Tuesday, 19 September 2006

US current account deficit widens, inflation fears dominate in Europe

The US current account deficit widened by more than expected in the second quarter. Reuters reports:

The current account shortfall totaled $218.4 billion in the second quarter, larger than Wall Street forecasts of $214 billion, a Commerce Department report showed.

The government also raised its estimate of the first-quarter current account deficit to $213.2 billion from a previously reported $208.7 billion...

The Treasury's capital flows report showed net flows of capital to the United States fell to $32.9 billion in July, less than half of the U.S. trade deficit in that month...

Alan Ruskin, chief international strategist at RBS Greenwich Capital, said the most interesting feature of the current account report might have been the record $4.1 billion deficit on investment income flows in the second quarter...

The Commerce Department revised its first-quarter estimate of the investment income balance to a deficit of $2.5 billion, from a previously reported surplus of $1.9 billion.

And there was bad news elsewhere in the US economy.

The National Association of Home Builders said its index of homebuilder sentiment declined 3 points in September to 30, the lowest since February 1991, when the economy was in recession.

In Europe, inflation seems to be the main concern.

From Reuters:

Asking prices for homes in England and Wales grew almost 10 percent on a year ago in the period from mid-August to early September, even after the Bank of England's shock quarter-point rate hike, a survey showed.

Property Web site Rightmove said on Monday asking prices rose by 0.2 percent in the monthly period, an improvement from the prior month's 1.6 percent decline.

Inflation expectations in the UK were not too comforting either.

Britons' expectations of future inflation steadied in August, but were still way above the Bank of England's 2.0 percent inflation target, reinforcing analysts' expectations the BoE will raise interest rates again this year.

The central bank's August inflation attitudes survey showed median expectations for the rate of inflation over the coming year were 2.5 percent, the same as in the May survey.

Meanwhile, European Central Bank officials have been sounding hawkish of late. From another Reuters report:

Euro zone interest rates are still low and inflation risks are rising, European Central Bank policymakers said on Monday, while central bank sources said the ECB may have to raise interest rates into 2007.

A senior euro zone monetary source told Reuters the ECB key rate can be expected to reach "at least 4 percent" by the end of next year, if trend growth materialised as expected.

And that is despite the euro area's annual inflation rate edging down to 2.3 percent in August from 2.4 percent in July -- or a monthly rate of just 0.1 percent for August -- and industrial production falling by 0.4 percent in July.

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