Financial Update from www.Legalandfinancial100.co.uk

As the coalition Government passed its 100 day mark in the week and the running of the country is left in the hands of corporal Clegg as captain Cameron takes his holidays, its next 100 days are likely to be its most challenging. As this will be the period that details of the comprehensive spending review are unleashed and the full extent of the public spending cuts become known.  The coalition has increasingly come under criticism for weakening consumer confidence as the population becomes ever more nervous ahead of the cuts.  I am increasingly of the view that the cuts may well turn out to be less severe than the public generally assume and the coalition is guilty of expectations management, trying to create relief once the actual detail is known. 

 

During the week minutes from the Bank of England’s last Monetary Policy Committee meeting confirmed that the Bank believes that June’s austerity budget had dampened confidence and that of Britain’s growth prospects.  This was revealed in the interest rate setting meeting minutes from earlier in the month, when Andrew Sentence continued to argue for a rate rise, whilst the remaining eight thought rates were currently at the correct level. The meeting was the third meeting in a row that the Committee voted eight to one to keep rates on hold. However, the minutes stated that the “risks were substantial and members stood ready to respond to either direction, as the balance of risk evolved”.  Commentators believe that the Bank is preparing for more quantitative easing and I expect further news on this before the year is out.  .  The August meeting was the first in which Martin Weale participated and, as expected, he voted with the majority.  The minutes also showed that the Bank was surprised by the 1.1 per cent jump in growth in the second quarter of 2010, but noted that there had been signs of softening in the most recent economic numbers.  Despite it recently lowering its growth forecast for the economy in 2011 to 2.8 per cent from 3.4 per cent, the Bank does not believe that the economy will suffer a double-digit recession. In the week the Governor of the Bank of England was forced to write a further letter to the Chancellor, explaining why the Consumer Price Index, the official measure of inflation was more than one percentage above the 2 per cent target at 3.1 per cent.  The Governor, as expected, confirmed that he expects to have to write further letters in the shorter term before inflation falls off later in the year. On a monthly basis, the Consumer Price Index fell 0.2 per cent in July, giving an annual rate of 3.1 per cent, down from 3.2 per cent in June.  The RPI index, which has a greater housing element, fell to 4.8 per cent from 5.3 per cent.  Because of the rise in VAT to 20 per cent in January, inflation is set to remain above target until the end of 2011, a year ago the Bank was projecting this would only happen until May.  Core inflation, which strips out volatile price movements, including food and energy fell more sharply than expected in July to 2.6 per cent, the lowest since November 2009.  In the previous month it had been 3.1 per cent and this supports the view that whilst headline numbers may be high, these are due to one off factors and underlying inflation is not a significant issue. 

 

