Gloomy housing sector data and continued layoffs led to a subdued Wall Street opening as investors played safe with their profits after a succession of session gains.

Investors were also reacting to a warning from [...]]]> US investors opt to take profits on release of disappointing data and as Bernanke warns that America must curb its budget deficit.

Gloomy housing sector data and continued layoffs led to a subdued Wall Street opening as investors played safe with their profits after a succession of session gains.

Investors were also reacting to a warning from Federal Reserve chairman Ben Bernanke that Congress and the Obama administration must start plotting a strategy to curb record-high US budget deficits.

Failing to do so could eventually erode investor confidence and endanger the economy’s prospects for long-term health, he said.

Testifying before the House Budget Committee, Mr Bernanle said: “Even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”

The White House estimates that the government will rack up an unprecedented $1.8 trillion budget deficit this year. That would be more than four times last year’s all-time high.

The Dow Jones industrial average was down 71.76points, or 0.82 per cent, lower at 8,669.11.

A survey by ADP, a payroll business, revealed that the US private sector shed 532,000 jobs in May – better than 545,000 in April but slightly higher than the 525,000 estimated.

The US Mortgage Bankers Association also said mortgage applications fell 16.1 per cent for the week ended May 29.

The CIPS/Markit purchasing managers’ monthly survey on the services sector did little to help the FTSE 100, which continued its downward spiral, slumping by 108.8 points, or 2.43 per cent, by mid-afternoon.

Heavyweight blue chips were to blame for part of the fall as they began to trade ex dividend.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

Yields on 10 year Treasury bonds have risen relentlessly since March when the Fed first announced its plan to buy $300bn (£188bn) of US [...]]]> The US Federal Reserve Board (FED may soon be forced to launch fresh blitz of quantitative, or risk seeing economic recovery snuffed out by the latest surge in long term borrowing costs.

Yields on 10 year Treasury bonds have risen relentlessly since March when the Fed first announced its plan to buy $300bn (£188bn) of US government debt directly, a move that briefly forced rates down to nearly 2.5pc, a level thought to be the Fed’s implicit target.

Yields have jumped to 3.69pc – after spiking as high as 3.74pc on Wednesday – pushing up the standard 30-year mortgage loan to 5.08pc and lifting the borrowing cost for corporations.

The US Mortgage Bankers Association yesterday highlighted the fragility of the US housing market, reporting that 12pc of homeowners are either behind on their payments or facing foreclosure, the highest level since records began.

Almost 6pc of “prime” borrowers are in arrears, showing how far the crisis has moved beyond the sub-prime. Most arrears are caused by job losses. The US unemployment rate has reached 8.1pc, and is even higher under older definitions, running at 15.8pc under Clinton-era metrics.

It is unclear why US bond yields have spiked so violently, with spill-over effects on gilts and bunds. One camp of investors is worried that inflation is rearing its ugly head again: others fear a sovereign debt crisis as over-extended states loses their AAA ratings.

What is clear is that the market choked on $100bn of US Treasury debt issued in three auctions this week, and on the knowledge that Washington must raise a further $900bn by September. Governments around the world must fund $6 trillion of deficits this year, exhausting the capital markets.

The US is at the front of the firing line. Beijing is clearly losing its patience with the Fed’s policy of printing paper, seen as a form of stealth default. There is some risk that further moves to step up quantitative easing could cause China to boycott US Treasury auctions. China and Japan together hold 23pc of all US federal debt.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

The European Central Bank is now following the policy first adopted by the Bank of England and America’s Federal Reserve

The European Central Bank has cut interest rates a quarter point to a record low [...]]]> Rearguard action by Germans to stave off ‘undesirable option’ dismissed by central bank’s governing council as ECB cuts loans rates to 1%.

The European Central Bank is now following the policy first adopted by the Bank of England and America’s Federal Reserve

The European Central Bank has cut interest rates a quarter point to a record low of 1pc and embraced quantitative easing (QE) for the first time, catching markets off guard with plans to buy €60bn (£53.5bn) of covered bonds.

The hotly disputed move to purchase assets brings the ECB into line with the central banks of the US, Britain, Japan, among others, that have begun “printing” money to stave off debt deflation.

This is likely to morph into fully-fledged quantitative easing. It’s how the Fed began last October when it started purchasing commercial paper.

The step-change in policy follows an open clash within the ECB’s governing council over its handling of Europe’s worst slump since World War Two, pitting national governors from southern Europe and Ireland against the ECB’s German-led hawks.

Bundesbank chief Axel Weber has fought a rearguard battle to head off QE, calling it an “undesirable option” that risked inflation later.

