Improving Property market in the Canary Islands aided by improvement in Sterling vs the Euro

MPC member sets the ball rolling with talk of higher UK interest rates. Greece's fiscal problems worry the euro.

After a day's hesitation in the vicinity of Monday's €1.11 starting point the pound set off higher. It was not quite a straight-line advance (it almost never is) but sterling did not really come to a stop until it topped out at €1.13 on Friday. End of week profit-taking brought a brief setback but the pound was back up beyond €1.63 by the time London opened this morning.

Sterling had a good week on almost every front. On the rare occasions it failed to make progress - and only the yen springs to mind - it was steady. There was not universal support in every case to start with but by Tuesday there was wind in every one of sterling's sails. The pound owed its uncharacteristic advance to the Bank of England, specifically to Andrew Sentance, a member of the Monetary Policy Committee. He told The Guardian newspaper that 'Threadneedle Street has done enough to lift Britain out of its deepest post-war slump and will need to consider raising interest rates this year if a recovering economy poses a threat to inflation.' In his opinion the sixth consecutive quarter of falling output in the third quarter of 2009 presented 'an excessively downbeat' picture of the UK economy and he downplayed the risk of a double-dip recession.

That argument received corroboration the following day. The National Institute for Economic and Social Research ('Britain's longest established independent economic research institute' according to its own blurb) reckons the economy grew by +0.3% in the fourth quarter, contracting by -4.8% in calendar 2009. That last figure was given added punch by simultaneous news that Germany's economy shrank by -5.0% on the year. Although the NIESR is not responsible for the 'official' figures investors were happy to accept that the UK economy had finally returned to growth and they clung to that upbeat mood for the rest of the week.

By contrast, investors did not have their usual disregard for factors detrimental to the euro. They have at last fallen in with the idea that Greece's membership of the euro cuts both ways. Total public sector borrowing in Greece is set to reach 120% of gross domestic product this year and could be as high as 140% of GDP in a couple of years' time. The Greek government says it intends to barrow this budget gap but its deeds have so far fallen short of its words. Some analysts have speculated that a possible solution is for Greece to abandon the euro and go back to issuing its own currency, a sort of Drachma II.

At his press conference on Thursday the president of the European Central Bank made his position clear. First he said the idea of Greece leaving the euro was 'absurd'. Then he went on to say the ECB would offer no special treatment to Greece. That means, following the downgrade of Greek credit ratings, that Greek government bonds will not be eligible as collateral at the ECB once it retightens its rules to pre-crisis standards. Yesterday's Sunday Telegraph carried a piece entitled 'ECB prepares legal ground for euro rupture as Greek crisis escalates'. The official ECB line seems to be that a) there is absolutely no chance of Greece leaving the euro and b) this is what will happen when it does. Investors are less than relaxed about the situation.

The pound has spent most of the last three months between $1.58 and $1.68. It starts this week right at the top of that range and looking punchy. If it can consolidate its gains there is nothing to prevent it reaching €1.15 without too much effort. The uncertainty principle still points to a 50% hedge of any euro requirement but there might be better levels at which to make the transaction. Buyers of the euro who are not already hedged should use a stop order for protection in anticipation of this rally carrying further.

Report provided by moneycorp

2009/2010 Currency Round-Up from Currencies Direct

Watching the price action between Sterling/Euro over the past few months has been like trying to push a dinosaur uphill - slow and frustrating! However, as we end the year it looks like Sterling has moved away from the threat of parity and should mover higher in 2010 with the potential for a 15 % appreciation against the Euro.

The recent bout of Sterling weakness was partly fuelled by comments from the Bank of England(BoE), underling the fact that a weak currency was crucial if the UK was to not only export its way out of the global economic slump, but it would also make the UK a much more attractive proposition for overseas investors.

A clear sign then from the BoE that a weak pound was of no real concern and something they would not look to prevent. With the UK enjoying extremely flexible labour laws and a fairly resistant consumer, the BoE is looking for the pound to take the “bad medicine “ahead of the Euro and bounce back in 2010.


