Dow Jones pan-European Stoxx 600: 1987-2010

355,000 Americans defaulted on their mortgages in H1 2010 even though they could pay.

Most American mortgages are only recourse to the secured property and as prices have plummeted, it has seemed rational to walk away from a mortgage which is of higher value that the house, with little prospect of prices rising significantly in the near future. While some would argue about the morality of such decisions, the extra spending in the economy would have been of some help.

According to the new Experian–Oliver Wyman Market Intelligence Report, strategic defaults continued as a high percentage of all mortgage delinquencies at 19% in the second quarter of 2009. While, overall, the broad trends observed in the first Experian–Oliver Wyman Market Intelligence Report on Strategic Defaults have continued into 2009, they say there is reason to believe the phenomenon may have peaked, or be close to peaking.

The first Experian–Oliver Wyman Market Intelligence Report demonstrated that strategic default occurs more in areas where home price declines have been the steepest. This trend continued into 2009. In California, strategic defaults are running 80 times higher than in 2005, and in Florida, 53 times higher.

The defining characteristics of strategic defaulters include:

• Higher number of first mortgages - - Borrowers with multiple first mortgages, i.e., investors, show a higher incidence of strategic default.

• Higher VantageScore  (a credit scoring system)  - -  In the first half of 2009, 28% of super-prime delinquents (VantageScore between 901 and 990) became strategic defaulters, a 50% higher rate than in the overall delinquent population.

• Higher origination mortgage balance - -  Customers with higher mortgage origination balances are more likely to be strategic defaulters; this is true even after controlling for geography, number of first mortgages and VantageScore.

• Counterintuitive home-equity line default behaviour - -  Strategic defaulters who also have home-equity lines are more likely to stay current on those lines prior to mortgage default.

• The report finds that 50% of strategic defaulters who went delinquent on their homeequity line of credit did so before they went delinquent on their mortgage, compared to 70% for the overall population.

Data from the first half of 2009 may contain the first signs of a “break in the clouds.” The report shows that the absolute number of strategic defaults for the first half of the year, 355,000, as well as first-time mortgage delinquencies in general, declined in successive quarters in 2009, suggesting they may have peaked in Q4 2008.

“Both delinquency and strategic default - -  as we define these terms - -  continue at high levels, but in Q2 2009 we see the first evidence of a break in the upward trend. After a seasonal reduction in both measures from Q4 2008 to Q1 2009, the Q2 numbers then declined further, breaking the historical trend of quarter-over-quarter increases; however, we will need to analyze the data from Q3 and Q4 to validate this,” said Peter Carroll, Partner at Oliver Wyman.

A separate report showed that consumer bankruptcy filings reached their highest point since 2005 in the first half of this year.

Through the first six months of 2010, consumer bankruptcy filings increased to 770,117 - -  14% more than filings made over the same period last year, the American Bankruptcy Institute said last week. This marks the largest number of filings since the Bankruptcy Abuse Prevention and Consumer Protection Act was enacted to curb the increase in filings five years ago.

With a slew of central banks such as the RBA (Australia), BoE and ECB meeting this week, John Noonan, senior FX analyst at Thomson Reuters, offers his take on what they are likely to do and say, with CNBC's Martin Soong & Sri Jegarajah:

Economic View: Irish public finances still on track for full year targets; Goodbody economist, Deirdre Ryan, comments - - "With government revenue and spending data for the first half of the year available, we are encouraged by the fact that Ireland remains on track to reach the deficit targets put in place in last December’s budget. Tax revenues for the first six months totalled €14.4bn, which was modestly behind profile (-1.6%). Although the decline in revenues has stabilised (now behind 9% yoy, -10.4% yoy in May), there are some concerning aspects to this revenue shortfall, given that it is wholly accounted for by income tax revenues, which were 6% behind expectations in H1.

 This provides further confirmation, if it was needed, of the continued poor labour market dynamics, and indicates that downward pressure on pay trends continues to persist as well as ongoing falls in employment. On the other hand, a very tight grip is being kept on the spending reins. Voted spending was 6.2% lower yoy in June, relative to a full year target for a 1.6% decline. Within this capital spending is bearing the brunt of the spending pressures (-25% behind profile), with voted current spending in line with expectations for H1. Overall, although tax revenues are running modestly behind expectations, the efforts to rein in spending have more than offset this shortfall and an underlying deficit target of 11.6% of GDP remains achievable at this stage. Additional costs associated with the banking sector will see the headline budget deficit come in much higher than this (-18% of GDP). However, these costs do not form part of the structural deficit, which the government is targeting to eliminate.

The fact that growth has returned to the Irish economy, as evidenced in Q1’s GDP data will further help with the government’s efforts to stabilise the public finances. Press reports indicate that the Dept of Finance will soon upgrade its growth estimate. On Budget Day a decline of 1.2% in GDP was forecast for 2010, but this is now likely to be upgraded to positive territory. We upgraded our own forecasts following last week’s GDP data, owing to a particularly impressive export outturn. We now expect growth of 1.6% in GDP for 2010, with growth to accelerate further to over 3% next year. In all, with the EU paying close attention to budgetary developments everywhere, the fact that full year targets are being met is very encouraging."

Phil Angelides, chairman of the Financial Crisis Inquiry Commission, talks to CNBC:

Weakness of Irish incomes still evident in tax data: Davy chief economist, Rossa White, comments  -- "Irish exchequer figures for the first half of the year were mixed. Tax revenue is behind target, thanks to the miss on the income tax line. Excluding income tax, revenue is ahead. Expenditure control is pretty tight. But it is slightly worrying to see capital spending so far behind profile, albeit that second-half catch-up was the norm in previous years. Nonetheless, those delays are not helping struggling contractors in the construction sector. To summarise last week's Irish data: the economy has stabilised, but incomes are still being eroded.

At the end of H1, tax revenue missed target by €227m or 1.6%. That was a touch worse than the end-May outturn, when revenue lagged by €148m or 1.2%. Income tax is not meeting expectations year-to-date. At the half-year, income tax was €304m, or 5.8%, lower than the official projection from the start of 2010. We already knew that employment has not yet stabilised, even if the quarter-on-quarter decline has slowed. Note, too, that these data are lagging in two ways: turning points in the labour market lag turning points in real activity and the collection lead-time is at least a month. With those caveats in mind, it seems clear that wages are still falling. Longer-term, that is helpful for competitiveness, but in the short term, it may prevent tax revenue from beating the full-year target of €31bn by much at all.

Incomes across the economy are still sliding in both real and cash terms. GDP is growing, but GNP is not there yet (albeit that it probably expanded in Q2 in volume terms). Those nominal (cash) variables matter greatly at this point in the Irish recovery. We noted last week that the volume of GNP slipped 0.5% in Q1, but nominal GNP fell by 3.2%. Tax revenue tracks the change in the cash value of the economy. Falling prices across most sectors imply lower revenues and, hence, declines in household cash incomes too. Reflating the Irish economy will be a multi-year challenge, so the more the euro depreciates (particularly against sterling) the better."

The Chinese are well known as liking gambling. Investors treat the stock market like a casino, says Peter Elston, chief strategist, Aberdeen Asset Management Asia. He tells CNBC's Bernard Lo & Karen Tso why China's markets rarely reflect the fundamentals of the country's economy:

US markets

Markets in the US are closed today for the Independence Day weekend. Yesterday was July 4th.