Weakness in Mortgage Approvals and Tight Credit Environment May Hamper U.K. Recovery

Mortgage approvals in the U.K. climbed less than expected to 43.4K from 43.2K in the previous month. Despite considerable efforts by the government to encourage lending by companies, the figure has slowed its pace of advance sharply and, in the process, raised concern over a recovery in the housing sector. Other indicators including net lending on dwellings posted at 0.3B, the smallest amount since recording began in 1993.

[B]Fundamental Headlines[/B]

• [I]Wary Banks Hobble Toxic-Asset Plan[/I] – Wall Street Journal
• [I]Oil Watchdog Cuts Demand Forecasts [/I]– Financial Times
• [I]Romer Upbeat on US Economy [/I]– Financial Times
• [I]Dollar Climbs as China Rules Out Currency Change; European Stocks Rebound[/I] – Bloomberg
• [I]U.K. Financial Firms Plan 13,000 Job Cuts Even as Optimism Grows, CBI Says [/I]– Bloomberg

[B]EURUSD[/B] – Euro-Zone confidence and retail sales figures posted improvements as rising equity markets and increased stability in financials have raised optimism that recovery looms. Economic confidence rose to 73.3 from 70.2, capping a third monthly advance off March lows to the highest level of the year. Also seeing considerable improvement, consumer confidence rose to the best levels since August with a gain to -25 from -28. Retail sales, meanwhile, climbed slightly to 47.5 from 47.1, signaling contraction for the 13th month, while the German sales figure actually fell fractionally. Improving indicators are contributing to the notion that markets are deteriorating at a less severe pace and that expansion may begin as early as the final months of the year. Despite this, concern lingers over mounting job cuts and weakness in the housing sector. Discuss the topic and your trade ideas in the EUR/USD Forum.

[B]USDJPY [/B]– Industrial production increased for the third month in May, tying the previous gain of 5.9%, while falling short of the Bloomberg estimate for growth of seven percent. Output has gained as domestic confidence improves, along with higher demand from China. Despite the upside, annualized decline improved slightly to a 28.8% contraction from 30.7% in the previous month. Also released overnight were retail sales figures, which showed weakness continuing for the ninth month at a 2.8% annualized clip as job cuts mount. Japan’s economy remains mired in a difficult recession as domestic demand slumps despite improvements in the global picture. The nation may see growth in the second quarter while the BoJ Tankan survey is currently expected to see its first improvement in the large manufacturers figure for the first time since Q4 2006. Ultimately, recession will continue as outlook remains murky and improvements seen are not quite enough evidence of a bottoming in the economic cycle. Discuss the topic and your trade ideas in the USD/JPY Forum.

[B]GBPUSD[/B] – Mortgage approvals in the U.K. climbed less than expected to 43.4K from 43.2K in the previous month. Economists had expected a far larger improvement to 46.0K as the figure climbed for the fourth month to the highest level since April, 2008. Despite considerable efforts by the government to encourage lending by companies, the figure has slowed its pace of advance sharply and, in the process, raised concern over a recovery in the housing sector. Other indicators including net lending on dwellings posted at 0.3B, the smallest amount since recording began in 1993. The figure consequently stands well below its 2006 high of 10.86B and shows banks remain unwilling to expand lending to would-be borrowers perceived as more risky. A grim credit picture threatens to slow the pace of recovery which, along with rising layoffs, could prolong recession through 2010. Discuss the topic and your trade ideas in the GBP/USD Forum.