The data coming out of the euro zone has been patchy to say the least, with the strong data out of Germany and France overshadowing the weak data from the rest of the member states,and following the problems in Greece growth in the euro zone in 2010 could lag behind that of the USA and Japan again a problem weighing on the single currency The ratification of the Lisbon treaty by the Irish has gone mainly unnoticed by the currency markets, as it was seen as a forgone conclusion. Going into 2010 what will be of most interest, is how the different member states handle their economies. It was very easy for the European Central Bank (ECB) to slash rates along with the rest of the world. However, as the global economy starts to gather pace, not all member sates will relish higher interest rates. Ireland, Greece, Portugal and Spain will not welcome higher rates and the Germans, with their huge budget surplus, have stated they will not be prepared to subsidise other member states. It could prove a real test of the “European dream”.

In the current climate, currency markets overreact and that is why a move to parity still cannot be ruled out. However, if the UK economy starts to grow and the ever increasing fiscal debt can continue to be sold into the world markets, then a strong move higher in 2010 will happen . With the threat of a double dip recession upon us, and unemployment continuing to rise in the UK and the Euro Zone, it could be the flexibility and agility of the UK economy against the one size fits all policy of the Euro Zone that sparks this move higher.

2010 will prove to be a real test for Europe as the weaker member states who have mishandled their economies during the good times find the currency markets will be very unforgiving in the bad times.

Source- Keith Spitalnick, Currency Direct

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

Sterlings climb will help overseas property investors

It was a rewarding week for sterling, climbing from below €1.16 last Monday to open at €1.1750 in London this morning. There was moment's panic at the very beginning of the week when the pound dipped briefly to €1.15 but thereafter the only way was up. For overseas property purchasers and investors the exchange rate is an important consideration in Spanish Real Estate.

Nationwide reports a third successive monthly rise for house prices. Sterling close to eight-month high against the euro.

After the sell-off at the end of the previous week the market's first instinct was to buy the pound, although nobody was quite sure why. Hometrack's housing survey was vaguely helpful, inasmuch as it showed prices not falling, but investors found it difficult to get excited because prices were not going up either. It was a similar story with the CBI's retail sales report for July: At -15 the figure was better than the previous month's -17 but did nothing to motivate buyers. Money supply data on Wednesday were another net "don't care" for the market. The number of mortgage approvals went up, true enough, but as Reuters put it; "British financial institutions lent less money to households last month than at any time in the past 15 years." Gfk's index of UK consumer confidence survey produced another utterly useless figure when it remained unchanged at -25.

Investors at last woke up on Thursday morning when Nationwide's house price index came out. For a third successive month the building society saw a rise in the average price, this time by an entirely respectable +1.3%. The annual decline eased from -9.3% to -6.2%. The firm's chief economist offered an impressive hostage to fortune, saying "there is now a reasonable chance that prices could end the year slightly higher than where they started.

"Sterling's performance over the week obviously had something to do with the UK economic data - few thought they were - but mainly it was the by-product of another quiet week during which the mood of investors became more upbeat. As one of the allegedly riskier currencies it is more likely to find buyers when the market is less nervous.

The euro's profile last week was so low as to be almost subterranean. An almost complete absence of pan-euro-zone economic data meant just three useful statistics. Consumer confidence improved slightly from -25 to -23. Inflation - make that deflation - went down from -0.1% to -0.6% in the year to July and unemployment ticked up from 9.3% to 9.4%. Individual national figures did not add much to the proceedings. German consumer confidence was higher and German unemployment was steady at 8.3%. As with sterling, the euro's main claim to fame was to provide investors with an alternative to the US dollar, which was under pressure throughout the week.

Sterling starts August looking more potent than it did in July. It appears to have punched out of the €1.15-€1.17 range that held it for the previous three weeks, helped by its upward break against the US dollar. The high in June at €1.19 was sterling's best level since the beginning of December and that must be its next target. The pound has the potential to test €1.21 but, up here close to an eight-month high, buyers of the euro should take the opportunity to pick up a few more.

For more information and expert guidance on Canary Island property call 0034 928 535 044
Or contact info@goldacre-estates.com

Source Money Corp

Dollar fades despite bombs and missiles

Dollar fades despite bombs and missiles
US consumer confidence sharply higher
Sterling heads into resistance zone.

Good morning. You can tell the US dollar is out of favour when missile tests and even nuclear explosions are not enough to send it higher. Not so long ago a North Korean rocket would have investors - especially Japanese investors - scurrying for the safety of the dollar. There has been none of that in the last couple of days. The United Nations Security Council has complained but the market is unmoved.

