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Over the last few months, debt issues in Continental Europe have rocked the euro zone. Many nations are facing high budget deficits and yields on government debt in these countries is approaching double digits, leading many to think that default is right around the corner. Several nations and supranational organizations have stepped up to prevent this from happening, pledging hundreds of billions in aid to nations such as Greece in order to stop a contagion situation from happening throughout the euro zone. However, many are growing increasingly concerned over the situation in the UK as well. Inflation is running high and austerity measures have, so far, failed to help bring budget deficits back under control. As a result, Moody’s recently warned that the country’s AAA credit rating could soon be at risk, although the company still maintains a ‘stable’ outlook for now. “Although the weaker economic growth prospects in 2011 and 2012 do not directly cast doubt on the UK’s sovereign rating level, we believe that slower growth combined with weaker-than-expected fiscal consolidation efforts could cause the UK’s debt metrics to deteriorate to a point that would be inconsistent with a Aaa rating,” said Sarah Carlson, an analyst at Moody’s Investors Service.
Due to these concerns, today’s Bank of England meeting looks to be especially important, as it could signal how the central bank expects the British economy to fare in the rest of 2011 as well as the Bank’s plans for raising rates to curtain inflation in the medium-term. While pretty much all economists expect the BOE to keep rates steady at 0.5%, many will likely look for the Bank to signal rate increases later this year or early next. Inflation came in at 4.5% in April, a two-and-a-half year high, and well above the the 2.0% target that the central bank sets. However, growth has been pretty weak in the country as the national GDP has been flat over the past six months [Will Decades Of Austerity Crush Britain ETF?].
Food and energy inflation has been the biggest culprit for the price hikes across the country as staples have soared by 25% and the annual rate of price increases for all types of food hit 4.9% in May. These increases in food costs, compounded with rising utility rates across much of the nation, is hitting the beaten down British consumer especially hard making a rate increase likely to hit the market sooner rather than later, if for no other reason than to contain these potentially crippling developments. Nevertheless, with growth so abysmal, many are hoping that the Bank will hold out a little longer in hopes that continued easy money policies will help to stoke GDP growth later this year. ‘While increased utility prices and high inflation puts the MPC in an uncomfortable situation, countering this with a rise in interest rates would be a mistake. As long as wage increases remain subdued, the MPC should hold its nerve for the time being.’ said David Kern, chief economist at the British Chambers of Commerce (BCC). [see Non Euro European ETF Options]
Thanks to this important meeting, investors should look for the iShares MSCI United Kingdom Index Fund (EWU) to remain in focus throughout Thursday’s trading session. The fund tracks the MSCI United Kingdom Index which measures the performance of the British equity market. In total, the ETF holds 110 securities and has close to 20% in both the energy and the financial services sectors. Thanks to continued worries over debt crises in many of its neighboring markets as well as concerns over its own debt and inflation problems as well, EWU has has a rough start to 2011, gaining just 4.1% so far this year including a 3.1% drop in the past week alone. Should the BOE be able to soothe investor fears over a growing British debt crisis, EWU could surge in Thursday trading. If, however, rate hikes look to be put off indefinately and investors continue to worry over inflation, look for EWU to continue its recent downtrend and fall on the day [see more on EWU's fact sheet].
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Disclosure: No positions at time of writing.
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Peter Risdon Says:
May 16, 2011 at 2:40 pm | Reply
The paragraph you quoted from ends with this sentence:
“According to the best-sited stations, the diurnal temperature range in the lower 48 states has no century-scale trend.”
That was a surprise given the tenor of this post: “… maybe this is the end to questions as to whether surface temperature increases actually exist.”
Did you mean that we can now say the answer to that is that surface temperature increases do not exist? Or that, pace Keenan in the WSJ, the data do not contain statistically significant trends?
andyrussell Says:
May 16, 2011 at 2:58 pm | Reply
I don’t think diurnal temperature range is very important. Do you?
What’s more, the “century-scale” bit covers some interesting detail. Before Fall et al., it seems that the only work on diurnal temperature range showed a negative trend from the mid-century to 1980s-ish. What Fall et al. found was that this has increased again since the 1980s. So there’s no “century-scale trend”.
