Today's Highlights
Spain at the centre of Europe's worries
UK high streets improve
UK mortgage lending is today's focus
FX Market Overview
I will start with an apology. I apologise for droning on about Europe but I am sorry to say, there is little else to speak about in the current economic climate. Yesterday’s newswires were full of it; this is just a flavour of the total barrage. Spanish retail sales plunged by 9.8% last month; the worst drop on record and another one in a 22 month decline. Spanish government debt is getting ever more expensive to service, the European Central Bank says it wants nothing to do with Spain’s refinancing of Bankia or other debt stricken banks and after fierce criticism for inaction, the governor of the Bank of Spain, Miguel Ángel Fernández Ordóñez, is stepping down a month early. Had enough or pushed out? We are not sure. However, it is another step towards the abyss for the Spanish economy and yet another troubling development for Europe.
On a brighter note, Greeks who were offended by IMF chief Chritine Lagarde’s comments about them avoiding taxes will be interested to know that Lagarde pays no tax on her roughly £350,000 per annum income because she is an official in an international institution. That’s coded language for ‘Gravy train’.
By way of contrast with Europe, the Confederation of British Industry says the retail sector is holding up well and UK interest rates are expected to stay at record low levels for up to 5 more years. Obviously that decimates a lot of people’s savings return but it does keep the cost of servicing debt down for those who have some, and that is probably the majority. In the CBI’s distributive trends survey, the index shift from a minus 6 reading to plus 21 in May, the fastest advance in over a year. Sterling had a better day as a result and returned to the upper end of its trading ranges. This morning’s UK mortgage data will be the next hurdle; it seems that getting a mortgage still follows the old banking rule that you can have it if you don’t need it so it will be interesting to see if there is any life in the lending market or, as appears to be the case, banks and building societies are sitting on as much reserve cash as possible.
It’s not just European retail sales that are struggling; poor high street data from Australian has weakened the Australian Dollar a tad overnight. This is another in a series of poorer Aussie data releases and Australia is also being hit by a slowdown in China; Australia’s largest export market. So we may well see further weakness in the Aussie Dollar but the month end is looming and traders in the UK will be preparing for a very long bank holiday weekend so don’t be surprised if we see some profit taking ahead of that.
The US data diary is very light this week but the major data comes to us tomorrow in the guise of the 2nd estimate of economic growth for the 1st quarter of the year. Traders will clearly be keeping their powder dry for that but the USD is being bought for its safe haven status and that has propelled it to its strongest levels against the Euro in 22 months and towards the bottom end of its trading range against the Pound.
And Italian Prime Minister Mario Monti needs that book about making friends and influencing people. You know the one. What’s it called? Oh yes, ‘How to win friends and influence people’, that’s it. In a country where football is the 2nd most popular religion, Mr Monti suggests football should be banned for 5 years as a penalty for all the match fixing and betting scandals that have shocked the country over the last few years. As he was not elected as such, he is probably not well placed to say such things and he certainly won’t be getting re-elected if he persists with the plan. It would be like David Cameron banning tea or something equally British like... chicken tikka masala. Unthinkable.
Quote
Robert ran Robert’s Antiques, a store in a Surrey village high street and he was doing a roaring trade right up until the shop next door was taken over by another antique dealer. The new neighbour erected a large sign, which read, BEST ANTIQUE DEALS IN TOWN.
Trade in Robert’s Antiques slumped but things got even worse when another antique dealer set up shop on the other side of him, and erected an even larger sign, which read, FINEST QUALITY ANTIQUES AT THE BEST PRICES IN THE SOUTH OF ENGLAND.
Robert thought his business was destroyed, until he had a bright idea. Next day he erected an even bigger sign, right above his own shop doorway, it read, MAIN ENTRANCE.
