Bank of England fearful of a housing bubble

Yesterday the Bank of England published its latest financial stability report and warned that lending to landlords is expanding far faster than the rest of the mortgage market, putting the UK economy at risk. Mark Carney the Bank of England Governor, said that they will be stepping up their oversight of the sector, but for the time being an intervention to take the heat out of the market is not necessary, although the door has been left open. Also released yesterday was UK manufacturing PMI data which printed a 26 month low of 51.4 in June on the back of dismal exports. The markets were expecting a figure of above 52 so the result paints a negative outlook for the UK economy, which is increasingly becoming reliant on consumers to fuel growth. The pound was not effected greatly by the day’s news, as predictably the Greek saga continues to take centre stage. Already released this morning we have seen Nationwide house price data, which has printed lower than expected numbers for both year on year and month on month. House prices have dropped to a surprising 0.2% in June causing the year on year rate to dropdown to just 3.3%. Later this morning will be the release of PMI construction data which is expected to pick up slightly from the previous release.

Wednesday marked a quiet day of volatility for the Euro with GBP/EUR closing almost exactly where it opened. Midday saw Tsipras write a letter to their creditors accepting nearly all the conditions that were asked prior to the talks collapsing. However, this did not result a boost in sentiment and a euro rally, as Germany was quick to announce there will be no bailout discussions until after the referendum on Sunday. European manufacturing PMI came out exactly as expected at 52.5. This is very positive ‘for’ the Eurozone, demonstrating despite the current Greek saga and very low inflation levels, the manufacturing sector across all of Europe is still expanding with purchasing managers expecting growth across the next few months. Until Sunday we can expect high volatility with the euro as the markets continue to speculate the referendum outcome. It is very likely a ‘no’ vote will have an immediate impact on the euro highlighting an imminent Greek departure. A ‘yes’ vote could see Tsipras resign and further raise instability within the Euro Group. However, this plays out, all eyes will be on the single currency and the effect this disruption will have.

It was another fantastic day for the US dollar yesterday as the currency posted gains of over 0.5% against both its major counterparts. ADP Employment Change figures came in above expectations at 237, which instantly triggered a sell‐off in both GBP/USD and EUR/USD. This was shortly followed by Manufacturing ISM data, which also beat analysts’ expectations, coming in at 53.5. This marks a continuation of positive data out of the US which highlights growth and stability in the economy. As we expected, it seems like the dollar is also benefitting from the increasing uncertainty in Greece which has caused a flight of funds into safe haven assets. Overnight, the currency traded in a fairly narrow range against both the Euro and Sterling, with little to report. With the US markets closed tomorrow, today we have the much anticipated Non‐Farm Payroll Figures which will be released at 13:30, alongside US Unemployment Data and Initial Jobless Claims. Needless to say, we can expect a lot of volatility following the announcement of these figures. Historically, NFP figures have significantly moved the market, so be aware of any changes to forecasted figures.