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Monday, 10 August 2009

Evidence Of Green Shoots In The UK Housing Market

Further evidence of green shoots in the UK housing market at the start of the month
stimulated GBP to notch new highs for 2009 against the US dollar at 1.6744. According to
the Nationwide, house prices jumped by 0.9% in June, the second consecutive monthly rise,
bringing the annual house price falls below 10%.

However the final figure for Q1 GDP (Gross Domestic Product), revised down to a 2.4%
drop in growth, the steepest quarterly fall in 50 years, reminded the market how grim things
were at the start of the year. So with the last three quarters (Q3 08 -0.6%, Q4 08 -1.6%, Q1
09 -2.4%) showing this recession deepening, there is a lot at stake that the talk of green
shoots will buck the trend.

There was further evidence of stabilisation in the UK economy with the latest readings of the
Purchasing Manager’s Index for manufacturing and services. The positive momentum in the
manufacturing sector was confirmed with a reading of 47.0 in June from 45.4 in May and the
all important services sector held expansionary territory with a reading of 51.6.

In the US, seen as the leading indicator in this credit crisis, the data took a turn for the
worse. Despite marginal improvement in the housing sector and the manufacturing sector,
consumer confidence surprised the market by dipping back down lower from 54.9 in May to
49.3 in June and the all important non farm payrolls scuppered hopes of a solid recovery.
The non farm payrolls proved to be 100k jobs worse than expectations with 473k jobs lost in
June.

The equity markets around the world bucked their recent weakening trend to rally across the
board backed up by an impressive Chinese Q2 GDP number of 7.9% allowing the FTSE to
end the week with its strongest weekly gain for this year of 6.3%. Other significant events
included further signs of stabilisation in the housing market with the RICS housing market
survey jumping from -43.8 to, its highest reading since September -18.1 in June2007.
As we celebrated the 40th anniversary of the lunar landing, the equity markets continued
their propulsion higher as confidence grew amid the US reporting season, with 75% of
companies that have reported thus far, exceeding market expectations. The FTSE 100 has
now pushed higher on 10 consecutive trading sessions, a feat only managed twice in its 25
year history and never at this rapid 10% rate of ascendency.

Growth in the UK in Q2 fell by 0.8%, more than twice as bad as market expectations, taking
the year on year drop to 5.7% and markedly outpacing the recession in the early 1990’s,
although still behind the 6.4% drop in growth in the early 1980’s. There were however some
fresh green shoots from of the housing market, with a jump in mortgage approvals and also
on the High Street as retail sales surged by 1.2% in June, although the weather and early
discounting were cited as the transitory positive influences.

The rampaging global equity markets were again the driving force for the Dollar’s decline
last week with just a little help from the UK’s favourite dinner party topic, house prices, to
bolster Sterling. With up to 75% of major US corporate results out-stripping analyst’s
forecasts and household UK names such as BT and Cadbury doing likewise, the growing
investor optimism had translated directly into higher share and commodity prices and a
familiar sell off in the Dollar.

Source HIFX

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