The majority also overruled his insistence on a 1pc “floor” for interest rates. Jean-Claude Trichet, the ECB’s president, said the bank had not ruled out further cuts, “depending on future circumstances”.

The refusal to accept Frankfurt’s lead is a turning-point for ECB, which inherited its authority a decade ago from the Bundesbank. The upsets touches on a raw nerve in Germany where critics have always suspected that EMU would turn “soft”. It may set off a political backlash.

Mr Trichet said covered bonds were picked because they have been hit hard by the crisis, but refused to rule out further assets later. The exact details are to be agreed at the ECB’s June meeting.

Covered bonds or “Pfandbriefe” form the AAA backbone of Europe’s mortgage markets. “They are a very safe asset, so this is the least controversial market,” said Mr Callow.

The ECB also extended its liquidity scheme from 6 to 12 months and opened its window to the European Investment Bank, giving it a new crisis role.

David Marsh, author of The Euro – The Politics of the New Global Currency, said the ECB is loath to follow Anglo-Saxon banks in purchasing government bonds because this would give most help to big debtors such as Greece and Italy. “They don’t want to be seen as bail-out merchants by acting as a bond purchaser of last resort for hard-pressed nations,” he said.

The ECB has been widely criticised for its slow response over recent months, although it has quietly let its overnight deposit rate fall to 0.25pc. “The ECB needs to get ahead of this like the Bank of England or we’ll face a Japanese scenario for the financial system,” said Marco Annunziata, economist at Unicredito.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

The market wanted to see more [...]]]> Last month the European Central Bank (ECB) surprised the markets by only cutting interest rates by 25 basis points to 1.25%- a record low but when compared against the UK interest rates of 0.5% and against the US of 0-0.25% then comparatively still high in the current global climate.

The market wanted to see more aggressive action amid rising unemployment and shrinking growth and all eyes will turn to the next ECB rate decision on Thursday. It is expected that another 25 basis point cut to 1% will materialize and the ECB may engage in additional “non conventional” measures- basically some form of Quantitative Easing to help the economy.

The European Union’s economic affairs commissioner recently declared that the European economy was in the “midst of its deepest and most widespread recession in the post-war era” and the euro zone will contract by 4% this year- this is more than twice than forecast in January.

In addition ECB president Jean- Claude Trichet is struggling to keep the ECB’s governing council united with the 22 members split in opinion on how far interest rates should be cut and whether the ECB should buy financial assets from the banks- so much is the wrangling that a vow of silence has been imposed on officials!

The German finance minister Peer Steinbruck has also noted concern that “competitive imbalances have built up within the euro area, increasing the exposure of some member states to the financial turmoil”. There is also a worry of other countries losing their competitiveness within the eurozone- in particular Italy and Greece.

Stateside, the Fed plans to deliver results of stress tests on US banks to executives today that may show about 10 firms need additional capital to weather a deeper recession. An obvious way for banks to fill their capital requirements is via conversion of preference shares to common shares.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

On the upside the FED [...]]]> The Fed stuck to their guns following the March announcement that they will still purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year, as well as $300 billion of Treasury securities by autumn.

On the upside the FED noted that the “pace of contraction appears to be somewhat slower” which allies with the surprising surge in US consumer confidence and there was also signs that the market was beginning to repair itself outside of intervention.

Before we get carried away and start talking of an imminent recovery we must remember yesterday’s severe Q1 GDP data from the US which showed a whopping 6.1% contraction against a forecast of a 4.7% drop.

A similar theme in euro zone yesterday as we again saw improved confidence data against a downgrading of German GDP to -6.0% vs. -2.25% originally forecast.

In other news we saw an interest rate cut of 50 basis points in New Zealand to 2.50% after further weak data from their economy. The RBNZ anticipated that the “adverse economic forces generated by the crisis to remain dominant throughout 2009,” with the “timing and extent of recovery” remaining “highly uncertain.” So expect further weakness for the Kiwi dollar…

This morning we saw Nationwide House Prices resume their decline in April after rising unexpectedly in March. However the decline of 0.4% was less than expected and fuels optimism that a bottom is near…or is this another false dawn!

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That is because the purchase of government bonds by both the US Federal Reserve and the Bank of England is not helping sustain lower yields.

And it raises [...]]]> It is only a few weeks since quantitative easing programmes were launched on both sides of the Atlantic – but already the effectiveness of the measures is being questioned.

That is because the purchase of government bonds by both the US Federal Reserve and the Bank of England is not helping sustain lower yields.

And it raises the prospect that the central banks will have to increase their fire power.

