Alpari: Fundamental Analysis
Bank of England Could Raise Base Rate in Middle of 2016. July 14
According to an announcement made by the US ministry of finance, the US budget deficit in June remained at a seven-year low due to improved prospective economic conditions in the country, resulting in an increase in incomes.
The US had a budget surplus in June of 52 billion dollars. For the previous few decades, a June budget surplus has been achieved due to the tax receipt payments from companies and individuals which are paid at the end of the month. The budget deficit for the year, which comes to an end in June, has fallen by 20% in comparison with that of last year and as such stood at 431 billion dollars. This is the second lowest deficit since August 2008.
The condition of the budget this year improved due to a growth in incomes and a speeding up of economic growth, this is even despite an increase in government expenditure. Government revenues over the past 12 months to June (inclusive) have increased by almost 9% in comparison with those of the same period a year ago, whilst expenditure increased by just 4%. Since the beginning of the financial year in October 2014, the budget deficit in June has fallen to 313 billion dollars from 366 billion in the same period last year.
However, the improvement in the financial situation did not allow for any end to conflicts between the Republicans and the Democrats in the US House of Congress with regards to planned expenditure over the next financial year; a year which is due to begin on 1st October this year. Meanwhile, Congress is yet to raise the state debt limit.
According to data published today, the June Harmonised Index of Consumer Prices (HICP) from Germany saw a fall of 0.2% in comparison with values from May. As a result, the yearly inflation rate in the country fell to 0.1% from May’s 0.7%. A sharp fall in the YOY inflation rate was directly linked to price movements on energy, the level of which was 5.9% lower than that of June last year. Without taking energy into account, the YOY inflation rate in June stood at 1.1%. A slowing in the yearly inflation rate in Germany throughout June says a lot about how the ECB’s bond purchasing programme hasn’t really achieved the desired effect as of yet in the Eurozone’s largest economy.
According to the statistics, the ZEW economic expectations index in Germany was down to 29.7 in July from a value of 31.5 in June. The July value is the lowest since November 2014: back then the index was 11.5. This indicator has not seen a fall for four months running. This also means that Europe’s largest economy is losing pace.
The quarterly ECB survey on bank lending gives cause for optimism. Lending standards for companies and mortgage issuance have been eased in the second quarter, whilst demand for credit from companies and for housing has seen a rise.
May’s manufacturing production in the Eurozone fell by 0.4% in comparison with that of April, but was up by 1.6% YOY. In April, manufacturing remained almost unchanged, whereas in March it was down. This means that the last time the indicator saw a month on month growth was back in February of this year. Manufacturing in the Eurozone still remains at a level lower than that observed before the 2008 financial crisis and this is highlighted by a very slow economic growth rate.
The euro/dollar is trading at 1.1020. Further movement on the pair will be defined by developments in the Greek question: we could see the first bit of news coming out of the Greek parliament tomorrow. It’s likely that there’ll be another political crisis in the country since the prime minister, Tsipras isn’t going to put creditor reforms into place just like that.
In June the UK’s year on year inflation was again at 0 since retail shops had begun their summer sales. In comparison with the same period last year, consumer prices in June stood on the spot after a rise of 0.1% in May. As a result of the sales, June’s prices of food products and clothing were down in comparison with that of May. Inflation in the price of air transportation grew by less than a year ago, offset by a reduction in fuel costs.
The Bank of England is forecasting that there will be a renewal of inflation later this year and investors are waiting for the central bank to put up their base rate; something expected at some point in the middle of next year. The UK’s central bank has indicated that the softening of monetary policy has had a positive effect on the region’s economy. Low levels of inflation are strengthening the position of believers in liberal monetary policy.
The Bank of England’s governor, Mark Carney, announced today that the third aid program agreement to be concluded between Greece and its creditors will demand a Titan effort from all sides. Furthermore, Carney outlined that the moment for increasing interest rates is nearing and this caused a rise in the pound to 1.5584 against the dollar and to 0.7071 against the euro.
Today it’s worth having a look at the US’ retail trade figures and the changes in oil reserves in data from the API.
Darya Zhelannova, Alpari