Britain fell further into the red last month, with the Government borrowing £3.8 billion to balance the books and this pushed the country’s debt to a new high.  On a positive front, the £3.8 billion figure was better than the expected figure of £4.1 billion and was an improvement of the £6.1 billion borrowed last year. Overall, the National debt rose by £2 billion to £816 billion, up from £665 billion in July last year and highlights the alarming rate at which the country has been borrowing.  Including the financial sector interventions, total debt rose from £927.2 billion to £927.4 billion last month.  The cost of servicing the country’s rapidly expanding debt has also soared, nearly doubling from £940 million last July to £1.6 billion last month.  July’s numbers were helped by corporation tax and VAT receipts, with large companies, who have a calendar year accounting period making their first instalment in July.  Despite a 14 per cent rise in receipts compared to July last year, and a 40 per cent rise in corporation tax receipts, the Government was still unable to balance the books.  Until last year the Government had not borrowed to balance its books during any July since 1996.  This month’s numbers have pushed borrowing, for the four months of the financial year, to just short of £45 billion.  The Office of Budget Responsibility is forecasting borrowing of £149 billion for the financial year as a whole, down from £155 billion in 2009-10. The Government has been urged to reveal the real national debt by The Institute of Economic Affairs who believes it is £4.8 trillion, once state and public sector pension liabilities are included or £78,000 for every person in the UK. The ONS has already begun to assemble the off balance sheet data, publishing a full list of Britain's debts and liabilities for the first time in July. This came to a total of between £3.68 trillion and £4.84 trillion. The ONS numbers included a £1 trillion to £1.5 trillion liability for the Government's stakes in the part-nationalised banks, equivalent to the relevant portion of their total liabilities, £1.35 trillion for state pension liabilities, and £1.2 trillion for public sector pensions. John Prescott in an article in the Guardian on Thursday  warned that the Labour party which is £20m in debt was, "on the verge of bankruptcy" and must learn to campaign in smarter and more cost-effective ways if it is ever to restore its battered finances and take on the cash-rich Conservatives again. In his article Prescott complained that Labour only had £10m to spend on this year's general election, a third of the Tory budget. "We are only kept alive by the herculean work of party staff and volunteers, trade union contributions, high-value donations and the goodwill of the Co-op bank," The terrible state of the Labour Party's finances is not dissimilar to that of the UK's. Retail sales grew at their fastest pace since February last month and nearly three times as much as economists had expected, as items such as computers and books saw a sales increase of 6.1 per cent, whilst food spending was down 1 per cent.  Sales by volume (including petrol) jumped by 1.1 per cent in July. This was from June and by 0.9 per cent excluding petrol.  City analysts had been looking for a slow down in growth to 0.4 per cent from 0.7 per cent in June, so the 1.1 per cent increase was quite a surprise.  This has been put down to the World Cup factor, which ran from June 11th to July 11th.  Economists, however, warned that retail sales are likely to come under increasing pressure and certainly the numbers do not square up with falling consumer and business confidence, as the Bank of England noted in its August meeting of the Monetary Policy Committee.  Whilst in the CBI’s latest survey showed factory orders are still falling, they are doing so at a much slower rate than previously and at their slowest rate since August 2008.  The report highlighted the fact that the weakness in sterling is proving a boost to manufacturing, enabling export orders to return to normal levels.  The CBI’s monthly Industrial Trends Survey found that the balance of those reporting export order books above / below normal was -1 per cent.  Meaning that roughly half of all respondents reported higher than normal and half reported lower than normal demand for goods.  The CBI order book balance rose to -14 this month from -16 in July.  The export order balance rebounded to -1 from July’s -12. UK car production fell heavily in July, dropping 8.9 per cent on the same month last year.  Just over 98,000 cars were produced in the month according to the Society of Motor Manufacturers and Traders.  The drop comes after a run of eight months, when production had increased.  On a positive, UK vehicle production is currently 40 per cent up from last year and commercial vehicle output grew by 10.7 per cent in July and is up by 43.2 per cent in the first seven months of the year.  Gross mortgage lending rose for a third consecutive month in July to reach its highest level for a year according to the Council of Mortgage Lenders.  The total value of loans secured on properties reached £13.6 billion in July, rising from £12.9 billion the previous month, the highest level since this time last year.  The CML, however, reported that lending was still 3 per cent lower than in July 2009 and it expects to remain subdued for the rest of the year.  The group, which represents banks, building societies and other mortgage lenders last week, revised its full year forecast for 2010 from £150 billion to £140 billion. Focusing on the credit crunch and the lack of credit in the system, official data from the Bank confirms Mervyn King’s recent comments that credit conditions are only improving slowly in the wake of the financial crisis.  Net lending to business in all sectors deteriorated in June and this left the second quarter, as a whole, down £8.6 billion on the year.  For the whole of the last year net lending flows, which take account of loans going to clients as well as money being repaid to banks, were down £49.8 billion.  This compares with a £9.4 billion fall the year before and a rise of £85 billion a year earlier.  The Bank of England’s Survey of regional agents reported in the week that business confidence has continued to fall, with companies becoming increasingly nervous about the cutbacks.

