As large European gatherings go, the EU Summit on Friday was rather more productive than the usual watered down communiqué you get at the end of these events. The main success was the European Financial Stability Fund - the fund used to bail out Greece and Ireland – which was increased from 250 million to 440 million Euros. This will help calm market fears who had previously questioned whether the fund was large enough if Portugal and even Spain required financial support.
The other main highlight was Greece, the first country to receive a bailout which had their debt’s interest rate reduced by 1% and the term to pay it back extended from four to seven and half years, after they agreed to sell 50 billion Euros worth of state assets. As for Ireland, well there was no luck for the Irish this time, as Germany and France refused to reduce Ireland’s interest rate unless they agreed to an increase in their corporation tax. Ireland’s corporation tax is 12.5% - the lowest in Europe – and many EU countries find it hard to swallow that while they lend the country billions Ireland can still afford this rate, which gives the country a strong competitive advantage over their European partners. Overall, what does all this mean for the Euro? Well, the currency reacted very positively to the news that the bailout fund had been almost doubled with the euro strengthening against the pound at 1.1540 and EUR/USD moving to 1.3952.
Closer to home and the UK data release on Friday of input and output prices again showed the inflationary pressures facing the UK economy. Input prices – which are the costs experienced by our businesses when producing their goods and services – increased 1.1% in February, which meant that over the last year input inflation increased by a remarkable 14.6%. Output prices which are the price businesses will then sell their goods on at also showed an increase of 0.1% in February - with the annual rate at 3.1%. This means that businesses are not passing on the full impact of higher costs to their customers, but if oil prices remain high you wonder how long businesses can sustain this.
Jumping across the pond to the US and their businesses appear to be fairing a little better with retail sales up 1% in February, higher than January’s revised 0.7% growth. This is more positive economic news from the States where the economy appears to be gaining in momentum. If oil prices are maintained at current levels however, this is likely to impact retail sales as consumers spend more of their money filling up the cars with the overall consequence being lower GDP growth.
Posted in Daily Market News on May 30 2014
If only everything in life was as predictable as a Bank of England interest rate decision. The market had expected rates to remain on hold and the MPC did not disappoint - keeping rates at their historical lows of 0.5% for another month.VIEW FULL ARTICLE
Posted in Daily Market News on Mar 11 2011 by admin