Daily Financial Market Outlook

The overnight release of the GfK consumer confidence index will keep today’s domestic focus firmly on consumer sentiment in the UK. While the economic fundamentals for the consumer sector remain weak, the housing market has continued a slow improvement. In November, mortgage approvals rose to 52.9k and we look for a rise to 54.0k in December. Such an outcome would mark the highest outturn since December 2009 (although still less than half the precrisis average). While activity around mid-year was supported by some easing in credit conditions, more recently the end of the stamp duty holiday looks likely to be a hindrance to the recovery. The scheme provided temporary stamp duty relief for first-time buyers completing on properties valued at between £125k – £250k. However, with this scheduled to be reversed end-March, details of the government’s mortgage indemnity scheme still sketchy and risks of the rise in commercial banks funding costs being pushed through, housing market activity could slow again in 2012.

In contrast, in the US, consumer confidence has found a more firmer footing of late. Better prospects for employment and rising economic confidence has led to a rebound in consumer sentiment over recent months. We look for a further improvement to 69.0 in January from 64.5 ahead of this Friday’s payroll numbers.

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