User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Monday September 29, 2008 - 10:29:32 GMT
Lloyds TSB Financial Markets - www.lloydstsb.com/corporatemarkets

Share This Story:
| | Email

Economics Weekly - Despite the credit crisis, debt accumulation still on going in the UK; Weekly economic data preview - Market events to overshadow data

Economics Weekly 29 September 2008


Despite the credit crisis, debt accumulation still on going in the UK

 

The credit crisis has resulted in less credit being made available for households and companies…

The credit crisis is still in full swing; in fact, it is worse now than when it first started in Q3 of last year. Credit spreads have widened out and interbank spreads are the widest that they have been at any time in the last 12 months. But our focus in this weekly is on the fact that with credit conditions tightening - a higher cost of borrowing and less credit being made available - we should be seeing a significant reduction in leverage by households and companies by now. But the data do not yet show that this is occurring; although debt accumulation is slowing it is still taking place. Given currentevents in financial markets, is it just a matter a time before it slows more sharply? We look at some evidence of where we are currently in the analysis that follows.

 

…but UK households are still accumulating debt faster than they are growing income…

UK households have accumulated a vast amount of debt since 1981, but this accelerated particularly sharply from about 1997 onwards, see chart a. During this period there was a dramatic fall in price inflation and so sharp cuts in interest rates, which made it easier to obtain credit. But there was also deregulation and a surge in the supply of credit, which increased the ability of households to get access to loans. Also, employment reached a record high and unemployment fell to a 35 year low as UK economic growth averaged 2.9%, adding to the fast pace of growth of loans.

 

We think that a combination of the credit crisis and slower economic growth will result in weaker growth in employment and a stalling of the 10 year falling unemployment trend over the next few years. This will result in a flattening in debt accumulation in the UK over the period to 2013, see chart a. But for that to happen, growth in loans relative to growth in incomes must slow so that loan growth is at least in line with income growth.

 

At present, as charts b and c show, although the credit crisis has meant that loans are less available for mortgages and for unsecured credit, there has only been a mild slowdown in the rate of borrowing of UK households. Indeed, looking at unsecured loan growth, it has accelerated. This may be a bad sign if it suggests increasing use of this form of credit to pay off debt on secured loans. Only time will tell, as we should see higher default rates and ultimately a sharp fall in this form of borrowing if that is the case. In the meantime, however, it is clear that the sort of loan slowdown that one would expect

 

The same applies to corporate loan growth, see chart e, where profit growth is less than loan growth, implying a rise in the level of indebtedness of non-financial companies to lenders. This trend may, of course, be good news for the economy as it implies that the negative feedback loop from a cutting of loans to a cutting of spending by borrowers is not kicking in as much as many fear, at least not yet. But it could be bad news if the economy enters a deep recession, as debt defaults will likely rise to unprecedented levels.

 

…and this is leading to a further rise in the UK's debt burden though we think this trend will flatten in the years ahead as the economy slows and less credit availability bites

Looking at growth in borrowing by households, which amounted to about £1.4 trillion at end July 2008, currently accounting for some 170% of annual income, it is still rising well in excess of growth in income, see chart f. Indeed, breaking this total down into mortgage borrowing growth and unsecured borrowing growth shows that both categories are rising faster than income, meaning that the household debt burden as a share of income is still rising. However, for both categories of household debt the pace of growth is slowing, see chart g, and has slowed fastest for unsecured loans than for mortgages (unsecured loan growth has picked up in the past year). This trend needs to continue in order for the debt to income ratio to stabilise: in other words, debt cannot rise faster than income. There is a possibility that borrowing growth could fall below income growth if the credit crisis really bites and if households take fright at rising unemployment as the economy slows, and so increase their saving rate. Our central view, at present, is that a combination of this occurs in the years ahead and household borrowing and income growth balance for the first time in well over 20 years. This will show up as a flattening in debt to income ratios, albeit at a high level, see chart a.

 

As said at the start, the evidence would suggest that loan growth in the UK (company and household) is still faster than income growth so the adjustment to a more restrictive supply of credit - at a higher cost, and by fewer lenders - does not yet appear to be impacting borrowers as much as one would have thought one year into the credit crisis. However, it may just be a matter of time and, as the economy weakens, a slowdown in borrowing growth to a more sustainable pace becomes ever more likely.

