German unemployment weighed on Euro and UK house prices up for third month

07-30-2009 14:12

During last night’s trading session the Single Currency was first affected by Germany’s unemployment figures, while it later found support on the back of rising optimism in the Eurozone as it traded rather roughly between 1.4050 – 1.4100. Confidence regarding the Eurozone economy went up for the fourth consecutive time from 73.2 to 76.0 in July, while consumer confidence also rose from -25 to -23 as a result of government stimulus strengthening the Eurozone’s economic prospects and due to low interest rates. Nevertheless, German unemployment increased from 3.41 million to 3.46 million, while seasonally corrected it decreased 6.000, leaving the unemployment rate at 8.3%. The retail Purchasing Managers' Index (PMI) measured by Bloomberg demonstrated a decrease from 47.5 to 47.3, which is the fourteenth straight month.

German unemployment

There were indications that the German economy is improving, regardless the progressed sentiment gauges, although unemployment went up and retail sales decreased. Falling demand for German cars was the main reason for the decrease in retail sales, while the unemployment rate did not increase. Furthermore, the German economy improved from 46.0 to 49.8. Nevertheless, the limited lending activities by German banks could frustrate economic growth, which results in anxiety. Interest rate expectations for the Eurozone have fallen on the back of tight credit markets and German Consumer Price Index (CPI) dropping to -0.6%, while the European Central Bank will be urged to ease credit markets and respond to deflation risks.

British house prices

The Sterling recovered, exceeding 1.6500 ahead of resistance, which was the result of support caused by increasing British house prices by 1.3%. House prices went up for a third consecutive month in July, proved by the Nationwide Building Society report, the worlds largest building society, while stock levels have begun to decrease. The rise in home prices surpassed median forecasts of 0.2%, which adds to yesterday’s improved mortgage approvals, resulting in sunnier prospects for the housing sector. It is generally known that easing credit standards and an increasing housing market are crucial for the British economy to improve. Credit markets have begun to defrost and while Britons profit from rising house prices it should give them the possibility to acquire funds for other purchases.

Growth in third quarter

During last night’s trading session, the Greenback gained versus high-yielding currencies but performed rather weak versus the Pound, although European stock markets went up. The US Dollar association with risk should be reviewed on a day-to-day basis, as indications that the American economy is becoming more stable provides the Greenback support. Expectations for economic growth in the third quarter of this year increased as the Fed’s Beige Book demonstrates that the majority of federal districts are becoming more stable or are restraining. Data regarding the gross domestic product of the second quarter will be released tomorrow, which will provide more information and might result in markets on hold. Today’s report regarding initial jobless claims is not expected to impact the market but in case of a considerable gap between forecasts and actual figures, it could generate sustainable momentum. The number of unemployed persons will probably increase from 554.000 to 570.000.