be limited in magnitude. Other data releases this week include producer prices and foreign trade on Monday, and house prices on Tuesday.

• A busy calendar shapes up in the US where we will concentrate on retail sales and consumer prices. Both releases are for April and we expect stronger retail sales to help underpin gdp growth at the start of Q2. Record petrol prices and falling house prices will probably sap consumer confidence, but this has to be balanced with the fact that the labour market is no longer deteriorating and the $180bn tax credit which may offer positive impetus. Even though one can expect discretionary spending to stay weak, the fall in the unemployment rate to 5.0% in April gives reason to believe that some retail categories should hold up. The retail sales data are due on Tuesday. The latest CPI inflation figures are due on Wednesday and our forecast suggests that inflation is likely to have edged up in April to 4.1% (headline) and 2.5% (core, i.e. excluding food and energy). A long list of Fed speakers will draw close scrutiny as markets weigh up the probability that US interest rates may have bottomed, and to what extent the FOMC could be split on the future course of action as worries persist about elevated inflation and inflation expectations.

• The ECB last week kept interest rates unchanged at 4.0% and president Trichet gave not the faintest indication that interest rates will be changed anytime soon. Inflation data from the euro zone is due on Thursday and even though a decline to 3.3% in April is pencilled in, the likelihood is that inflation could re-accelerate. The preliminary Q1 gdp estimates are due from Germany and France on Thursday and are  forecast to show that growth resisted the downward pressures from oil and the credit market turmoil.
Kenneth Broux, Economist, LTSB Corporate Markets

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