Good bank’s day to you dear reader, on the line today is key target rates decisions to be declared by both economic champions as the European continent walks the red carpet; and as we have be costumed the United Kingdom takes the stand to then be followed by the 13 coalition with both expected to gracefully hold their peace and rest rates steady on ice…
Excusing the BoE today yet the start to me has to be with the ‘SUPER STAR’ nation the record high setting euro. What is the ECB to say today after their cherished baby hit a new record high this week’s start after confidently breaching well above the Bank’s fearful 1.40 dollar level. Are the tables at a turn now that is the question addressed to the eminent transparent ECB lead by Mr. Trichet who is now under the spot light and the independence the Central Bank acquires and that he’s known to stand firm for is at jeopardy, is credit woes and a skyrocketing euro about to tarnish bright horizons to the Euro Zone and scatter analysts long lasting dream of 1.50 dollar euro???!!!
The euro’s leap was supported by robust growth in the euro area that after a long time rising exceeded that recorded in the home of the Federal currency, the American counterpart. Nevertheless this year’s quarter two and despite subprime and credit shortage woes the US’s 3.8% growth did exceed that substantially modest 2.5% in the euro nation. As growth starts to draw signs of slowing in the euro nation the euro like wise might be giving up the upside dream if current US conditions come to halt and the dollar will stop the slide as growth picks up supported by the implemented cut.
Signs of slowing are evident in the Euro region as the currency’s upside rally is all strong and in no time crippling exports the essence of European growth and the backbone to their heart, Germany as we say their factory orders drop massively in July and that is still long before the euro hit the 1.40. Manufacturing and services are still expanding as the PMI showed stabilizing above the marginal 50, nevertheless recording the slowest pace in 18 months for manufacturing and for services the lowest reading since August 2005 was recorded in September, significantly down from the 58.0 recorded in August.
On the other hand a streak of light is still seen in sales in the Euro Zone below estimate they are, true yet still showing that steady record low unemployment and transparent vigilant policy by the ECB is still maintaining the spending margin in the economy, as confidence is sliding down after the turmoil yet remains on the upper end at this stage and are still promising. That in role and after the turmoil season postponed a signaled hike for two months after today inflationary pressures are now a predicament to a vigilant hawkish ECB as they hit 2.1% above target. The ECB is at a stall as growth slows and credit losses though built on Federal ground, but the European counterpart is taking the hit after a number of German banks acquired an ECB helping hand and recently the Swiss UBS was added to the list, while liquidity was and is being bumped by the ECB.
The question facing ECB’s Trichet today will be is 4.00% the end of the cyclic tightening and is economic expansion now at the edge, will the euro now be only supported by a weak dollar, and is area going to suffer a slow down plus record FX rates as the US tampers recessionary stages???!!! The Questions are to be expressed and Trichet is to be transparent as always, as much as inflation will remain of the essence yet chances are slim that he will call vigilance in the conference, economic conditions and world turbulence remains the key as liquidity needs to remain ample in the euro area as exports absorb a soaring euro as they supposedly should survive yet will take the surprise hit, after all luxury remains the name prior to their exports so expensive seems merely an added bonus.
Flying back in time from the ECB’s predicament to UK’s stump, seems that a couple of months back our calendars both European currencies were boosted by rate differentials as the least seen was current rates, and now the picture isn’t as bright as the 6% is so far of the table for the royal currency and yet some are expressing a cut even to satisfy falling confidence and a soon to be hit housing market as finally inflation after a 3.1% decade high is anchored at target.
The turmoil has breached the English arrogance finally and King expressing reluctance to the situation and not acting in time has taken its toll on their financial institution by now after sterling took a rather violent fall after Northern Rock’s fallout and need of rescue by the Central Bank the recorded incident that shock BoE’s King image massively.
Two months of low anchored inflation aren’t enough to start questioning a soon to be seen rate cut and the bank’s perspective concerning it being still advanced to tell the credit squeeze and American slump on economic data and the UK economy is true. Any step to be adopted by the BoE in terms of easing the tightening bias will not be earlier to March February of 08, and still I argue that facts will arise till then.
Focus lately and specifically since August’s turbulence all the attention and focus has been of the equities crash, unwinding of risky financed assets, and finally the US essence of anguish, the housing sector; all now is being translated by the US economy’s headings to recession and the Feds 50 basis points cut which is now expected to be followed by more. Merely the American stand stole the European thunder and I see underestimation to the effect of recession of the other side of the Atlantic combined with soaring FX rates at the moment.
All will be addressed and analyzed today after we hear the 5.75% from the Bank of England’s MPC and then the 4.00% from Geneva by the ECB’s policy committee. The future upside prospects I still believe is tilted by priority to the Euro Zone at tops, UK to follow, and finally the US. The barrier now is truly financial brains and the larger portion here is at rest in policy members hands so gather your men presidents and may the best win as the nations economy is now yours to salvage. Enjoy the ride and chose your side to vote for, or rather take advantage of all sides and play it right… Leaving you now and after the decision we will meet again…
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