 

During the week the Bank of England also issued its trends in lending report for July, showing a drop in mortgage approvals to 47,000, the lowest in more than a year.  The report also showed lending to businesses falling to a fresh low, with lending overall growing more slowly than at any time since modern records began in 1983. U.K. house prices fell  in late July and early August by an average of almost £150 a day as the supply of new properties for sale sharply outstripped demand for a third straight month, according to Rightmove. they believe that Expected interest rate rises in 2011 are set to weigh further on house prices through 2010 and into 2011.According to Righmove’s latest index, house prices in mid-August fell 1.7% on the month but were 4.3% higher from a year earlier. This was the biggest monthly drop since December last year and compares with a 0.6% monthly decline and a 3.7% annual gain in July. The decline in asking prices comes as 29,220 new properties--the highest August level for three years--were put up for sale per week, a 41% increase from August last year. The number of potential buyers, meanwhile, remains low by comparison, as the holiday season means many Britons are not actively looking for a new home. PwC estimates that prices have already fallen 17pc in real terms, after adjusting for inflation and although it believes prices will rise at 2pc a year for the next decade, they will not recover the ground lost from the peak until 2020. The

Average house prices nearly tripled under Labour from £77,531 in 1997 to £212,453 in the first quarter of this year, having peaked at £220,000, according to the Department of Communities and Local Government.

 

U.S. industrial production rebounded last month, from a segment of the economy that has helped drive the recovery. Industrial production last month rose 1.0%, the Federal Reserve announced, following a 0.1% drop in June. The report was slightly better than expected. Economists were forecasting a 0.7% rise in manufacturing output. The U.S. economy started to expand again just over a year ago, with manufacturing a key area of support as other segments, particularly housing, have been weak. Another report Tuesday showed U.S. producer prices rose for the first time in four months in July as the price of cars and light trucks increased, easing concerns that the economy could become so weak that it leads to deflation. Housing starts, meanwhile, increased last month, but building permits dropped, suggesting future construction could be lacklustre. The housing report, meanwhile, was mixed although the market is unlikely to return to the depressed levels seen roughly a year ago. July's 1.7% rise in housing starts saw them hit 546,000.  Home sales have been coming down as the government tax credit for first-time purchases ended April 30. The July rise comes after a 21% plunge in May and June combined. Building in coming months looks likely to be sluggish, as the latest data showed July permits fell 3.1% to an annual rate of 565,000. Building permits are a sign of future construction. Economists expected overall housing starts to increase to 550,000. Building permits were seen rising by 2.1% in July to a rate of 586,000. The Obama administration's tax credit had helped housing up until April, but the sector is suffering again following the end of the stimulus. Moody’s, the credit agency, believes that US prices could fall another 20 per cent before stabilising in 2012.  This fits with my own view and bodes particularly poorly for the US economy over the period.  The Philadelphia Federal Reserve's economic index took an unexpected dive in August, turning to negative 7.7 when analysts had expected a positive 7.5. The index measures manufacturing activity in eastern Pennsylvania, southern New Jersey and Delaware, and any number below zero indicates business activity in the sector is slowing down. Orders and sales at New York manufacturers decreased in August for the first time in more than a year and U.S. homebuilders turned more pessimistic, indicating the economic slowdown is becoming broad-based. The Federal Reserve Bank of New York’s so-called Empire State factory index in the week showed bookings dropped for the first time since June 2009, whilst sales fell at there fastest pace since March 2009. The National Association of Home Builders/Wells Fargo confidence index unexpectedly declined to a 17-month low.

