And here I was thinking all Banks were bad!

Week commencing Monday 3rd September 2012

Overriding Market Themes

The British Chambers of Commerce has called on more government spending on infrastructure as it predicted that the economy would contract by 0.4% in 2012. This will make uneasy reading for the coalition government, especially as the highly respected industry body slashed its 2013 growth forecasts from 1.9% to 1.2%. The main reasons for the slump continue to be the Eurozone crisis and a sharp rise in food and oil prices, squeezing household incomes across the country. Other growth measures which they mentioned include the creation of a business bank, and the Bank of England support for small business borrowing. Chancellor George Osborne seems to have won their favour, with their praise on his current policies on benefits, although it appears it is not enough. 


Across the channel, unemployment in the 17 nation Eurozone has hit a record high of 18 million in July, according to the EU statistics agency. The highest rate was recorded in Spain, with a 25.1% unemployment rate, whilst Austria seems to be bucking the trend with a rate of just 4.5%. Indeed, the most alarming statistic however is in the southern Eurozone countries; especially Greece, which has recorded jobless rates of over 50% in the under 25’s age group. One of the greatest challenges for the euro is to curb this massive decline in jobs within the economy, and the challenge only gets compounded with the loss of youth employment. And we thought it was bad over here!


In Spain, the government is creating a ‘bad bank’ into which it will move all the toxic property assets of its debt laden banking sector. The move, which many believe will save the Spanish banking system, is aimed at helping the countries troubled banks remove vast swathes of debt from their balance sheets, and reduce their borrowing costs. The Bank of Spain will assess the value of the assets being transferred into the bank, and will offer cash, debt or shares in return to banks.  


US Federal Reserve Chairman Ben Bernanke has not rules out Quantitative Easing 3 should the US economy require further boosting. His words fuelled volatility in the market after he was speaking at the annual conference in Jackson Hole, Wyoming. The US central bank has already tried to support the economy by buying USD 2.3 trillion worth of bonds, although many speculate that further easing is required. This all comes as the world’s largest economy added an extra 163 thousand jobs in July, but the unemployment rate rose from 8.2% to 8.3% as more people re-entered the workforce but failed to find a job.

GBP This Week

We start the week with Manufacturing PMI on Monday morning, with a small increase in the index from 45.4 to 46.1 expected. We then have Construction PMI and Services PMI on Tuesday and Wednesday respectively. Both should remain relatively flat, although construction may decline slightly over the month. Thursday is the big on however, with the Bank of England interest rate decision and the release of any further Quantitative Easing. Although we do not expect any further increases in either of these, although the Rate Statement will be interesting to read to see if any members are in favour or increasing the QE levels. We end the week with Manufacturing Production for the month, which should post a positive of roughly 2.1% compared with the -2.9% posted last month.

USD This Week

This should be a massive week for the US Dollar as we kick off with ISM Manufacturing PMI on Tuesday. I expect a small increase in the index from 49.8 to 50.1, indicating that manufacturers are beginning to feel somewhat bullish again. Thursday sees the release of Non-Farm Employment Change and Unemployment Claims, both of which should show declines in the number of people out of work. Lastly, ISM Non-Manufacturing PMI on Thursday should come in flat. Friday ends the week with the Unemployment rate, which should remain at 8.3%.

EUR This Week

Mario Draghi is speaking on Monday afternoon, which starts the EUR data session with a bang. He is testifying before the European Parliament's Economic and Monetary Affairs Committee in Brussels, and no doubt will get grilled on his views on how the ECB can be better positioned to deal with the Eurozone crisis. Thursday sees the ECB interest rate announcement and the Press conference, which no doubt will continue to be as dovish as before. In terms of bond auctions, we are watching the German 10 year auction on Wednesday and the French 10 year auction on Thursday.   

In Other News

Great Britain’s Paralympic medal tally continues skyward, with 15 gold’s in the book by Sunday evening. It once again proves to me that sport is very much alive and kicking in the UK, and despite some enormous physical and mental challenges these athletes have to overcome, they still do their country proud. I must confess, I have never been too interested in the Paralympics, until now. Good luck to all our Paralympians, may their epic successes continue to inspire.


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