The focus is on the US
Republican politicians all piled into the clown car in the Washington debt circus yesterday by cancelling the scheduled vote in the House of Representatives on raising the debt ceiling. With the Democrat majority in the Senate threatening to veto the House bill hopes of any agreement were always very slim, but it will remain a very nervous weekend. The White House is due to release its own view on how the Treasury would operate after 2nd August after US markets close today and it will clearly be a very nervous weekend. With risk increasingly being taken off the table, stocks are lower, but the USD has benefitted from risk aversion. UK broad money was never the closest watched of economic indicators –indeed even the MPC ignored the asset bubble warnings from 10%-plus annual growth rate in M4 seen from March 2005 onwards- but with the economy flat-lining there will be some interest in seeing whether bank credit is being extended in June. We expect mortgage approvals to continue around the 45,000 level, which is under half their long-run average. There could be some upside risk due to the fall in fixed-rate borrowing costs over the month, but we believe that mortgage lending will struggle with only £1 billion being written over the course of the month. Any increase in net consumer credit is likely to prove involuntary. The market is looking for US Q2 GDP to grow at an annualised 1.8% in the three months to June, which is more than double the rate seen in the United Kingdom over the same timeframe. The range of estimates runs from 0.9% to 2.9%, which reflects the high level of uncertainty faced by economists. While consumption is expected to be soft and housing construction negative, there are hopes that government spending and net trade could provide positive surprises. Yesterday’s weak durable goods orders suggest that the upside risks are limited, but for now, softer inflation will help bolster US GDP growth relative to the UK. With Q2 out of the way, the Chicago PMI and final estimate of the University of Michigan Consumer Confidence survey give us more colouring as to how July has fared. The market is looking for a small fall in the Chicago survey by 1.1pp to 60, but we could see a steady move sideways instead. The surprise rise in the Conference Board’s Consumer Confidence index means that there is some upside risk that the final Michigan number will be revised higher.