The Fed has bought more than $30bn of its planned $300bn purchases of Treasury debt since the programme began late last month. In that time, after a sharp initial drop, yields have moved higher, as hefty new supply from the US Treasury continues flowing.

“The Fed’s problem is that the market realises that $300bn in Treasury buy-backs is just a drop in the bucket compared to $2,500bn in net Treasury issuance this fiscal year,” says William O’Donnell, strategist at UBS. “It’s a $300bn thumb in a dyke springing leaks everywhere.”

After falling to 2.5 per cent from 3 per cent when the Fed confirmed it would start buying Treasuries, the yield on the 10 year note is currently back around 2.9 per cent. This week’s selling of stocks has helped lower yields, but the move has been muted for now.

If 10-year US yields rise above 3 per cent, it may negate some of the recent decline in 30-year fixed mortgage rates, which are at historic lows for US home owners.

In the UK, the effectiveness of quantitative easing is also in doubt, after a euphoric start to the programme that saw benchmark yields plunge.

Yields on 10-year UK bonds have risen by about 50 basis points from a low of 2.91 per cent after the Bank of England announced plans to buy up to £75bn ($110bn) of gilts on March 5.

The increase in yields is partly due to signs of risk appetite returning to the markets, which takes away a natural support for gilts and Treasuries. The recent rebound in equity markets, amid hopes of green shoots appearing in the economy, has also put pressure on government bond prices on both sides of the Atlantic.

The rise in Treasury yields has been accompanied by rising inflation expectations as investors worry that the Fed’s outright purchases of Treasuries and mortgages under quantitative easing will ultimately spark inflation.

The expected average inflation rate for the next 10 years recently touched a six-month peak of 1.5 per cent, up from 1.1 per cent last month. Such an inflation expectation, however, is very low and dealers say supply is the main issue for the Treasury market.

The Fed’s planned purchases in Treasury debt this year is a fraction of the overall $6,000bn in outstanding debt and expected hefty supply due in the coming months and years.

Over the next month, at least $200bn in net new issuance is forecast. It means that while the Fed comes in and buys an average of $12bn a week, the US Treasury will pump more supply into the market, pushing yields higher.

For dealers, competition between the Fed and the Treasury creates a favourable trading environment at a time when dealer ranks have been thinned and bid-offer spreads are wider than normal, enhancing profits.

Trading opportunities have also flourished in gilts as dealers report that most sellers to the Bank of England have been hedge funds or bank proprietary desks. Many of these groups have sold bonds at high prices to the Bank of England and then bought them back at lower prices to book quick profits, which has no impact on the economy.

That is preventing the Bank of England from driving yields on 10-year gilts down to 2.5 per cent, a level where so-called real money accounts, such as life insurance companies, are likely to sell. It is hoped that these funds will then buy sterling corporate bonds, lowering the funding costs for UK companies and helping to stimulate the wider economy.

The rise in UK gilt yields comes amid worries that the Bank of England is not as committed to quantitative easing as dealers first thought following comments by Mervyn King, the Bank’s governor, to a parliamentary committee that the programme could be eased should signs of inflation emerge. The Bank may make further comments on quantitative easing after its rate setting meeting today.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

The funds will be used to buy government debt and to liquidate Fannie Mae and Freddie Mac.

The Fed kept interest rates on hold at 0-0.25 % as expected, however the sheer scale of the plans surprised the markets. $300 billion will [...]]]> The Federal Reserve shocked the market with a $1.15 trillion boost for the US economy.

The funds will be used to buy government debt and to liquidate Fannie Mae and Freddie Mac.

The Fed kept interest rates on hold at 0-0.25 % as expected, however the sheer scale of the plans surprised the markets. $300 billion will be made available for longer term treasury securities and $850 billion for the ailing Fannie Mae and Freddie Mac.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

Attention therefore was firmly fixed on any mention of more innovative easing initiatives and also the mood of the accompanying statement. [...]]]> With a target Fed Funds Rate ( the rate at which The US major Banks are able to borrow overnight Dollars) already at a 0 – 0.25% level, further cuts are nigh on impossible.

Attention therefore was firmly fixed on any mention of more innovative easing initiatives and also the mood of the accompanying statement. The Fed did not specifically announce a programme of longer term asset buying as part of a shift towards quantitative easing but just confirmed that the current low levels of interest rates were going to be with us for some time to come.

Their prognosis for the economy therefore remains every downbeat with little sign yet of any move towards recovery.

Market opinion therefore is that the previously discussed plan to create an entity to buy a lot of the toxic assets held by US Banks will gather momentum and as long as the Price Is Right, this should free up additional cash for those Banks to lend on to the Corporate Sector.

Still a lot of work to be done here.

