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The Marketplace - August 27th 2014
27/08/2014
The US Dollar declined from a six-month high against its major peers as reports showed mixed progress in the US economic recovery. On a light day for trade data, focus will remain on the US economy’s mixed recovery and safe haven demand for currencies such as the Japanese Yen. Figures released this morning showed economic expectations in Germany suffer their biggest slump in over thirty years in the face of Russian sanctions and unrest in the Middle East.
British Mortgage Approvals Dip in July
The number of mortgages approved by high street banks for house purchases dropped slightly in July, but remained higher than in the months immediately following the introduction of new lending rules in the spring. Yesterday’s figures showed 42,792 homebuyer loans were approved during the month, worth a total of £7bn. The figure was down from the 43,180 approvals in June and below the previous six-month average of 44,536.
However, an increase in the average value of newly approved loans, from £163,800 in June to £167,600 in July, meant the total amount agreed was up month on month, and approval numbers were 12% higher than in July 2013. Non-seasonally adjusted figures showed an increase of just over 300 to 48,621 house purchase approvals – the highest number since October 2013.
Despite growing expectations of an interest rate rise before the election and mortgage rates remaining close to a record low, approvals were down 8% on July 2013’s figure. This could indicate that remortgagers are struggling more with the new affordability tests, or have been deterred from applying in case they are turned down. The Bank of England have already cited the recent surge in housing prices as not a cause for considerable concern just yet, in relation to the British recovery. Figures released earlier this summer seemed to show lending ratios for homeowners are considerably lower than pre-recessionary levels.
US Durable Goods Orders Surge Record 22.6%
Business orders for long-lasting manufactured goods shot up by the largest amount on record in July. But most of the strength came from demand for commercial aircraft, which tends to fluctuate sharply from month to month with orders outside of transportation dipping. Despite the broader weakness in July, most analysts said factory output will likely support solid economic growth in the second half of this year as companies increase their orders for the equipment they need to meet rising demand.
Orders for durable goods in July rose 22.6% with the strength coming from a 318% increase in orders for civilian aircraft, which helped lift orders for transportation equipment by a record 74.2%. Excluding transportation, orders fell 0.8% and a key category that serves as a proxy for business investment plans dropped 0.5%. Still, that followed a sizable 5.4% rise in the previous month.
On Thursday, the US government will revise its first estimate of GDP. Many economists believe that the figure will be revised down slightly but remain at a strong 3.9% annual growth rate. Economists expect strength in employment, manufacturing and consumer spending to support healthy annual growth of around 3% in the second half of this year.
US Consumers More Optimistic in August
US consumers were more optimistic in August with an upbeat view on jobs leading to expectations of a solid August payrolls report. The Conference Board said its index of consumer confidence increased to 92.4 in August from a revised 90.3 in July. The July number was first reported as 90.9 and the August index is the highest since October 2007, before the recession started. The present situation index, a gauge of consumers' assessment of current economic conditions, jumped to 94.6 from a revised 87.9 in July.
The consumer sector is vital to the US economy, and the optimism among households as indicated in Tuesday's survey could raise hopes about spending in the second half. In August, 18.2% of US consumers say they think jobs are "plentiful," up sharply from 15.6% thinking that in July and the highest reading since early 2008. Another 30.6% think jobs are "hard to get," down from 30.9% saying that last month.
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