 

A permanent extension of the tax cuts of the last administration would boost growth in the short term but add more than $3,200bn to the US budget deficit over the next decade, the Congressional Budget Office estimated on Thursday and it issued yet another warning on America’s fiscal outlook, saying the US faced “daunting” challenges to rebalance its finances, .even as it trimmed its forecast for this year’s deficit to $1,342bn, or 9.1 per cent of gross domestic product, below the record $1,413bn fiscal gap recorded in 2009, the CBO said: “Putting the nation on a sustainable fiscal course will require policymakers to restrain the growth of spending substantially, raise revenues significantly above their average percentage of GDP of the past 40 years, or a combination of both.” It reduced its estimate for the 2010 budget deficit and its projection for next year’s fiscal gap is $1,066bn, or 7 per cent of GDP. In the 2012 election year, the CBO expects the deficit to shrink further to 4.2 per cent of GDP, or $665bn. US Public debt will increase from 53 per cent of GDP in 2009 to 69.4 per cent of output by 2020, a level not seen since the 1950s. The agency also updated its economic forecast, which forecasts GDP expanding 2.8 per cent in 2010, followed by slower growth of 2 per cent next year. The average unemployment rate this year will be 9.5 per cent, falling to 9 per cent in 2011. Compared with the Obama administration’s forecasts, the CBO is projecting a quicker reduction in the budget deficit and slower growth, largely because its official projections do not include the results of extending the Bush tax cuts, even partially, as well as other expected fiscal policy moves that are not yet law. In California on Friday, a second round of mandatory furloughs went into effect for government employees in an effort to resolve California's $19 billion budget deficit. The furloughs were to have started at the start of august but they were temporarily blocked by a lower court decision. On Wednesday, the state Supreme Court allowed the furloughs to resume. The furloughs affect about 150,000 state employees and will save $150 million a month, the governor's office said.  Nearly bankrupt California first implemented furloughs in February 2009, demanding employees take two unpaid days off per month. As revenues continued to fall six months later, officials increased the number of monthly furlough days to three. This mandate finished with the end of the fiscal year on June. In addition to furloughs, California may also have to issue IOUs in two to four weeks to keep the state solvent, according to State Controller John Chiang. He estimates there are $2.2 billion in expenses -- mainly to social service agencies, vendors and schools -- that will go unpaid in August. Last year, a budget crunch forced California to issue 450,000 IOUs worth $2.6 billion between July 2 and Sept. 4 On Friday Gov. Arnold Schwarzenegger, according to the governor's office, ordered state workers to take three unpaid days off per month until a new budget is in place and the Department of Finance certifies that California has enough cash to meet its financial obligations through the end of the fiscal year. Schwarzenegger is also trying to impose the minimum wage on state workers until a budget is passed, but that effort remains tied up in the courts.

 

