Currency markets driven by global stock market gyrations

Investors nursing heavy losses
We saw yet another day of wild swings in global stock markets with Europe’s indices reversing the previous day’s rebound. Western stock markets continue to take their lead from the performance of China’s stock markets which saw early gains eroded to end with yet more losses. China’s stock markets have now given up 43% of their value from the June peak, leaving investors nursing heavy losses. It takes a brave person to attempt to pick a bottom in the market although investors did flock back to US equities in their droves yesterday afternoon driving the Dow Jones industrial average up a massive 619 points, almost 4% and the S&P 500 up 3.9%. 

The massive reversal was inspired by the prospect that US interest rates will remain on hold for the foreseeable future, with New York Federal Reserve Bank chief William Dudley suggesting that there is now only a very slim chance of US rates rising in September, although any rise this year would reflect strength in the US economy and is very much data dependant. 

US economic growth
A further sign of US economic strength came in the form of a better than expected durable goods order release covering the month of July. Excluding military orders the gauge was up by 2.2% representing the highest performance for 13 months. There was further favourable news as June’s durable goods shipment figures were upwardly revised from 0.3% to 0.9%, helping to heighten expectations that tomorrow’s much anticipated American second quarter GDP release will confirm the US economy growing at a rate of 3.2% rather than the previous reading of 2.3% on an annualised basis.

As most Central Bankers head towards the Federal Reserves’ annual gathering in Jackson Hole, Wyoming, USA, the markets are beginning to take heart that Central bankers will continue to offer monetary stimulus measures to help reduce the negative impact on growth as a result of the current market turmoil and that hopefully China can steer towards a soft landing. 

Time to re-mortgage? 
From the UK the British pound has continued to give up some of its recent gains as the market turmoil in China has reduced the prospect of the Bank of England’s MPC moving to raise rates this year, with market commentators now suggesting any hike be delayed until autumn 2016. 

What a difference a few weeks can make, as not that long ago expectations of an upwards rate movement had driven a scramble by UK homeowners to re-mortgage during June with numbers up by 30% on the same month a year ago, a 4 year high according to the British Bankers Association. Mortgage approvals for June were also up 11% year on year suggesting that the UK housing market is clearly buoyant. 

This evening’s GfK consumer confidence reading is expected to climb further into positive territory and should help reaffirm the UK’s economic health continues to improve.