One piece of good news out overnight was that the $ 800 billion stimulus package cleared the first hurdle (Congress) on its tortuous route to becoming a real injection. The dark cloud was that not one Republican member voted in favour.

It looks as though Obama is going to have a real battle if he is determined to have these measures approved across the political spectrum. The Dollar and Wall Street however both took heart with the currency making strong gains across the board.

Today sees the auction of $ 30 billion of 5-year notes – a massive amount but it will be vital for the rest of the programme that the sale goes well.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

The decision was unanimous amongst the Board, and the [...]]]> The Federal Reserve, at their meeting yesterday evening, cut the Federal Funds target rate (the rate at which US Banks can borrow in the overnight) by a massive 75bp to a range of 0% to 0.25% and was additionally very aggressive in the statement that followed.

The decision was unanimous amongst the Board, and the Committee expanded by stating that they were committed to keeping the rate at “exceptionally low levels” for “some time.” Quantitative easing itself was not mentioned but there was reference to less conventional methods for the continuation of current policy.

Given that the rate is now essentially zero, economists feel like this was as aggressive as the Fed could get without getting into dangerous territory. Wall Street surged and the Dollar collapsed. This morning, stocks have retraced and the Dollar remains weak. The outlook for the Dollar has to remain a little rocky in the near-term, more-so against the Euro than Sterling with a distinct possibility of seeing 1.4700 before the Euro tops out.

Sterling is struggling to keep up with the Euro so far which isn’t surprising given that this morning’s release of the minutes from this month’s MPC meeting showed a 9-0 vote in favour of the 1% cut and that the committee discussed the possibility of making an even larger cut.

The Fed’s action has now instilled in the market the view that the MPC will be compelled to act aggressively and likely sooner rather than later. the ECB, however, are seen to be dragging their feet especially given Trichet’s hawkish comments that there were €˜limits to rate cuts. Sterling again hits an all time low against the Euro this morning.

Today we watch and wait. We have a CBI survey released later this morning and the interest rate decision from the Norges Bank this afternoon. Otherwise we will look to Wall Street opening as the catalyst for the next move.

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The Senate in the US last night, rejected the $14 billion bail-out plan that would have seen a deferment of the cash crisis at GM and Chrysler much to the dismay of markets that were still operating at the time of the [...]]]> looks like an absolute disaster for Stocks, Commodities and just for a change, Sterling.

The Senate in the US last night, rejected the $14 billion bail-out plan that would have seen a deferment of the cash crisis at GM and Chrysler much to the dismay of markets that were still operating at the time of the decision.

The Dollar spiked to 1.3400 against the Euro but eased back again and the stock futures indicated lower openings today. They weren’t wrong. Global auto manufacturers shares have plunged on the opening of the European bourses with fears that Wall street is going to be a bloodbath.

European banking stocks are also on the slide following the trading update from HBOS (ahead of the EGM to approve the takeover by Lloyds). The Bank revised their impairment charges for the year to date by GBP 3.3 billion to give a total hit for the year of GBP 8 billion. All Banking stocks slid by just under 10%.

The main beneficiary from the turbulent Stock Markets is the US Treasury market where lower yields are being seen day by day. Investors are happy to swap yield for security at present.
Interest rates continue to ease.

Taiwan joined the Koreans and Swiss in cutting rates yesterday and with India’s factory output falling for the 1st time in 13-years, expect the Reserve Bank to be cutting Rupee rates sometime very soon. Russia were also very high profile in the managed devaluation of the rouble. So with all this going on, and a global recession still very much deepening, why is it that Sterling looks so weak and the Euro and Yen so strong?

Given that the latter 2 currencies come from different ends of the interest rate spectrum then it can’t be down to yield. Therefore, you have to work on the basis that every industrial country in the world is now looking to allow their currency to devalue in order to make their exports more attractive so that demand from abroad kick starts their own economies.

All well and good in normal times but it is very obvious that not all currencies can devalue at the same time (at least one has to be the recipient of the diversification and appreciate) and it is the Euro and Yen that are adopting this role for now.

The €˜for now is very important because it implies that in order to emerge from their own recessionary periods, the economies in Euroland and Japan will need the added stimulus of weaker currencies.

Therefore Sterling’s weakness does look temporary, if not overdone, BUT in the short term the market has 0.9000 in its sights. The saving grace might be the declining numbers of participants in the market as we get closer to the Xmas holidays.

In the meantime, Sterling has again made record lows against both the Euro and its Trade Weighted basket.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

However, they decided that a cut of this magnitude might have serious adverse effects on the value of the [...]]]> The minutes from this month’s Monetary Policy Committee meeting revealed that the MPC recognised the need for a cut in rates of at least 200 bp to ensure that their long-term inflationary goals would be met.