It has been confirmed that Chinese economy is now the second largest economy in the world and behind the US, as Japan announced poorer than expected growth figures. The poor data increases pressure on policy makers to safeguard the country’s economic recovery by expanding fiscal spending and loosening monetary policy to weaken the yen. Faced with meagre growth and a strong yen, japans leaders are moving toward injecting more stimulus measures to fight a sharp slowdown in momentum. A new package would set Japan apart from the rest of the developed world, which is winding down stimulus steps even as worries grow about a cooling global. This will be a difficult task for Prime Minister Naoto Kan, who is also juggling a promise to reduce the country's massive debt and a possible challenge for leadership of the Democratic Party next month. Mr. Kan is aiming to compile and approve new measures by the end of September, according to the Nikkei financial daily. The government could tap into a reserve fund in this year's budget as well as a surplus from last year, which total 1.7 trillion yen ($20-billion. Adding to woes is the Yen; hit a 15-year-high against the dollar recently.   The Bank of Japan will hold its next policy meeting from Sept. 6-7 as concern grows about the yen’s surge to a 15-year high and its impact on exporters. The central bank has kept its target overnight call rate unchanged at 0.1 percent since December 2008. Numbers released showed that the Japanese economy grew at an annualised, seasonally adjusted pace of 0.4% in the three months to the end of June lower than the revised 4.4% for the first quarter and well below the 2.3% expected by economists. China is also poised to overtake Japan as the world’s second-biggest equities market by value, mirroring the growth of its economy. The combined values of companies trading on China’s equities markets reached $3.09 trillion at the start of the week compared with $3.51 trillion for Japan. China also looks to have plenty more room to grow as Its potential lies in the fact that about one-fifth of the world lives in china and virtually every major company is looking to increase market share. However, it will not be plain sailing largely I think because of demographics. This could potentially constraining its supply of workers and although its population is about four to five times bigger than that of the U.S., its prime working age population of 20 to 35 year-olds is beginning to shrink as the country continues enforcing its policy limiting couples to one child. Also the vast majority of the population lives in rural areas and is either very old or very young. Growth is also making huge amounts of pollution and demands are increasing for cleaner air and water. China's growth is heavily driven by investment and exports leaving a very unbalanced economy. Japan’s GDP per capita is still more than 10 times larger than China’s with citizens of the U.S. and Japan being the richest in the world. America has an income per capita of $42,240 last year, while Japans wad $37,800. For its size, China has made incredible advances in raising individual incomes, but remains significantly behind both at nearly $3,600. Even if China trumps the U.S. economy in the next two decades in overall GDP terms as some suggest, income per capita will remain some way behind. The International Monetary Fund predicts China will grow steadily in the foreseeable future 10.5% in 2010 and 9.6% in 2011 and expects China's output to reach $5.4 trillion by the end of 2010, with Japan's GDP at $5.3 trillion. With two years left before a new Chinese Premier, the current premier Wen Jiabao urged his countrymen to stick to policies of reform and openness as any reversal would mean a “dead end” for the nation, according to a statement posted on the government’s website. Mr Wens words are interesting as the country is still communist and one should not assume that the path to full democracy will trouble free and that the current elite will give up there powerful positions without a fight. The Chinese economy is now 90-times bigger than when leader Deng Xiaoping ditched hard-line Communist policies in favour of free-market reforms in 1978. Australia’s proposed mining tax may be scrapped after the incumbent Labour Party failed to win a clear majority in the weekend’s federal election. Australian Prime Minister Julia Gillard, 48, and opposition leader Tony Abbott, 52, will need to broker deals with other lawmakers to pass legislation after neither party secured enough votes to form a government in the House of Representatives. Abbott has vowed to scrap Labour’s proposed mining tax which would levy a 30 percent tax on iron ore and coal producers.

 

The European Commission has approved the next €9bn tranche of loans for Greece as it has met the conditions to receive the second tranche of a €110bn rescue loan. It has already received 20bn Euros of the loan, which was agreed by the EU and International Monetary Fund. Finance ministers from the euro zone countries will now meet in Brussels on 7 September to sign off the payment which is due on 13 September. Greece has managed impressive budgetary consolidation during the first half of 2010 and has achieved swift progress with major structural reforms, Olli Rehn, economic and monetary affairs commissioner said in the week as total state cash spending was reduced by 16.9 per cent compared to the first half of 2009. Mr Rehn added that despite the significant progress made, challenges and risks remain. With the main I challenge being to safeguard adequate liquidity and financial stability of the banking sector. The European commission reported that "Total cash revenue increased by 5.9 per cent in the first half, well below the annual target of 15.6 per cent increase, despite the higher-than-expected nominal gross domestic product growth on the back of higher-than-expected inflation and relatively tax favourable growth composition "In addition, there are risks to the target stemming from the accumulation of arrears, the financial underperformance of local governments and social security funds so far and a catch-up in spending in the second half of the year. The Commission said that overall the positive assessment on of compliance was a good. Like many others I doubt whether the EU/IMF plan is workable without debt restructuring and devaluation, the usual IMF cure for countries with such problems. IMF documents show that Greece's public debt will rise to 150pc of GDP after three years, even if the government complies fully. Ollie Rehn, the EU economics commissioner, said Greece has achieved "impressive budgetary consolidation and swift progress with major structural reforms". But He also warned that tax revenues were falling short of the 16pc rise targeted for the year and there was slippage by local governments and social security funds. According to the latest figures from the Greek Finance Ministry, its deficit stood at €12.1bn at the end of July. The Greek economy shrank by 1.5% in the second quarter of the year.

