23 May 2023: House prices reflect a more robust economy

23 May 2023: House prices reflect a more robust economy


  • UK house prices push higher
  • How likely is the U.S. to default?
  • Consumer Confidence moving slowly in the right direction
GBP – Market Commentary

The amount of freight on Britain’s roads is a sign of improving activity

Rightmove, the leading online property website, reported yesterday that house prices in the UK rose by 1.8% in May, the largest increase recorded so far this year. The average rise so far is 1%.

This reflects a growing confidence in the gradual economic recovery that is taking place as well as the more stable outlook for the home loan market.

The “pall of gloom” that hung over the UK economy is beginning to lift according to Rightmove’s Chief Economist.

Even a casual observer will see the level of freight being shifted through the UK’s major ports as the economy begins to move forward.

The depots in Bristol where cars and trucks are stored following import stood largely empty during and following the Pandemic are brimming with vehicles now are sales begin to pick up again.

Container traffic on Britain’s roads has seen a significant increase. This bodes well for a return to growth for the country and provides the Government with a real opportunity to eat into the lead that the opposition has built up over the past year.

This was driven primarily by the continued allegations of sleaze that were levelled at the Johnson administration and the economic incompetence of his successor.

Rishi Sunak appears to remain shackled by this issue as his Home Secretary, Suella Braverman is accused of breaking the ministerial code over her attempts to avoid endorsement of her driving license over a speeding offence.

The scrapping of tax-free shopping is having a major effect on the sales of large retailers in the UK’s largest cities. The so-called “tourist tax” saw the Chief Executive of Harvey Nichols warn that this is having an effect on the wider economy.

She sees it as a “significant lever” in the UK’s drive to be an attractive place for tourism and investment, particularly given the effect, that is still being seen, of Brexit.

Today will see the publication of the public sector net borrowing requirement. This is in general terms the amount the Treasury borrowed last month to cover the shortfall between tax receipts and outgoings. It is expected to have fallen in April from £20.7 billion to under £9 billion as the energy support payments have fallen given the easing of the cost of wholesale gas imports.

The pound started the week on the back foot as a fall in risk appetite drove buying of the USD. It fell to a low of 1.2413 and closed at 1.2436.

A major test will come with the release of the April inflation report tomorrow. This is expected to see a significant fall, which may take away the support that the pound is getting from the Bank of England’s policy of interest rate hikes.

USD – Market Commentary

Debt ceiling concerns drive dollar buyers

The confidence that is being shown by members of Congress from both sides of the aisle that a deal on the raising of the debt ceiling, is not filtering through into the markets yet.

Several analysts and economists are writing op-ed pieces outlining the possibility of a “doomsday scenario”.

While some continue to decry the issue as little more than “crying wolf”, the comments from the Treasury Secretary recently in which she said that it is already too late for the administration to “settle all its bills” before the deadline, ratcheted the pressure up another notch.

Any default would, of course, be “technical” since there is no possibility of any permanently running out of cash.

However, the fact that such an issue could happen will reverberate around the world to every place where the dollar is seen as an alternative to the local currency, where exporters were once content to accept dollars in payment for their goods.

Confidence is a prized commodity in commerce, and without it to grease the wheels of trade, everything else will suffer.

A senior economist at Moody’s, the rating agency, spoke yesterday of his belief that even if the debt ceiling were breached for just one week, it could plunge the economy into recession with the loss of up to 1.5 million jobs.

Ironically, the concerns in the market over the brinkmanship being displayed in Congress, saw a consequent fall in risk appetite and the dollar rebounded higher yesterday.

The index rose to a high of 103.36 and closed at 103.24.

There is plenty of more representative data to be published later in the week which will show the overall strength, or otherwise, of the economy, including Q1 GDP, pending home sales, and weekly jobless claims, that will drive the market, while Congress attempts to reach a deal over the debt ceiling.

Until a compromise is reached by the politicians, the market will remain fearful of a default.

EUR – Market Commentary

Next three meetings will see rates peak

Christine Lagarde spoke yesterday of her view that inflation has been “too high for too long” for the ECB to even consider pausing its programme of rate hikes before the end of the current quarter.

The “smart money’s on the Central Bank hiking twice more, which means the end of the current cycle will likely come on September 14th. That will follow the meeting that is scheduled to take place on July 27th and after the long August European holiday season.

It is likely that both the U.S. and UK Central Banks will have already paused their own hikes by then, which will provide a degree of support to the single currency.

Data for pan-Eurozone consumer confidence was published yesterday and it showed that after several months of declines, it rose for the second month in succession, albeit marginally.

Such is the concern that the ECB is at risk of crashing the economy, that any data which shows that the region is not in decline is to be welcomed.

With the war in Ukraine continuing, with no end in sight, it is hanging over the economy like a pall of negativity.

While the Governing Council continues to try to tackle inflation, with seemingly no concern for the overall economy, the market will be concerned about a recession and investors will “sit on their hands” rather than look for the opportunities that undoubtedly exist.

Francois Villeroy de Galhau, the Governor of the Banque de France, echoed the sentiments of his colleague from the Banco do Espana yesterday, agreeing that the ECB is coming to the end of its cycle of rate increases. He believes that it has been “wise” of the Governing Council to slow the pace of rate rises from fifty basis points to twenty-five as the cycle comes to an end.

The Euro is in something of a state of flux, it is considered too low to sell, but too high to buy. Its short-term fate rests with the outcome of the debate over the U.S. debt ceiling, which Lagarde has called a potential catastrophe.

Yesterday, the single currency rose to a high of 1.0831 and closed at 1.0821. It will need to breach resistance at 1.0860 to be seen as being on a positive path in the short term.

Have a great day!

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Alan Hill

Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.