UK
Only two of the nine members of the Bank of England’s policy panel voted against additional monetary stimulus at July’s meeting, arguing that the raft of measures put in place by the UK’s lender of last resort were sufficient to support the economy. The pound weakened against the euro and the dollar after Bank of England policy makers said they may reconsider the case for an interest-rate cut after assessing the impact of new measures on the economy.
An unexpected drop in UK unemployment boosted the UK stock market on Wednesday. The FTSE was up 0.1% at 5633.33. The index was lifted by the UK unemployment rate dropping to 8.1% for the three-month period ending in May 2012, down 0.2% from the previous period, and better than analyst’s expectations of an 8.2% level.
GBPEUR was a fairly volatile pairing through yesterday’s trading hitting a high of 1.2771 from a low of 1.2708. GBPUSD traded as high as 1.5668 and hit a session’s low of 1.5581. Minutes released from the MPC indicated that the bank may discuss reducing its benchmark rate to below 0.50%, but no for several months. The Eurozone financial crisis and slowing global demand are hurting growth in the UK, the BOE said Wednesday in the minutes of its July 4-5 meeting, and these symptoms could also trigger higher unemployment in the coming months as UK exports weaken.
UK inflation slowed to 2.4% in June, and the MPC said it is likely to be lower than the bank’s forecast in the near term.
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WORLDWIDE
The US economy expanded at a moderate pace in June and early July but the jobs market showed only small gains, the Fed said in a report released last night. The economy expanded at a moderate pace in the central banks 12 districts the Fed published in last night’s beige book. The labor market appeared to show more weakness since the last report, with employment levels growing at a “tepid pace” in most districts, the report stated.
Spain’s housing market continued to weaken in the second quarter, with prices declining 8.3% year-on-year, a government report showed Wednesday. Compared with the first quarter, Spain’s housing price index fell 2.5%.
Housing starts in the US. climbed to its fastest rate in June since October 2008, signalling that the residential housing construction market may be picking up. The number of privately-owned housing starts grew 6.9% to a seasonally adjusted annual rate of 760,000 in June, following 711,000 housing starts in May that was upwardly revised from 708,000 originally reported.
German Chancellor Angela Merkel Wednesday said that despite the on-going difficulties she remains optimistic that rescuing the euro can succeed. Ms Merkel reiterated recent comments that Germany will emerge stronger from the crisis, but warned the country was no island and that Europe’s largest economy cannot do well if the rest of the region is in recession.
Business conditions in Australia weakened in the June quarter, partly reflecting weak demand both at home and abroad. Confidence fell for a second consecutive quarter, despite the central bank’s interest rate cuts since November last year.
Belgium will meet its European Union target of a budget deficit of 2.8% of gross domestic product this year, and balance it by 2015, the country’s prime minister said Wednesday, setting out the government’s latest budget review and measures to spur economic growth.
An auction of German two-year notes today drew a negative yield for the first time as investors sought the safety of Europe’s benchmark government debt as a haven from the financial turmoil in the 17-nation currency bloc.
Swiss investor confidence saw a small boost in July, but still overall negative. The Credit Suisse ZEW survey for expectations was reported at -42.5%, versus -43.4% in June. However, the survey for current economic situation dropped from 19.7% to 18.4% in July. Swiss Franc dropped against the US Dollar following the survey, falling in line with dips in other risk-correlated currencies.
South Africa’s annual inflation rate in June dropped below economists’ expectations, data showed Wednesday, likely giving the reserve bank further room to focus on tepid growth rates.
Canada’s dollar erased losses against its US. counterpart after the Bank of Canada said in its monetary policy report that consumers and business investment will lead modest economic growth through 2014, while weaker global demand curbs exports. The central bank reiterated the next move in interest rates may be upward.
The Swedish krona advanced to the strongest since December 2000 against the euro, appreciating as much as 0.9% to 8.4781 per euro. It was 0.4% higher at 6.9311 versus the US dollar. Sweden’s currency climbed amid speculation the nation’s central bank won’t act to halt gains in the currency of the largest Nordic economy.
Politicians in the lower house of Germany’s parliament are expected to vote this afternoon in favour of the Spanish bank bailout after finance minister, Wolfgang Schaeuble, gave assurances that Spain would remain liable for the aid.