 

Iceland's central bank has cut its key interest rate to 7% from 8%. This is after they hit a peak of 18% in October 2008 as its banking system collapsed due to the credit crunch and the country's largest banks were taken over by the government. In late 2008, the International Monetary Fund had to bail the country with a $2.1bn loan. This made it the first Western European country to need IMF assistance since 1976.

 

German investor confidence has suddenly fallen sharply due to concerns that the strong economic growth recorded in the second quarter will not last. The ZEW Indicator of Economic Sentiment, fell from 21.2 in July to 14 in August, its lowest level since April 2009. Analysts had expected a much smaller drop in the index to 20. On Friday, European Central Bank council member Axel Weber said the ECB should help banks through end-of-year liquidity tensions before determining in the first quarter when to withdraw emergency lending measures. "Most of these discussions about the continuation of the exit I think will be focused on the first quarter," Weber, who heads Germany's Bundesbank, said in an interview in Frankfurt. "It's clear that we need to re-embark on a normalisation procedure." his comments suggest the ECB is growing more confident that the euro region is coping with its sovereign debt crisis after Germany powered the 16-nation bloc to its fastest economic growth since 2006 in the second quarter. By contrast, the US Federal Reserve was this month forced to announce fresh measures to shore up a stuttering US economy. Weber, the frontrunner to succeed ECB President Jean-Claude Trichet next year, said risks still exist and it's too early to say exactly when policy makers will take decisions on removing non-standard measures. The escalation of Europe's fiscal crisis in May forced the ECB to halt its withdrawal of support for the region's banks and reintroduce some tools, such as unlimited three-month loans. Weber said it would be "wise" to keep full allotment in weekly, monthly and three-month refinancing operations until after the end of the year, which is "usually surrounded by some uncertainty regarding the liquidity situation." The ECB has guaranteed unlimited seven-day loans, the main plank of ECB's emergency policy, until October 12 and unlimited three-month loans until the end of September, but hasn't outlined the bank's timetable after that. Six-month loans should be allowed to expire and "I don't think it would be wise to continue with these very long operations," Weber said. Resuming the exit will depend on the "health of the financial system and the banking system," he added. Weber, 53, said the ECB is likely to raise its euro-region growth forecasts next month after the German economy, Europe's largest, expanded in the second quarter at the fastest pace since records for a reunified country began in 1991. The Bundesbank in the week lifted its German growth prediction for 2010 to 3 per cent from 1.9 per cent. The euro-region revisions will be "more modest" than Germany's because of weaker growth in some peripheral countries, he said. The ECB in June predicted euro-area growth of 1 per cent this year and 1.2 per cent in 2011. Weber said there are no signs of inflation, and indicated the ECB's key interest rate is likely to remain at a record low of 1 per cent for some time. "Since inflation risks continue to be low over the policy-relevant medium term, this does not suggest a policy tightening yet," he said. "Rates remain appropriate." Weber, who took the helm of the Bundesbank in 2004, said it's too soon to declare the financial crisis is over. The French Government lowered its growth outlook for Europe's second largest economy for 2011 after considerable external pressure and said that whilst it will meet or better its 1.4 per cent growth estimate for 2010, gross domestic product will expand by only 2 per cent in 2011, previously it had forecast 2.5 per cent growth. The International Monetary Fund has predicted the French economy will grow by only 1.6per cent in 2011 and The Paris-based Organization for Economic Cooperation and Development predicts French gross domestic product will be 2.1 percent. France has pledged to cut the shortfall to 6 percent of GDP next year and to 3 percent by 2013 from about 8 percent in 2010, the biggest deficit reduction since 1991. The last cuts were in 1996, when the deficit was slashed to 4 percent from 5.5 percent and this saw a month-long public-sector strike in November and December 1995. The growth estimate is important as the Government’s deficit-cutting plans hinge on how quickly GDP rebounds and drives up tax revenues. Inflation in the euro zone hit a 20-month high last month, European Union data has shown. Annual inflation in the 16-nation bloc rose to 1.7% in July, up from 1.4% in June and the highest rate since November 2008, Eurostat said. The figure was boosted by more expensive fuel costs for transport, and higher alcohol and tobacco prices. Across all 27 nations in the European Union, prices were up 2.1% in July, compared with a rise of 1.9% in June. Some countries - Finland, Greece, Spain, Portugal and Romania - raised their rates of VAT in July, which also helped to push prices higher. On a month-on-month basis, prices in the euro zone fell 0.3% in July, and in the wider EU fell 0.2%. The European Central Bank's purchases of short-dated Irish government bonds recently doesn't signify that the recent calm in European bond markets was only temporary, Moody's Investors Service said on Monday, adding that "the worst days" for Ireland and its banks are "probably" past. The ECB's purchases were a bid to calm rising market volatility stemming from concerns about the credit-worthiness of Irish banks. "We are quite confident that the ECB's programme to provide liquidity to the European sovereign and bank securities market is winding down, and that the latest intervention is an aberration in an established trend," Moody's said. But there are "no quick fixes to restoring the financial strength of the Irish banking sector" and "ECB intervention should help maintain a more manageable cost of funds" for Irish banks. "Fresh volatility, if sustained, would be credit negative" for Irish banks, Moody's said in its Weekly Credit Outlook.

