Wednesday Spotlight on Central Banks

July 21, 2010

The euro fell 0.7% against the dollar, 0.5% against sterling, and over 1% against the yen.  Concern about Friday’s stress test results, which have been discredited already in the eyes of many investors, continues to rattle the European common currency even as European stocks advance. 

Commodity sensitive currencies are firmer.  The loonie, kiwi, and Aussie dollar gained 0.6%, 0.3% and 0.1% against the U.S. dollar.  The Chinese yuan remained unchanged, while the Swissy shows negligible change.  Sterling bounced around overnight and shows a net dip against the greenback of 0.2%.

In response to better earnings reports than assumed, stocks in Europe have jumped 1.8% in Paris, 1.5% in London, and 1.3% in Frankfurt.  Many U.S. companies will be reporting quarterly figures later today.  In the Pacific Rim, equities rose 1.1% in Hong Kong and Sri Lanka, 0.8% in Thailand, 0.7% in South Korea buy just 0.3% in Malaysia and New Zealand and 0.2% in China and Australia.

Ten-year gilt and JGB yields are unchanged.  The yield on 10-year bunds edged one basis point higher after an undersubscribed 30-year bund auction.

Oil traded up 0.5% to $77.94 per barrel.  A storm in the Gulf of Mexico is expected to intensify.  Gold is 0.1% softer at $1190.70 per ounce.

Fed Chairman Bernanke gives his semi-annual Humphrey-Hawkins testimony to the Senate Banking Committee at 18:00 GMT today and reprises that act at the House of Representatives tomorrow.  He is expected to note greater downside growth and price risks but to strike as upbeat a tone as possible to promote favorable market reactions.

The Bank of Japan released minutes from the mid-June Policy Board meeting that observed a decent domestic recovery but voiced worry about falling share prices and European debt woes.  Deputy Governors Yamaguchi and Nishimura each spoke about the dangers of sustained yen appreciation.  Investors doubt officials could weaken their currency even if they tried.  The BOJ also released its senior loan officer survey, which revealed a deepening drop-off in corporate loan demand to a five-year low.  Consumer loan demand is also weak.

The Bank of England released minutes from the Monetary Policy Committee’s July meeting, showing a 7-1 vote to leave the key Bank Rate at 0.5%.  As in June Andrew Sentance wanted a 25-bp rate hike.  The committee discussed the merits of both easing policy and tightening such.  The assessment of inflation in the near term saw greater upside pressure than before because of a planned value added tax hike.  There was a unanimous vote not to change the Gbp 200 billion amount of the asset purchase program.

Australia’s index of leading economic indicators firmed 0.2% on month in May but showed a smaller on-year advance of 6.7% after 7.5% in the year to April.

Malaysian CPI inflation rose to a 13-month high of 1.7% last month from 1.6% in May.  Monetary policy in Malaysia has already been tightened multiple times.

Swiss M3 rose 7.7% in the year to June compared to an on-year 7.5% increase in May.

Icelandic unemployment increased to 8.7% last quarter from 7.6% in 1Q.

Analysts anticipate a 75-basis point hike later today in the Brazilian Selic rate. 

Aside from the Bernanke testimony, the U.S. releases weekly mortgage data and oil inventory figures today.  Canadian wholesale turnover and Mexican retail sales arrive, too.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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