UK
Minutes released yesterday from the Bank of England’s policy meeting earlier in the month revealed a unanimous 9-0 vote to left interest rates on hold at 0.5%. More interestingly, voting has now split down the middle on the decision to increase the quantitative easing budget. A result of 5-4 in favour of leaving QE untouched means more members are swinging towards the idea of extra stimulus to help the economy. The committee judged that the risk of inflation overshooting its 2% target in two years’ time had lessened, thus weakening outlook for the UK.By 17:00 GBP/EUR had dropped to 1.2360 having ended the Asia trading session at a day’s high of 1.2411. At the open of the European session this morning GBP/EUR trades at 1.2358. Currently the pair is trading around 1.2380.
The GBP Claimant Count Change has been called a lagging indicator and the addition of 8.1k to those claiming unemployment assistance, although higher than the -3.1k contraction expected, may reflect an increase in unemployment stemming from the beginning of the year, rather than being a reflection of a more immediate problem within the employment sector.
A BoE poll suggests that UK business investment is set to grow only modestly in the coming year. Exporters are among those planning the strongest rises in investment spending.
Wednesday saw the first of the BoE’s cheap loan auctions. The central bank received bids for the full £5bln on offer.
Against the dollar sterling suffered following the FOMC statement in the US. Although Operation Twist was extended by a further $267bln, the markets had expected more talk of quantitive easing. In the absence of overt moves towards QE USD improved by 70 points from the morning’s high of 1.5778. In the lead up to the European market open GBP/USD traded at 1.5651
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WORLDWIDE
A key day for Spain as the country could make its first formal aid request based on the country’s internal bank audit, details of which are out later today.
Yesterday across Europe data was weak, with Italian factory orders falling 1.9% and Dutch confidence lower. These releases were compounded by relative inaction from the G20 summit.
This morning Europe wide services and manufacturing PMI beat expectations. German PMI posted below expectations at 44.7 in the face of 45.3 forecasted.
Eurozone annual consumer price inflation slowed to 2.4% in May from 2.6% in April, edging closer to the ECB’s target of just below 2%.
EUR/USD opened yesterday at 1.2719, but, as with other majors, USD asserted pressure with the promise of continued low rates, and by the FOMC release the pair were trading at 1.2651, indicating that greater liquidity is attracting those hungry for depressed value equities.
In a rare move Antonis Samaras has now been confirmed and sworn as Greece’s Prime Minister before a cabinet has been formed. A three-party coalition cabinet is expected as the PM pledges to honour the country’s bailout commitments.
Spanish and Italian bonds responded positively after the G20 summit with QE expectations. The Spanish 10yr traded at 6.75% on the session, and the Italian 10yr was 17 basis points lower at 5.73%.
Elsewhere, Europe’s neighbour Switzerland saw a fall in exports of 3.7% in May, with only the watch sector offering any sunshine for the embattled safe haven. GBP/CHF has swung 1.6% since 15th June and the SNB must start to ask what are the actual economic benefits of pegging CHF against EUR if export potential is affected to such an extent.
Although Chinese manufacturing PMI was shown to have contracts this morning by its largest extent since March 2009, yesterday the Chinese Premier still found time to endorse the steps being taken by Spain.
Japan’s Nikkei improved as USD/JPY moved from 78.82 to 79.58 in the space of eight hours. Japanese exporters were up, with electronics and motor cars seeing in excess of 2% value added.