If the threat of a South East Asian war was not enough to motivate dollar buyers there was no chance of the ecostats doing the job. It did look for a while in the morning as though the dollar might be in for a bit of a rally after losing ground last week. During the first couple of hours it added a cent against the pound and the euro. But conviction was lacking among investors. By lunchtime they had decided to seek their fortunes elsewhere. The dollar had to hand back its morning gains and it continued to drift lower overnight.

It did so despite a 40% jump in the Conference Board's index of US consumer confidence. The index rose from April's 39.2 (40.8 after adjustment) to 54.9 in May. The Case-Shiller metropolitan house price index fell by a slightly more than expected 18.7% in the year to March but that was not a bad enough number to account for the continued exodus from the dollar. Not was there any endogenous reason for the Yen's loss of ground. Like the dollar, it went down because investors are more scared of bank failures than nuclear missiles and nobody is doing bank failures this week.

The absence of that fear factor worked in sterling's favour, as it also did for the commodity dollars and other risky assets. The Canadian dollar was the best performer among the main-stream currencies, closely followed by the Aussie.

Given the complete absence of any correlation between economic data and currency performance recently (there was none from Canada, Australia or Britain yesterday) it seems pointless to bother about today's agenda. Nevertheless, tradition demands it: We can look forward to German inflation, French and Italian consumer confidence, UK mortgage approvals (the BBA version), US existing home sales and the government's house price index. Pick the bones out of that lot. There, told you it wasn't worth bothering with.

On the other side of that coin it is also fair to observe that there is nothing on the timetable likely to thwart sterling's effort on the upside. What it does have to worry about, however, is the proximity of psychological resistance for cable and technical resistance for sterling/euro. The November low and the February high are only a cent or so away and will inevitably give sterling buyers reason to consider taking some of their profits. History says the pound will fall back yet again but last week's experience shows what might happen if it does not.

Euro Exchange – the real cost to British Buyers in Canary Islands

Following the strong media exposure damping British buyers hopes of buying holiday homes in Spain due to the strong Euro, it is well worth further examination of the real cost the current exchange rates poses to those looking to take advantage of competitively priced properties on offer this year.

With the current exchange in the region of GBP 1 to Euro 1.26 compared to Euro 1.40 a year ago a property of 200,000 Euros now would cost 15,873 GBP more. This is based on paying the full amount using GBP of course, something which rarely ever happens as the majority of buyers in Canary Islands use locally sourced mortgages taken in Euros and take advantage of the Islands extended season for rental. Where the rental is payable in Euros the monthly mortgage repayments are not subject to any exchange costs.

John Goldacre from the Canary Islands property specialist Goldacre Estates points out, ‘in a typical scenario investors take advantage of the lower rates offered by Euro mortgages compared to Sterling equivalents. Where a 70% mortgage is offered locally, our clients only have to exchange 30% from Sterling to Euros, representing a minimal cost of exchange compared to paying 100% from Sterling.’

A 200,000Euro example then would actually only cost 4,762 GBP more than a year ago, not 15,873GBP. This realistic cost when compared to the localised markets of Fuerteventura and Gran Canaria www.goldacreestatesgrancanaria.com should be considered carefully. Currently Fuerteventura offers some of the lowest priced properties as it is still in the early growth stages compared to mature markets like mainland Spain or even Tenerife. Combine this with a long rental season due to year round letting capabilities and the media presented picture becomes less obvious.

John has this to say, ‘Shrewd investors have turned their attentions away from the more familiar markets of continental Europe towards smaller niche sectors offering less volume but higher quality and favoured positions. One such example is the Vista Mar project in Fuerteventura offering frontline sea view apartments of very high quality build and design that include many extras such as air-conditioning, fully fitted kitchens, 42m2 terraces, private garaging, gym facilities as well as a 25m pool for exclusive owner use. Products like this are exceptional in todays market and provide the best cover against recessions especially when there is only a 20% investment required today and then you look at local additions that make up the total investment picture such as additional investment in the airport, new golf facilities close by, a new marina, promenade, blue flag beach and ferry services to other islands close by.’

GoldAcre Estates can be contacted on www.goldacre-estates.com or e-mail info@goldacre-estates.com