Britain grows faster than pre-crisis peak

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Fundamental outlook  

US jobless claims continued to slide while housing market is poised for recovery. Japan has suffered a trade balance due to contractions in its export and a stagnant inflation growth. In Europe, UK’s economy has continued to strive as optimism expanded and this has surpassed the pre-crisis peak in 2008. However, International Monetary Fund (IMF) has cut back on it’s global growth estimate for the year 2014.

The US consumer prices increased 0.3 per cent in June after 0.4 per cent gains in the previous month. Excluding fresh food and energies, core data was up 0.1 per cent. Existing houses climbed to an eight-month high by 2.6 per cent to a 5.04 million annual rate in June.

US jobless claims slid 19,000 to a seasonally adjusted 284,000 for the week ended July 19, making it the lowest recorded for the past eight and a half weeks.

On the other hand, new home sales dropped 8.1 per cent to a seasonally adjusted annual rate of 406,000 units after revised figure at 442,000 annual rates in May.

In a separate report, US order for durable goods in June increased 0.7 per cent. Core durable goods, excluding transportation, gained 0.8 per cent. This showed improvement in equipment demand.

Japan’s trade deficit was larger than economists’ forecast after exports unexpectedly fell in June. Trade balance contracted 822.2 billion yen (US$8.1 billion), which was worse than forecast. Exports shrank two per cent from a year earlier, while imports rose 8.4 per cent.

Core consumer prices for Tokyo grew at an annual rate of 2.8 per cent in July, while national core consumer prices were at 3.3 annual rates. Both were in-line with expectations. Policymakers have reiterated many times to refrain from injecting new stimuli and wane market confidence.

German manufacturing purchasing managers index (PMI) was at 51.9 for July after the previous month’s revised 51.8 reading. In a separate report, data on services PMI was at 54.4, which was above forecast.

German Ifo business climate for July dropped to 108 from the previous month’s 109.7, signalling a slowdown in manufacturing and wholesale sectors, and coinciding with manufacturing PMI released earlier.

UK retail sale in June, including fuel, was up 0.1 per cent from May onwards. This was also an increase of 3.6 per cent from a year ago.

The Office of National Statistics (ONS) reported that UK’s economy grew 0.8 per cent in the second quarter (2Q) after gaining 0.8 per cent in 1Q. Growth had surpassed the pre-crisis peak in 2008 and analysts believed Britain would continue to move into expansion until year end.

IMF had downgraded its global growth forecast for 2014, citing the global economy would likely expand 3.4 per cent this year, a cut of 0.3 percentage points from April’s estimate.

Technical forecast  

US dollar/Japanese yen threaded inside the range from 101 to 103 regions. The reluctance of injecting more monetary stimuli by central bank officials has strengthen the yen and pushed the market close to 101 levels.

Technically, we reckoned the trend to be trapped in this narrow range until it breaks out of it from fundamental changes. We foresee there may be a downward movement coming soon if market could not reverse higher than 102 resistances.

Euro/US dollar has gradually moved into 1.34 regions as we predicted last week. The market might drop into 1.335 to 1.34 support areas in coming week before rebounding upwards. Technically, the market could face short-covering very soon due to profit-taking. Topside recovery may reach 1.36 levels and also function as resistance regions.

British pound/US dollar has been inching lower last week until it closed at 1.6964 on Friday. This week, the market will be difficult to forecast as either way will be possible for the trend movements.

The resistance lies at 1.705 regions and needs to be broken through if the uptrend resurges. On the flip side, breaking below 1.692 supports may drill further down to 1.68 targets.

 

Disclaimer: This article was written for general information only. No liability by the writer or newspapers. Dar Wong is an approved fund manager in Singapore with 25 years of trading experience in global Derivatives & FX markets. He can be reached at  [email protected].