However, they decided that a cut of this magnitude might have serious adverse effects on the value of the currency and hence distort inflation measures in the short term. They also decided to keep at least some of their powder dry so that additional easing could be introduced at later dates in order to try and improve sentiment as/if the economy worsens.

On the back of this it looks odds on that we will see a further cut at the December meeting with the market looking for a 0.50% move lower in rates. Period rates ought to continue to ease on this assumption but so far, there has been little evidence of this happening to any great degree.

Yesterday, we also had the presumed gloomy CBI Manufacturing survey and the market was not disappointed. Despite a small up-tick in the orders index, the overall report was awful with the November index of expected orders falling to a 28-year low. More ammunition for the €˜further rate cuts brigade.

Today will bring the October data for UK Retail Sales. There is absolutely no doubt that the figures will be grim following press reports of dismal High Street conditions and pre-Xmas sales announcements from such stalwarts as Marks & Spencer, John Lewis and Debenhams.

It would not be a surprise if, even in the Xmas run in, we saw a complete standstill in consumer spending y-on-y although the expectations are for a small rise.

The Federal Reserve minutes from the last meeting were also out yesterday afternoon but followed a similar pattern to the UK version. The Board revealed a gloomy economic outlook with potential for further monetary easing. They lowered their estimates for GDP and increased their projected unemployment level, both for the end of 2009.

One thing that was mentioned in the minutes, and something that will crop up more and more in the future given the global economic situation plus the ultra low level of interest rates, is €˜quantitative easing. This entails a government introducing measures that not only flood the market with excess liquidity but also reduce long term interest rates.

Last used in Japan during their long period of deflation (not to any great effect for a long time I add) and likely to become more popular amongst Western Governments during a prolonged grind down in economic activity.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

Wall St [...]]]> The Federal Reserve Board duly reduced its Funds Target Rate by 25bp to 4.25% but disappointed both the stock and bond markets by reducing its Discount rate by only the same margin (the discount rate is the rate at which the large American Banks can borrow from the Fed directly as ‘emergency funding’).

Wall St crashed off and the European bourses arrive this morning braced for a similar reaction.

The Fed warned that recent economic data indicated a slowdown in the US economy as a result of “the intensification of the housing correction and some softening in business and consumer spending”.

It added: “Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation.” These comments differ markedly from those made by Fed Chairman Bernanke after last month’s interest rate cut when he sounded a relatively upbeat note on the health of the US economy.

Then it was suggested that the greater risks came from inflationary pressures due to higher energy and food prices. But with no sign of recovery in the housing market since then and the banking system still not functioning under normal conditions, analysts believe the Fed has been preparing for a sharp downturn with more interest rate cuts expected and as such were dismayed that the Fed did not move more aggressively at yesterdays meeting.

One member of the Reserve Board argued for a full 50bp cut but was out-voted by the other 9 members held firm and the lesser cut was voted through.

One interesting development that has been reported this morning is the proposal being muted at the Fed to move away from operating a discount window to provide liquidity to the market and move towards an auction based system.

A discount window is where the Fed says, here is the price that we want to lend at, who wants it? An auction, would be where the Fed says, we want to lend this much, how much do you want to pay for it. Basically it is a way of guaranteeing a quantity amount of liquidity injection.

At the moment the discount window is being very underutilised. So yes, this is a fairly important innovation IF it is implemented……..

Away from the US, we saw better than expected UK trades (still a huge deficit and largely irrelevant to the market) and a weaker than expected German ZEW report which is much more worrying for the European outlook.

Little reaction in the consolidate debt loans markets on these pieces of data and as such the December doldrums do seem to be taking a firm grip on exchange rates. UK unemployment and wage data today at 9.30am is the first chance for some short term action and the perennially appalling US Trade data at 1.30pm is always good for currency gyrations – the market is expecting a shortfall on about $ 57.3 billion with import prices unchanged at +1.8%.

Of the other economies, the Norges Bank are today expected to RAISE Nowegian interest rates by 25bp to 5.25% which is the level that the Central Bank predicted would be the peak for the next 12 months. Recent inflation data however suggests that the tightening cycle is not yet over and that further increases could be necessary should inflationary pressures persist.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

Managing expectations has become a big component of the Fed’s job these [...]]]> Earlier last week, the chance of a 25 vs. 50bp rate cut was close to fifty-fifty. Now, the odds for a half point cut are less than 25 percent because the payrolls figure was not bad enough to warrant a larger rate cut.