Trevor Williams, Chief Economist, Corporate Markets

 

Weekly economic data preview W/c 29 September 2008

 

Market events to overshadow data

 

The European Central Bank (ECB) meets to discuss interest rates on Thursday, amid intensifying financial market stress and growing signs of weakening euro zone economic activity. However, these concerns will have to be balanced with the still unfavourable inflationary backdrop, despite signs that the annual rate may have peaked. Although we expect interest rates to remain on hold at 4.25%, the press conference from ECB president Trichet could contain surprises. The US September employment report, on Friday, is forecast to show that the US economy lost jobs for a 9th successive month. We look for a 90,000 decline, with the risk of a sharper fall. The unemployment rate will also attract attention, after rising to a five year high of 6.1% in August. A disappointing report will raise speculation of a cut in US interest rates. However, we believe interest rates are already low at just 2% and a further reduction will have only a limited impact on the credit crisis and current slowdown.

 

UK data his week will provide further clues to whether the economy has entered recession. We forecast the UK will skirt recession this year, with any quarterly contraction likely to be relatively modest should it occur. The final estimate of Q2 UK gdp, on Tuesday, may provide a surprise, if growth is revised from unchanged over the quarter. While we believe there is a risk on either side, given recent economic data, the most likely outcome is for no change. But a large scale revision of the method of calculating gdp has been underway and the results of this could lead to a surprise. Any contraction would be the first since 1992 and will raise market speculation of interest rate cuts, possibly as soon as next week. However, we remain of the view that the majority of the MPC will want to wait for clearer signs that inflation has peaked though the worsening credit market conditions will raise the risk of a cut in rates. A sharp slowdown in economic growth is ultimately required to increase spare capacity and bring inflation to target over the Bank's two-year horizon. However, the destabilisation of money markets and generalised tightening in credit conditions - UK 3- month Libor is up more than 50bps since the September MPC meeting. A further deterioration in credit conditions ahead of the next MPC meeting could shift the balance of risks to growth from inflation.

 

We expect the PMI data this week to show both services and manufacturing activity contracted in September. However, the headline indices should remain close to levels broadly consistent with slow to stagnant economic growth. The retail sector, which has been surprisingly buoyant of late, is also not covered by these indices. We remain of the view that UK Q3 gdp growth could be slightly positive. Lending figures published by the BoE this morning are likely to show a further fall in mortgage approvals and net mortgage lending in August. This should come as no surprise given the significant tightening of household credit conditions and weakening sentiment about the housing market, and suggests that further falls in house prices are likely in the months ahead. However, net consumer credit may have picked up, possibly to a six month high of £1.3bn, from 1.1bn in July

.

• The economic landscape in the US continues to be dominated at present by bank failures and the much publicised $700bn rescue package to remove illiquid mortgage backed assets off banks' balance sheets. However, with Congress close to agreeing a compromise over the weekend, attention should soon return to the real economy. Economic data last week highlighted the risk of a relapse in Q3 gdp growth, with business investment and housing markets registering weak demand. The rise in weekly unemployment claims last week to 492,000 suggests that the labour market picture is also darkening. The September employment report is due this week and may add to market perceptions that the Fed will cut interest rates, possibly as soon as October 29th. We are not convinced. The US consumer confidence index, ISM surveys and personal income and spending data are also published this week.

 

• The ECB finds itself in a very similar position like the BoE, with monetary policy currently being dictated by high inflation and rising fears about economic growth. However, challenging credit markets, worsening forward-looking indicators and signs that inflation has peaked, suggest that the ECB could soon switch its stance on interest rates towards an easing bias. The main data highlights this week are the 'flash' estimate of September CPI and EU-15 retail sales in August.

Jeavon Lolay, 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 18 December 2017

Register for the Amazing Trader

1.

Amazing Trader EVENT RISK Calendar:

Mon 18 Dec
10:00 EZ- final HICP
Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account
Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude
Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP
Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes
Mon 25 Dec
00:00 Christmas Holidays

Forex Trading Outlook


Potential Trading Opportunities

  • POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.


  • POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
  • POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity

  • POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
  • POTENTIAL PRICE RISK: Medium- Wed --15:30-- US- EIA Crude

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