A warm welcome to Mr Carney

Mark Carney couldn’t have planned his first day as Governor of the Bank of England any better than this; not only is the sun shining in London, but we also have two British players in the last 16 of Wimbledon and the economic data is starting to play ball as well.

Up first was a solid manufacturing PMI reading for June, rising to 52.5 from 51.5 in May, which was the strongest reading since April 2011. This is equivalent to a 0.5% quarterly growth rate, according to Markit, who put the survey together. While business orders are coming in, the employment sub-sector of the index was disappointing. However, unemployment is a lagging indicator, so it could take some time before it catches up with the headline data.

The UK outpaces Germany and China…

What is most astounding about the UK’s PMI reading is that it is significantly better than readings from export powerhouses like Germany and China. Obviously, this is not an apples-to- apples comparison as the UK is very different from the economies of Germany and China. So why is the UK expanding and these two contracting? It could be because the UK is more sensitive to a slight improvement in the Eurozone’s economic prospects (for example, Spain and even Greece had positive PMI surprises today), which is the UK’s largest trading partner. In contrast, since China is not such an important trade partner (not yet, anyway), the UK is more protected from the slowdown in the Asia powerhouse compared to Germany, which has strong trade links with Asia.

Mr Carney – bank lending top of agenda

It appears that the good news for the UK economy just keeps coming: mortgage approvals also rose to their highest level since the end of 2009. Over 58,000 mortgages were approved in May, suggesting that the UK housing market is getting back to its previous level of health. But while banks don’t mind lending to home buyers who have a large asset like a house to act as security, they are still keeping the purse strings tight when it comes to business lending, with credit to businesses falling GBP 1.27 bn in May. This is the weak spot in the UK economy that Mark Carney would be wise to tackle first, if credit to business remains constrained, it’s hard to see how the UK can keep up with business innovation that is needed to compete on the global stage. Thus, Mark Carney’s first move at the BOE could be something unconventional, like a UK version of the LTRO, to try and unblock the credit channels to some of the UK’s struggling businesses and entrepreneurs.

Spain shows encouraging signs of growth after 2 years

The European data was also encouraging. Readings for Spain and Italy reached a 26 and 23-month high, respectively, while Austria and Greece also performed well along with France. The two biggest disappointments were Germany and Ireland, who had been some of the best performers in recent months. Falling labour costs could be one of the reasons for Spain’s positive reading.

Each silver lining has its cloud in the Eurozone

However, as ever with the Eurozone, every silver lining has its cloud. The unemployment rate for May rose to another fresh high of 12.1%, although that was a touch below the 12.3% expected. Italy saw its unemployment rate climb to its highest ever level of 12.2%. Italy has an acute problem: only a little more than 50% of the population is in employment, while the youth unemployment rate is still hovering close to 40%, although it dropped in May relative to April. It’s hard to see how Italy and other Eurozone countries can reduce their budget deficits with unemployment problems that are now structural rather than merely cyclical.

Market notes

The stock market is the biggest reflection of the better tone to economic data in the Eurozone and UK this morning. The FX market is slightly more mixed. Although EURUSD and GBPUSD are higher today, the rallies have been a little lacklustre and are barely making a dent into last week’s losses. Some major resistance levels are on the horizon for these crosses. 1.3060-75 (a cluster of daily smas), could thwart the EUR bulls, while GBPUSD is looking a bit tentative ahead of 1.5295 – the 100-day sma. Overall, we could see some consolidating ahead of payrolls of ECB and BOE Meetings later this week.

There is a packed data schedule and some major central bank meetings to contend with in the next few days, along with the US 4th July holiday that could cause trading volumes to drop later this week. It should be an interesting 5 days ahead.

Источник: Forex.com

01.07.2013