But that tells you very little about mean surface temperature trends.
Mark Says:
May 17, 2011 at 10:45 pm
I have heard it claimed that the reduction in diurnal temperature range over the past few decades provides evidence that GHG increases are responsible for the warming. In that sense, some people think diurnal temperature range is important.
Incidentally, I don’t think Fall et al. were the first to find that DTR has increased since the 1980s. I read a paper that said much the same thing a few years ago.
Sorry for the lack of references to back up these statements. I’m a little too busy at the moment to chase them up.
andyrussell Says:
May 18, 2011 at 8:43 am
Ok, so I’m probably not giving DTR as much significance as it deserves.
My point is that I don’t really care about DTR. I don’t think I know anyone who has a particular interest in DTR. If this paper had been published by anyone else I wouldn’t have looked at it. It’s not very interesting. It’s just another paper on climate observations that fits in with the “consensus view of climate change” or however you want to put it. That’s useful, but not to me or most people.
If, however, the paper had shown what Watts has been saying it would show for quite a while now (i.e. that the postitive temperature trend in the surface station record in the US was an artefact of poor station siting) then that would have been very interesting. To me and to many other people.
But it didn’t.
Ben Says:
May 16, 2011 at 4:49 pm | Reply
So Peter… If the diurnal high and the diurnal low both rise by 1°C, you think this means there has been no warming? After-all, the diurnal range hasn’t changed! Others might draw a different conclusion.
Peter Risdon Says:
May 17, 2011 at 8:26 am | Reply
I understand diurnal range has significance, and the relationship between day and night time temperature ranges is important, especially with regard to the period 1950 to 1980 when the effect of man-made global warming, it has been argued, was masked by a cooling but revealed by the changes in the relationship between these ranges.
I further understand that this argument is based on the idea that human pollution caused this daytime cooling, that it affected the range of day time temperatures as well as the difference between night time temperatures which continued to show warming, and daytime ones that didn’t. This makes day time temperature range significant: if this is right it would be expected to show a variation that correlates with human activity.
But this isn’t my field; I’m just reading what I can in an attempt to understand as much as possible about an important issue and, for me at least, that means reading Watts and reading this blog. Just searching out stuff you’re already disposed to accept isn’t good enough. My comment was prompted by what struck me as a somewhat partial quotation and exasperation: I’m with Feynman when he said you should point out the problems with a theory, not just the things that support it.
[It's not really a "partial quotation" is it? That sentence you are interested in is stuck on the end of the abstract as a new paragraph and isn't really related to the 2 sentences I quote and which are related to the subject of this post. I'm not really interested in DTR and I doubt Watts was either. - AR]
At least Watts invites people with different views to post on his blog and has been at the forefront of attempts to cross the ideological divide, not least with Judith Curry.
Ben, of course you’re right. Andy, a century is an arbitrary scale, of course.
I’d still be interested in your take on statistical significance.
JMurphy Says:
May 17, 2011 at 12:05 pm | Reply
In what way has Watts atempted to cross “the ideological divide” ?
Ben Says:
May 17, 2011 at 3:16 pm | Reply
Peter, I encourage a critical (i.e. thoughtful) reading of Anthony’s blog but my god do you really think he’s “at the forefront of attempts to cross the ideological divide”? Anthony has done more to harden denialist thought than anyone, with the possible exception Marc Morano.
The “different views” he solicits are unthreatening fig-leaves.
andyrussell Says:
May 17, 2011 at 3:24 pm | Reply
I’ve got no problem with most of what Keenan says, although he’s not the first/only person to be saying these things. There’s a JoC paper from 2010 and it was one of the useful points to come out of the UEA email enquiries (i.e. working more with stats people). Not sure where the funding was supposed to come from for these new people though!
I suppose the bigger problem comes down to climate science covering so much stuff – you can’t just look at problems from a stats/dynamics/modelling/chemistry/radiation/whatever perspective for too long before a) not getting very far or b) needing to doing something you’ve not done before.