Focus Turns from Greek Vote to Bernanke Press Conference

June 22, 2011

Greek Prime Minister Papandreou won a vote of confidence in parliament, getting 155 of 300  votes.  Next step is for the legislature to approve new austerity measures next week so the fifth tranche of the EU/IMF/ECB aid package can be doled out.  Analysts remain under little illusion that a Greek default in the future can be indefinitely avoided.  The euro and stocks are lower than yesterday’s close.  So are commodity prices.

An FOMC policy statement will be released at 12:30 EDT (16:30 GMT), and Chairman Ben Bernanke will begin a press conference at 14:15 EDT.  The consensus is that no further quantitative easing will be announced but that neither will a start to reducing the Fed’s balance sheet.  The 0-0.25% Fed funds target range will be maintained, as will a forecast that rates will stay “at exceptionally low levels for an extended period.”  Two areas of interest will be what Bernanke says about the debt ceiling standoff and any remarks that he might make about currency market developments.

The dollar gained 0.7% against sterling in response to Bank of England minutes showing a growing inclination to possibly do more asset buying.  The dollar is up 0.3% against the Swiss franc, 0.2% versus the euro and Canadian dollar and 0.1% relative to the Australian dollar.  The greenback is unchanged against the yen and yuan and off 0.3% versus the kiwi.

Stocks are down 0.6% in France, 0.5% in Britain and 0.2% in Germany.  They closed mixed in Asia, with drops of 1.0% in Sri Lanka, 0.4% in Thailand and Singapore, and 0.1% in India but advances of 1.8% in Japan, 0.8% in South Korea and 0.5% in Australia.  Equities in China and Hong Kong were steady.

The yields on 10-year British gilts, German bunds and Japanese JGBs fell by seven, three and one basis points.

Oil is 0.9% softer at $93.36 per barrel, and gold edged down 0.1% to $1544.70 per troy ounce.

The June Bank of England Monetary Policy Committee meeting produced a 7-2 vote for an unchanged 0.5% Bank Rate and an 8-1 vote to keep the asset buying program limit at GBP 200 billion, a level reached in January 2010.  Dale and Weale again recommended a 25-bp rate hike, while Posen favored a GBP 50 billion increase of the asset purchase ceiling.  The committee acknowledged a “soft patch” in growth.  If such persists, several members would join Posen in voting to do more quantitative easing.  Inflation is seen hitting 5% later in 2011 but falling significantly next year.  The minutes were more dovish than May’s and put some downward pressure on the pound.

French business sentiment improved to 109 in June, but May’s reading was revised down a point to 106.  June’s score exceeded expectations.

Euroland industrial orders rebounded 0.7% in April despite a 0.6% further drop in core orders.  The 8.6% on-year increase of total orders was down from 14.3% in the year to March and 20.1% in the year to November 2010.  In April, orders declined by 1.2% in France, 2.6% in Italy, and 0.6% in Portugal, and the total level was 0.1% lower than the first-quarter average.  Overall growth in the region remains positive but not as rapid as a few months ago.

The Swiss ZEW expectations index weakened to a negative 24.3 reading in June from minus 11.5 in May despite a slightly better reading for the current situation.

Danish consumer confidence rose to a five-month high of 3.0 in June from 2.6 in May.  Swedish consumer confidence printed at 16.7 after 17.9 in May. Dutch consumer confidence dipped a point to minus 11 in June.  Consumer sentiment in Poland ticked 0.9 points higher to minus 25.5 in June.  Polish unemployment in May was at 12.2%.  Sweden’s jobless rate rose to 7.7% in May from 7.4% in the previous month.  Unemployment in Norway averaged only 3.4% in March-May.  Economic sentiment in Hungary weakened 0.7 points to minus 13.9 in June. 

New Zealand’s current account deficit last quarter improved to NZD 97 million on an unadjusted basis and NZD 1.8 billion seasonally adjusted.  The NZD 8.3 billion deficit in the year to 1Q11 equaled 4.3% of GDP.  Credit card spending in New Zealand rose 0.6% in May and by 5.1% from a year earlier.  Australia’s index of leading economic indicators only firmed 0.2% in April, a third as much as in March.

South African consumer prices rose 0.5% on month and 4.6% on year in May.  The 12-month rate of increase was the most since May 2010.

Besides the Fed, Norway’s central bank also will be making its latest interest rate decision today.  The U.S. releases data on mortgage applications and house prices today. 

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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