Wednesday 30th July 2008

The dollar brings some confidence back into the market

After the release of the Confederation of British industry retail data yesterday sterling immediately weakened against the USD. The market had already anticipated the data to be lower for the month of July at -15% following on from -9% in the previous month. However the result of -36% had an immediate impact on sterling and caused it to fall. It is clear that every part of the high street is feeling the crunch at present. Sterling also had another blow as the mortgage approvals data fell to 36,000 with the new home loans reaching a record low in June. This bleak data concerning the UK housing market is not expected to improve in months to come. Sir James Crosby the former Chief Exec of HBOS suggested in the press this morning that the new liquidity scheme introduced in April allowing banks to exchange mortgages for treasury bills to raise funds should be broadened to include mortgages underwritten since 2007.

On a brighter note the Conference Board announced that US Consumer Confidence increased slightly in July. Analysts believe the increase relates to oil prices heading lower boasting the dollar and diverting from the record highs we have been experiencing of late. The US Consumer Confidence had hit 16 year lows last month so this improvement is a comfort. However it must be mentioned that this figure of 51.9 is a far cry from a figure of 111.90 in July 2007. It is apparent that consumers still very much see the current economic conditions as unstable and the US S&P home price index for May certainly would reinforce any doubts. This index yesterday reported that US home process fell at a record pace in May. Out of the 20 metropolitan areas included in this survey all showed annual declines for a further month.

However the markets reaction to a further fall in the price of oil, currently at $121 per barrel, along with sale of debt from Merrill Lynch saw the dollar rally for most of the day. US stocks were up on the day and brought some much needed optimism to the market.

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