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Steen Jakobsen
Back In April, Saxo Bank’s Chief Economist Steen Jakobsen made what was widely reported to be a controversial call: sell up, he said, and take a holiday from the markets and warned that there was a USD debt margin call on the way. Now he's saying it’s time to get back to work and in what be seen as another controversial call he's looking at buying EM and commodity assets.
Article / 03 June 2014 at 5:56 GMT

3 Numbers: UK home prices, EU consumer inflation, EU jobless

editor/analyst / CapitalSpectator.com
United States
  • Odds favour UK rate hike this year
  • German inflation slows
  • EU jobless rate still high
UK: Nationwide House Price Index (06:00 GMT) A rise in interest rates in Britain before the year is out is a possibility, according to Martin Weale, a monetary policy committee member at the Bank of England (BOE). Speaking to the Financial Times last week, he said:  "If you want to have baby steps you do have to start sooner. The question is: how close are we getting to ‘soon’? Of course we can never be sure, but the economy… has sustained fairly rapid growth in demand.  "So I’m having to ask the question – and the answer is less definite than it was six months ago – where do I think the interest rate should be at the moment?"

What is definite is that the BOE’s policy rate is currently 0.5 percent, a record low. Most analysts have recently been anticipating a rate hike sometime in the first half of 2015, although Weale’s comments last week have unleashed a new round of speculation about the odds for a change in policy before this year’s close.


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Getting expensive: UK house prices are will have an effect on rates. Photo: Thinkstock

Today’s monthly update on house prices will influence the crowd’s outlook on the timing of the next increase in rates. Although inflation in Britain has been inching lower, leaving the BOE with more flexibility to delay the onset of a tighter monetary policy, sharply rising house prices have inspired predictions that the central bank will be forced to act relatively early. In its April report, Nationwide reported that house prices advanced nearly 11 percent against the same period last year - the first double-digit increase in four years. The bull market in housing has recently prompted BOE governor Mark Carney to warn that residential property market may be overheating, which poses a danger to the economic recovery.

Some analysts think that the housing market has peaked in terms of the year-over-year rates of growth. The crucial London property market could see a “natural correction” according to the chief executive of Nationwide, Graham Beale. Speaking to BBC last week, he pointed to a “slowing down in the market place”. If today’s update confirms that outlook, the case for an earlier-than-expected rate hike will ease.

uk.house.03jun2014




Eurozone: Consumer Price Index (09:00 GMT) Lower-than-expected inflation rates in yesterday’s updates for Germany, Italy and Spain raise the odds that the European Central Bank (ECB) will roll out a new phase of stimulus at Thursday’s monetary policy announcement.

Notably, Germany’s inflationary trend slowed sharply last month. Using the harmonised methodology for the European Union, the annual pace of inflation decelerated in Europe’s leading economy, rising just 0.6 percent last month against a year ago. That’s well below the 1.1 percent gain through April. Considered in context with the slightly lower inflation rates in Italy and Spain last month, the news sends yet another signal for thinking that the Eurozone is at risk of deflationary fallout without a stronger response from the ECB.

The latest numbers also suggest that today’s update on Eurozone inflation will slow. One analyst projects a year-over-year rate of 0.5 percent through to May, down from the annual comparison of 0.7 percent in April. Keep in mind that the ECB will probably act, or not, based on its internal forecasts for the medium-to-long run horizon. Nonetheless, it’s going to be hard to ignore Germany’s dramatic slowdown in inflationary pressure of late.

It’s not just inflation that’s putting pressure on the ECB to act. For instance, manufacturing growth in Germany decelerated to a seven-month low in May, according to yesterday’s release of business survey data from Markit Economics. The pace of growth in manufacturing also slowed in the Eurozone last month, according to the purchasing managers index (PMI) for last month.

“If you look at the broader array of economic data that is currently out there, then pretty much all of it points to the need for further stimulus,” the chief European economist at RBC Capital Markets told Bloomberg yesterday. Not surprisingly, Bloomberg’s latest survey of economists shows that a majority expect the ECB to cut interest rates on Thursday.

eu.cpi.03jun2014

Eurozone: Unemployment (09:00 GMT) Released simultaneously with the inflation report, today’s update on the jobless rate in Europe will provide additional insight for deciding if the ECB will introduce more monetary stimulus on Thursday. Although the official estimate of unemployment has declined in recent months, the progress has been marginal. Indeed, 11.8 percent of the Eurozone’s workforce remains unemployed as of March, a number that surely underestimates the true extent of the jobless.

On a somewhat more positive note, the number of newly registered jobless workers continues to inch lower, which suggests that there’s still some progress in the labour market. But the decline is hardly robust and so even the optimists must concede that the pace of job creation across Europe is statistically insignificant in terms of what’s required to mend the broken state of macro across the Continent.

Employment in the cyclically sensitive manufacturing sector is still growing, but the rate of expansion decelerated, according to the final data for Markit's Eurozone Manufacturing PMI in May. Although there’s still enough forward momentum to keep Europe’s overall jobless rate steady in today's release, that’s hardly encouraging given the elevated level of unemployment. It wouldn’t be surprising to see the jobless number for April match the previous update, but that will be meaningless if disinflation is accelerating while economic growth remains muted at best. In short, today’s release will likely underscore what’s still missing: a convincing decline in the unemployment rate that will shake Europe out of its slump.

eu.unemploy.03jun2014

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