Summary of the Weekend’s News:
Sunday Stories
Sunday Times
• In place of David Smith, Richard Lambert, director-general of the CBI and former Monetary Policy Committee (MPC)
member, writes about last week’s rate decision. He says we are left with two big questions. Why did the Committee feel it
necessary to move at this time, without taking another month or two to prepare the markets for a rise? And does the
change represent only a precautionary touch on the brakes, or might there be more to come? He says that maybe they
revised down their estimates of the degree of slack left in the economy. Or perhaps they have become a bit more worried
about import prices which, excluding oil and erratic items, now appear to have come to the end of a protracted period of
decline that has lasted most of the past decade. Alternatively, they might simply have decided that a modest rate rise had
become inevitable in the coming months, and that they might as well get it out of the way – even at the price of surprising
the markets.
• The paper reports that UK industry is facing its worst-ever rise in energy prices in the run-up to the round of contract
renewals this October. Two-thirds of all industrial electricity contracts are up for renewal between now and October 1, but
many firms have yet to put new contracts in place, according to energy brokers. Price hikes of up to 40% are likely they
say.
Telegraph
• Roger Bootle writes that the current turmoil in the Middle East has led some analysts to predict that crude might reach
$125 a barrel. However, higher oil prices would also increase the huge surpluses run up by the oil-producing countries.
Bootle notes that income is being transferred from the oil consumers to the oil producers. Because the oil consumers tend
to spend their income whereas the oil producers do not, this transfer potentially has a depressing effect on world economic
activity. He asks what would happen if the oil producers spent their surpluses. Most significantly, the growth of the world
economy would be boosted. Increased spending within the domestic economies would stimulate activity there, but, of
course, reducing the surpluses means spending money on foreign-produced goods and services, and that will boost
activity abroad. In the process, this would increase inflationary pressures around the world and tend to put upward
pressure on world interest rates.
Could a burst of spending by the oil producers even solve the problem of the American current account deficit and
thereby relieve the threat to the dollar? Bootle thinks this is unlikely as comparatively little of the oil producers’
spending is directed towards the US. So, “whichever way you look at it, it is difficult to escape the conclusion that
the problem of world imbalances can be corrected only with some help from a weaker dollar."
Summary of Overnight News:
• London – Leading shares are seen opening lower this morning, reflecting disappointment at the US market's failure to
hang on to gains on Friday, with interest rate concerns continuing to weigh on both sides of the Atlantic, dealers said.
• US stocks ended slightly lower on Friday night, with cautious investors dragging indices well below their opening highs,
unwilling to trust that a benign monthly employment report was enough to keep the Fed from raising interest rates this
week, traders said.
USA
Figures out Today:
20:00 US consumer credit (Jun) $bn 4.4
• The attention focuses on Tuesday’s FOMC rate decision.
UK
Figures out Today:
09:30 Industrial production (Jun) %m/m 0.0 0.3
09:30 Manufacturing production (Jun) %m/m 0.2 0.5
EURO US DOLLAR @ 1.2865 GB POUND US DOLLAR @ 1.9048 GB POUND EURO @ 1.4806 USDJPY @ 114.75