Tuesday 19th August 2008

The week began with relatively little data but what was released was typically downbeat. In the states we saw the release of the National Association of Home Builders (NAHB) housing market index, which held at 16 for the month of August matching market expectations and shows sentiment stuck at a record low. A reading below 50 indicates US home builders view markets conditions as poor. However, the NAHB said in the report that it expects a recently enacted home buyer tax credit to boost appetite and encourage buyers to jump into the housing market. More housing data comes in the form of US building permits and housing starts this afternoon and the market expects a decrease in numbers here.

German PPI released this morning hit a 27 year high, accelerating to 8.9% in July from 6.7% in June. "As in previous months, energy prices had the biggest influence over the annual rate" the Bundesbank said. In Germany we see the release of the ZEW survey, which is expected to follow sentiment of fading economic growth in Europe. There is reason to believe pressure will remain on the single currency and for the USD to remain strong, with support for the greenback coming from falling gold and oil prices.

Here in the UK, there isn’t much to focus on in terms of data until tomorrow. Bank of England MPC member Besley writes in the Sun (that well respected financial paper) that it is "not easy in the current economic climate" to keep UK inflation at its 2% target. He added it will fall to 2% next year if inflationary wage increases do not take place.

Elsewhere the Bank of Japan kept rates on hold last night at 0.5% but downgraded its assessment of the economy for the second month running citing the risk that weakness in the US economy may trigger recession in Japan. It remains pretty pessimistic in its view, seeing weakening export growth and domestic demand weighing on economic weakness.

Finally, a quick word of congratulations to Paul Goodison who won Great Britain’s 13th Gold medal of the Olympics and keeps Old Blighty sitting in a very impressive 3rd in the medals table. More medals could come today from our cyclists so all the best to them!

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