Everybody is now focused on the US mortgage market but in the longer term, how well the mortgage and credit markets survive the current turmoil depends to a large extent on where central banks take official interest rates. Yesterday, both the ECB and the BoE left interest rates unchanged at their meetings.
The FT on the ECB decision:
The European Central Bank on Thursday signalled the cost of borrowing in the eurozone would rise again soon, with most economists tipping on a now-traditional quarter-point rise in the main rate to 4.25 per cent in early September.
But the central bank for the 13-member currency bloc made no comment on the trajectory of monetary policy beyond next month, leaving the door open to more rate increases or to a pause as past moves stem the speed of price rises.
The FT on the BoE decision:
The Bank of England kept interest rates on hold at 5.75 per cent on Thursday, as expected, but the City of London is betting on another increase before the year is out...
[A] cooling UK housing market seems to be the only real evidence that demand is slowing in response to the tighter credit conditions. Figures from the Halifax mortgage lender on Thursday showed prices rising 0.7 per cent in July, compared with an average of 1.5 per cent in the first three months of the year.
But while markets prepare for more rate hikes from Europe, the Fed is unlikely to have been moved by yesterday's economic data from the US. From Reuters:
Factory orders increased 0.6 percent in June...
June nondefense capital goods orders excluding aircraft...were unchanged, which was slightly better than a 0.7 percent decline seen in an earlier estimate by the government last week...
Excluding transportation, factory orders declined 0.5 percent...
The other main economic release on Thursday was from the U.S. Labor Department, whose data showed new applications for jobless benefits rose a slim 4,000 last week to a still-low 307,000...
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