Managing expectations has become a big component of the Fed’s job these days whether they are willing to recognise it or not. If the market is pricing in a quarter point cut and the Fed under delivers by leaving rates unchanged, they risk triggering a sharp re-pricing of the yield curve. If they over deliver by cutting interest rates 50bp, it could cause many people to wonder whether some bad news has yet to be discovered.

The Federal Reserve’s interest rate decision has the power to shift the trend in the market, but they will probably contain volatility by releasing a more cautious FOMC statement that points out the risks of both growth and inflation.

If the Fed fails to give the markets the clarity that it needs, producer prices, consumer prices and retail sales will. If inflation and spending remains strong, then the recession story gets shelved for the time being and the dollar could see a short term recovery. The other releases that we are also expecting are pending home sales, the US trade balance, import prices and industrial production.

Is the European Central Bank just talk or will they actually follow through with an interest rate cut? Unfortunately, this question will not be answered until the next ECB meeting on January 10th at the earliest. With each passing day however we have more reason to believe that the ECB could actually make good on their threats.

On Friday, German industrial production was stronger than expected while the OECD leading indicator for the Eurozone remained unchanged at 98.4. Even the Eurogroup which has previously called for the ECB to step in and stop the Euro from rising now says that the economy is proving resilient in the face of shocks.

In the week ahead, we do not have many important pieces of data other than the German ZEW survey, which has been losing its market moving potential because it has repeatedly called for a slowdown that has yet to unfold. This means that US data will probably dictate the movements in the EURUSD.

Meanwhile aside from the Federal Reserve, the Swiss National Bank also has an interest rate decision. They are widely expected to leave rates unchanged, but there is a risk for a surprise rate hike or at least hawkish commentary from the SNB.

Before Tuesday’s FOMC meeting, we are expecting producer prices and the trade balance. The UK trade deficit should improve because the export component of manufacturing PMI accelerated last month.

We already know that inflation is a problem because the latest monetary policy statement talked up the risks to short term inflation. However anything goes after the FOMC meeting because the US rate decision could shift the near term outlook for many currency pairs. On Wednesday we also have UK employment data which we expect to be pound bearish.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

For one, US personal income and spending data rose more slowly than expected, suggesting that consumer spending may cool off quickly.

At the same [...]]]> Rises in equity prices, with Wall Street well inside positive territory, helped boost the currency converters alongside month end book squaring activities, even though the afternoon’s US data was at best mixed.

For one, US personal income and spending data rose more slowly than expected, suggesting that consumer spending may cool off quickly.

At the same time, however, there was more evidence of rising inflationary pressures, with the personal consumption expenditure (PCE) index growing to its highest level this year due to rises in food and energy costs

US rate cuts are expected to keep the economy from slipping into a recession and are seen by some as a positive for the dollar just now. As risk aversion begins to dissipate, the yen and Swiss franc are coming under pressure with the reemergence of carry trades.

Speaking on Friday, Federal Reserve chairman Ben Bernanke signalled more openness to cutting rates again on December 11, although he stressed this would be dependent on upcoming data.

Fed policymakers will need to be exceptionally alert and flexible given the risks to consumer spending and the economy, Bernanke said in a speech overnight. Among Fridays other US data, the Chicago purchasing managers’ index was stronger than expected, rising to 52.9 in November from 49.7 in October while US construction spending was weaker than predicted.

Separately, month end book squaring also went in favour of the greenback, especially as this is the financial year end for US investment banks

In Europe, the boost for the euro from strong inflation numbers faded slightly as the trading day wore on. The single currency rose after stronger-than-expected inflation figures continued to suggest that the European Central Bank will leave interest rates on hold for the foreseeable future.

The provisional estimate for the euro zone harmonised index of consumer prices showed inflation rose to an annual 3.0 % in November, up from 2.6 % in October and above forecasts for 2.9 %.

With the headline rate likely to head even higher over the coming months, the ECB will remain in a state of high alert for signs of a wider pick-up in price pressures. This was confirmed by ECB president Jean-Claude Trichet, as he reiterated that the central bank’s prime concern is to tackle price stability.

Higher inflation will leave the ECB facing a dilemma, giving them little chance to cut interest rates to counteract a slowing economy. The risks to the economy were highlighted on Friday by woeful German retail sales figures, which revealed an unexpected slump in sales of 3.3 % in real terms during October.

Trading remains subdued and rangebound, however, with the euro making up little ground against the dollar after the US currency gained from a pick-up in risk appetite.