 

A team of oil traders desperate to be the first to deal above $100 a barrel has been fined $12m (£7.7m) for causing a "non-bona fide" price to be reported on the New York Mercantile Exchange. ConAgra Trade Group became the first to buy NYMEX crude oil futures above $100 on 2 January 2008 despite the exchange's electronic market trading about 40 cents lower at the time. Regulator, the Commodities and Futures Trading Commission), heard that one of CTG's traders told his floor broker he was going to be a "madman" if prices got within 25 cents of the big figure. Not long after CTG's $100 print, another floor trader complained to officials that he had been offering to sell at $99.90. CTG then scrambled to buy up all the contracts being offered at that price to "keep the $100 print up". A trader is said to have bragged that CTG had been trying to get to the historic mark for three months.  The fine for the so-called "vanity trade" is intended to send a clear message that the regulator is intent on finding and fining those individuals and companies who try to fix and manipulate markets. Oil went on to hit $147-a-barrel in July 2008. Emerging economies have upset the long-standing pattern of global oil consumption, according to the International Energy Agency in a further sign of how countries such as China and India are transforming commodities markets. The IEA estimates that oil demand was higher this year during the second quarter for the first time, at about 86.6m barrels a day, ahead of the traditional peak winter season of January-March, at 86.0m b/d. The traditional seasonal pattern had usually pushed up oil prices during the northern hemisphere winter, before warmer temperatures cut consumption but as the global economy moves east a lot of what has been the normal for a generation or so is about to change and probably over many generations to come. Crude-oil futures declined to a six-week low on Friday, as worries deepened about the global recovery, and the dollar rose. Crude for September delivery, the front-month contract that expires on Friday, lost 97 cents, or 1.3%, to $73.46 a barrel in New York. Oil lost 2.6% during the week following last week's loss of nearly 7% and is now down11% from its recent peak of $82.55 on Aug. 3.

 

Gold fell on Friday, finishing a six-day winning streak, although it still recorded a third straight week of gains, its first three-week rally since June. Spot gold closed at $1,227.75. US gold futures for December delivery dropped $5.60 to $1,229.80. Gold has climbed 12 percent this year and is heading for its 10th straight annual gain as investors look for safe investments.

