The pound lost ground across the board on Monday as confusion reigned about interest rate policy, decidedly mixed economic data, rising political worries in the Middle east and the New Zealand earthquake eat into confidence.
Andrew Sentence, a member of the 9 strong Monetary Policy Committee (MPC) at the Bank of England (BoE) accused his colleagues of being “over optimistic” about the outlook for inflation in the UK.
The Council for Mortgage Lenders (CML) advised of further tough times for the housing market with mortgage lending tumbling to a 12 month low after falling 13% in January. CML economist Peter Charles had few words of comfort for the housing market pointing out the “significant funding challenge” faced by Britain over the next couple of years with up to £500 billion of wholesale term debt due to mature by the end of 2012, suggesting the level of activity in the mortgage market is expected to remain constrained for some time to come.
The euro was firmer after better than expected data. According to the Markit Purchasing Managers’ Index, euro zone factory output rose to 58.4 points in February, the strongest expansion since July 2006. Markit said it was “one of the strongest growth rates in the near 13 year history of the survey”. Any value above 50 indicates expansion in the manufacturing sector. Separately, the German Ifo institute said its closely watched business confidence index had also risen, its ninth consecutive month-on-month rise.
Oil prices hit a new 2 1/2 year high yesterday as traders reacted to increasing violence in major producer Libya, responsible for over 2% of world oil production which fed investor fears about rising inflation and unsettled other markets.
Globally, equities were lower despite the U.S. markets being closed for the President’s holiday with Hong Kong’s Hang Seng index down over 500 points (2%) on the day’s trading.
The risk aversion theme is likely to continue with the sad overnight news of the New Zealand earthquake and the loss of so many lives. New Zealand is a major exported of so called ‘soft’ commodities.
Commentary by Tony Redondo
“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”
