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Wednesday’s testimony by the Bank of England MPC members to the Treasury Select Committee highlighted the wide range of views about the risks surrounding the UK economic outlook. One of the risks is the renewed weakness in the housing market as one of the reasons why any discussion of policy tightening is far too premature and further easing may yet be required to assure that growth momentum is sustained. House price indices have began to roll over in the past few months and leading indicators, such as mortgage approvals and net mortgage lending, suggest no immediate respite on the horizon. In June, Lloyds TSB expect both series to have remained subdued, with approvals slipping to 47k and net mortgage lending declining to £1.1bn. Mortgage Approvals are expected to fall for the second consecutive month in June while Net Consumer Credit growth slows from the previous month over the same period. The figures will reinforce dovish comments from BOE policymakers delivered in testimony to the Parliament’s Treasury Committee, where governor Mervyn King downplayed the stronger-than-expected second quarter GDP result to stress lingering uncertainty about the recovery in general and inflation in particular, signalling monetary policy is firmly stuck in accommodative territory for the time being.

In Germany, Inflation up to 1.1% in July. CPI inflation rose to 1.1% in July, up by 0.2 point in comparison with June. Base-effects linked to energy and food prices (in particular in seasonal food sector) underpinned inflation. Inflation should continue to increase slightly over next months. Indeed, firms should partially pass the increase in import goods prices on to final prices. In the eurozone, the focus will be on the publication of the European Commission economic confidence readings which we expect to show very little change in the overall regional sentiment in the month of June. While in Germany, the latest labour market data are expected to indicate that unemployment was fairly static in July as companies remain reluctant to take on labour given the uncertain global economic outlook.

In US, Lower durable goods orders in June, for the second consecutive month. Durable goods orders dropped for the second consecutive month in June, by 1.0% m/m. These disappointing data mainly reflected lower transportation and defence orders. By contrast, less volatile “core” orders – i.e. non-defence capital goods excluding aircraft – were up for the second consecutive month, by 0.6% m/m. Durable goods shipments have been up by 9.4% q/q annualised in the second quarter, pointing to another sharp increase in expenditure in equipment and software. Early signals indicate slower growth in manufacturing activity, pointing to weaker investment growth in future quarters. EUR/USD looks like it will explode sooner or later after having traded immensely close to 1.30 for days now. If equity markets return to the positive mood, it will be on the upside; if the air goes out of the balloon it will be on the downside.  Fed‟s Beige Book showed that commercial real estate and expiration of a tax credit for homebuyers were weighing on the economy in some areas. “Economic activity has continued to increase, on balance, since the previous survey” the Fed said yesterday while noting that two of the Fed‟s 12 districts reported the economy „held steady‟ and two said expansion slowed. Housing markets were characterized as “sluggish” while labour market conditions were described as “improving modestly”. All in all, a not so cheering affair, as could be expected after Bernanke‟s soft testimony last week.

Yesterday we got a pleasant surprise when Lithuanian Q2 GDP numbers surprised positively. Hence, GDP grew by 1.1% y/y in Q2 South African inflation (CPI) eased to 4.2% y/y in June – well below the consensus expectation of 4.5% y/y and comfortably within the South African Reserve Bank’s inflation target of 3-6%. The number clearly keeps the door open for a rate cut from SARB and South African market rates and yields dropped on the back of the number. Furthermore, the continue overvaluation of the rand is also an argument for cutting ratings in South Africa. That said, there is certainly not room for aggressive monetary easing and if we are going to see further monetary easing it is unlikely to be more than a single cut. It is a relatively light calendar today. Focus on producer prices data out of Hungary and South Africa. Danske do not expect the data to be market-moving. The Czech koruna undoubtedly is the EMEA currency that Danske are most bullish on – both short-term and long-term. Yesterday, the koruna hit the strongest level against the euro in 20 months.