The Bank of England’s Monetary Policy Committee meets this week and analysts see some chance that they will opt to cut interest rates, though worries over inflationary pressures may well encourage them to hold off until early next year.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

The news offset earlier news of an upward revision to US third quarter GDP growth to an [...]]]> Although US new home sales rose by 1.7 % to 728,000, the reading came in below the 753,000 expected due to substantial downward revisions to previous months. September’s reading now stands at 716,000, the lowest rate since January 1996.

The news offset earlier news of an upward revision to US third quarter GDP growth to an annual 4.9 %, the fastest pace of growth in four years. The news had nevertheless failed to give the dollar much of a boost, given the emphasis on the weak outlook for the fourth quarter.

With a large upward revision to third quarter GDP already priced in, the greenback’s reaction was muted as players see the third quarter number as solidly in the rearview mirror. The real concern is that fourth quarter GDP may come in below 1.0 %, perhaps well below.

Meanwhile, with the outlook for US growth and interest rate differentials looking increasingly bleak, the dollar remains out of favour.

Interest rates also benefited from gains in US equity markets, though these followed suggestions by the Federal Reserve’s vice chairman Donald Kohn overnight that interest rates will be cut in December.

There is growing speculation that the Bank of England will cut interest rates possibly as soon next month, or at least early next year. This followed a very busy day in the UK. Bad news came on the housing front, with the latest Nationwide survey showing a 0.8% monthly fall in house prices, the biggest drop for 12 years, while the Bank of England reported mortgage approvals at their lowest since February 2005.

This was somewhat offset by a stronger-than-expected CBI retail sales survey, which also showed a massive jump in high street prices, but the market largely shrugged this off. The testimony by members of the Bank of England’s Monetary Policy Committee before MPs yesterday morning highlighted the highly uncertain outlook for the UK economy and the risks of both a sharp slowdown in economic growth and a spike in inflation.

This left market players concluding that rate-setters are edging nearer to cutting interest rates, but next week’s decision is certain to be a very close call.

While the incoming economic news has made the case for an immediate cut far from clear, the recent resurgence in financial market turmoil may prompt the MPC into action. Even if the nine-member body opt to hold fire for the time being, however, they will not put off the inevitable for much longer.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

The central bank chief said the Fed is ready to counter the inflation risks caused by high oil prices, suggesting US rate-setters will be reluctant to lower interest rates further despite some signs of slowing growth.

Further sharp [...]]]> Mortgage calculators were abuzz in the immediate aftermath of comments from US Federal Reserve Bank chairman Ben Bernanke.

The central bank chief said the Fed is ready to counter the inflation risks caused by high oil prices, suggesting US rate-setters will be reluctant to lower interest rates further despite some signs of slowing growth.

Further sharp increases in crude oil prices have put renewed upward pressure on inflation and may impose further restraint on economic activity. There is no Goldilocks scenario from Bernanke who sees risks from inflation and an economic slowdown, the worst of both worlds.

Loans markets have been expecting the Fed to cut interest rates again in December, following reductions in the Fed Funds rate totaling 0.75 percentage points since the summer.

The central bank has said these cuts, bringing the benchmark rate to 4.50 %, were a pre-emptive move to stave off an economic slowdown as the housing market continues to decelerate and financial markets slowly recover from their turbulent summer.

The UK markets strengthened after the Bank of England held rates at 5.75 %, quashing a growing minority view that it could reduce borrowing costs following a weak run of data.

Nonetheless, analysts are convinced the next move in interest rates will be down, and some are speculating on a cut as early as next month.

With the economy facing the headwinds of previous interest rate hikes, considerable sterling strength, tightening credit conditions and rising energy costs, we see no need for the repo rate to remain at the present restrictive level of 5.75 %.

Loan calulators expect the first 25 basis point ease by February at the latest, with the clear risk that the BoE could begin as early as next month if leading indicators continue to soften rapidly.

The European Central Bank also held rates, at 4.00 %, a decision fully expected by markets. Most analysts believe the central bank will keep rates unchanged for some time as it tries to balance increasing euro zone inflation pressures with slowing growth.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and debt consolidation.

Although lower interest rates can jump-start an economy, they can also weaken a currency as investors [...]]]> The Federal Reserve lowered a key interest rate by a quarter percentage point to 4.5 %. The Fed’s statement was intended to signal a continued openness to cutting rates, while indicating that inflationary pressures made doing so risky.

Although lower interest rates can jump-start an economy, they can also weaken a currency as investors transfer funds to countries where their deposits and fixed-income investments bring higher returns.

Mortgage calculators are not buying into the relative hawkishness cropping up in this month’s statement. While the outlook for the Fed is between further rate cuts and no rate cuts … rates will remain unchanged if not go up for foreign banks.