 

During the week there is little economic news flow in the UK, with Tuesday seeing the British Bankers Association publish its figures for July’s mortgage approvals.  This is likely to show that the market remained difficult, with yet another fall on June’s low to 34,813. 

 

According to Thomson Reuters 75% of the 484 companies in the S&P 500 that have reported in this results season have beaten Wall Street expectations, compared with a historical quarterly average of 62%. This week six are due to report. On Tuesday, the July report on existing homes sales from the National Association of Realtors is due. Sales of existing homes fell 5.1% in June to a 5.37 million and expectations are for July to show another slowdown in sales, down to 5.14 million. On Wednesday, the Commerce Department reports data on durable goods orders -- a measure of products meant to last at least three years, such as cars and computers, the measure has posted back-to-back declines for the last two months and are forecasted to increase 3.4% in July. New home sales are expected to show a slight increase to 338,000 in July, up from 330,000 the previous month. The government's revised reading on GDP is due on Friday. The Commerce Department’s update is forecast to announce that GDP grew at 1.4 percent, the weakest quarter of the recovery that began in the middle of last year and below the first estimate of 2.4 percent announced last month. Also, on Friday, Fed Chairman Ben Bernanke is set to speak at the Kansas City Federal Reserve Bank's annual retreat in Jackson Hole, Wyo. Bernanke is scheduled to provide his economic outlook and the Fed's response. Fed watchers will be looking for whether that will lead to a second round of quantitative easing.

 

A new phrase is increasingly creeping into the political vernacular and this is the term “deficit deniers”.  This is being increasingly used to good effect by the coalition as they attack those who believe the country does not need to act speedily on cutting the size that we reduce our borrowing needs.  It is important to remember that even under the coalition’s plans, where growth forecasts look, in my opinion to be on the optimistic side, the country is not aiming for a balanced budget in this Parliament.  Increasing evidence is emerging of a weakening US economy and investors are, in my opinion, increasingly relying on the hope of further quantitative easing in order to support current valuations. QE was pioneered in Japan in the early noughties, where the Bank of Japan purchased assets equating to 8.7 per cent of GDP without managing to lift the country out of its economic mire. Both the Fed and the Bank of England have taken it to new and disturbing heights. The Fed has already bought up $1.5 trillion of assets, worth a huge 11.2 per cent of GDP, in an attempt to underpin the America’s recovery. The Bank of England’s £200 billion quantitative easing efforts, focused on acquisitions of gilts, has so far totalled an eye watering 14.7 per cent of GDP.

 

The European predicament looks to be further worsening and with most of Europe closed for the month of August the increasing troubles of weaker nations has been ignored as Germany continues to dominate and prosper from there increasing difficulties. This has not yet percolated into the general consciousness.  In May the Euro zone set aside €750 billion to rescue its troubled members, with an extra €110 billion being offered to Greece.  In addition to this the European Central Bank has spent €60 billion to buy bonds, a move designed to ensure that weaker governments do not see their credit lines dry up immediately.  Three months after this unprecedented European action, the markets appear to be valuing this move at zero.  The extra yields investors demand to hold ten year Greek or Irish bonds, as opposed to German bonds, is approaching the record levels of May and credit default swaps suggest Ireland is now riskier than Spain, as the rescue of the Anglo-Irish Bank has cost far more than expected.  Whilst the Greek economy passing some important milestones in the week, Spain is suggesting a partial easing of its austerity plan and this is worrying investors. This potentially highlights growing political unease and unwillingness to meet IMF objectives. The government is ever more nervous about pushing its reform agenda on an increasingly angry and bitter population.  The combination of stresses within the Euro zone and the signs of a global slow down cantered on the US, will be unleashed probably after the holiday period. I continue to believe that the FTSE 100 looks too high at the present time.  It must be remembered that the autumn is historically the time for sharp corrections in markets and I fear we could be in line for a nasty fall if we go into the darker nights at current elevated levels.

leeds financial Leeds Solicitors