The rate-cut announcement, while expected, drove the dollar down, even as new U.S. data showed the economy grew at a 3.9 % pace in the third quarter, the fastest pace in 1 1/2 years. A second report showed that construction spending rose 0.3 % in September, the best showing in four months.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and debt consolidation.

New orders for durable goods fell 1.7 % in September, compared with forecasts for a 1.5 % rise, pulled back by a major retreat in defence spending and [...]]]> Loans rates remained under pressure following a slew of weak US data, which intensified calls for the Federal Reserve to cut interest rates at its meeting next week.

New orders for durable goods fell 1.7 % in September, compared with forecasts for a 1.5 % rise, pulled back by a major retreat in defence spending and smaller declines in orders for autos and computers.

With the loans market expecting an upward bounce to durable goods following the sharp decline in August, the negative surprise is contributing to the post-G7 US dollar pessimism that is likely to push the greenback to fresh record lows against the majors.

Elsewhere, the Labor Department said that new claims for unemployment insurance in the week ending Oct 20 fell just 8,000 to 331,000, compared with expectations that they would fall further to 320,000 new claims.

And while housing data revealed that new home sales rose 4.8 % in September to a 770,000 unit annual rate, this was still below expectations for 775,000 and was tempered by a sharp downwards revision to August’s figure by 60,000 to a 735,000 unit rate, the lowest level since October 1996.

Mortgage calculators suggest that markets are largely pricing in the probability of another interest rate reduction by the Federal Reserve next week.

The overwhelming likelihood now is that the Fed opts for an Oct 31 Halloween ‘treat’ of a 25 basis points rate cut as opposed to a ‘trick’ of holding on rates for more data. In September, the Fed unexpectedly cut its key Fed funds rates by 50 basis points to 4.75 % due to tightening credit conditions, which it feared could intensify the economy’s slowdown.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and debt consolidation.

Worries about the economy, the [...]]]> The US loans markets rose sharply after existing home sales came in at a five-year low and confidence data fell to its lowest in almost two years. Weak US data is prompting speculation that the Federal Reserve will cut interest rates again following its half-point cut to 4.75 % last week.

Worries about the economy, the prospect of further Fed easing and the negative knock-on from the financial upheaval continues to bear down on the markets.

Next up on the US data calendar are durable goods orders today at 12.30 GMT. We expect a 3.1 % decline in August following July’s 5.9 % increase.

The GfK market research institute said its consumer climate index for Germany is forecast to fall to 6.8 points in October from 7.4 points in September, which was revised down from 7.6 points. The October reading missed economists’ expectations for a smaller decline to 7.0.

Signs that the liquidity crunch is affecting euro zone sentiment could boost speculation that the European Central Bank will have to cut interest rates from the current 4.00 % in the coming months.

Calls have been growing for a cut to weaken the euro, which is seen to be hurting exports from the euro zone, although the ECB has been quick to resist political pressure thus far.

The BoE survey coincided with second-quarter GDP data, which showed annual growth revised up to 3.1 %, and figures showing the UK current account deficit narrowed in the second quarter.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and debt consolidation.

The central bank is trying to prevent a severe economic slowdown following the collapse of the US subprime lending market. Fisher said [...]]]> Loans markets had been anticipating comments from Fisher and Fed chairman Ben Bernanke yesterday for clarification on the Fed’s thinking when it cut rates by a half point last week to 4.75 %.

The central bank is trying to prevent a severe economic slowdown following the collapse of the US subprime lending market. Fisher said the Fed would have risked ‘unacceptably slow economic growth’ had it not cut interest rates last week.

He said that recent trends on inflation provide ‘some wiggle room to adjust our course’ on rates, and that if a further correction either toward growth or against inflation is needed, ‘we will make it’.

Highlights of the US data released this week include today’s existing home sales and consumer confidence, Wednesday’s durable goods orders, and Thursday’s new home sales.

Meanwhile, further hints of Fed thinking will come as Bernanke speaks again on Thursday.

French President Nicolas Sarkozy is at the fore of this movement and recently described the euro at 1.40 usd as a ‘problem’ for euro zone economies. He also applauded the US Federal Reserve’s half-point cut in interest rates last week.

The European Central Bank, which has independence over monetary policy, has refused to heed political pressure to cut interest rates as it is determined to keep inflation under control. Its benchmark interest rate is currently 4.00 %.

On the other hand, the BoE left its Bank rate on hold at 5.75 % this month since it said turmoil on financial markets, a consequence of the US subprime collapse, was clouding the economic outlook. Markets will be keen to see how much of the BoE’s anti-inflationary leaning has survived the market turmoil and credit crunch.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and debt consolidation.