Sterling Falls after Bank of England Eases

August 4, 2016

The mixed dollar shows gains of 1.4% against sterling, 0.3% versus the euro, 0.2% relative to the yuan and 0.1% vis-a-vis the yen, loonie and Swiss franc but losses of 0.9% against the Australian dollar, over 1.0% versus the rand and 0.4% vis-a-vis the kiwi.

Share prices have risen 1.1% in Japan, 1.7% in Spain, 1.6% in Greece, 1.2% in the U.K., 0.9% in Germany, and 0.3% in New Zealand, South Korea, Hong Kong and Taiwan.

The 10-year British gilt yield plunged 14 basis points.  10-year sovereign debt yields also fell five basis points in Germany but firmed a basis point in Japan.

West Texas Intermediate crude oil dropped 0.5% to $40.64 per barrel.  Gold edged up 0.1% to $1,365.90 per ounce, but industrial metal prices are lower.

The Bank of England’s Monetary Policy Committee agreed to tolerate a temporary spell of above-target inflation in order to stabilize economic activity in the wake of the Brexit vote.  The Bank Rate was halved to 0.25%, and a further cut to zero was not ruled out.  Quantitative monetary stimulus was resumed. A new Term Funding Facility was schemed, and plans were unveiled to by up to 10 billion pounds of corporate bonds and an extra GBP 60 billion over the coming half year in U.K. sovereign debt, which raises the asset purchase total to GBP 435 billion.  Projected growth was cut to 0.8% for 2017 and 1.8% in 2018. 2.0% inflation is expected to be reached by late 2017, which is sooner than predicted in May.  The rate cut was decided unanimously but not so the quantitative stimulus.

Czech monetary policy was left unchanged.  The 2-week repo rate has been at 0.05% since November 2012, and a one-sided exchange rate commitment to prevent the koruna from strengthening beyond CZK 27 per euro was introduced a year later.

The National Bank of Romania key interest rate was left at 1.75%, its level since a 25-basis point reduction in May 2015. The rate had been at 10.25% prior to February 2009.  Six cuts of 50 bps and six of 25 bps transpired by August 2013, and that was followed by an additional eleven reductions of 25 basis points each.

Local elections in South Africa have shown greater-than-anticipated voter support for the opposition Democratic Alliance.

Australian retail sales remained soft in June, rising just 0.1% on month and 3.1% on year.  Sales volume last quarter showed a slower 0.4% advance.

British car registrations increased 0.1% on year in July following a 0.8% drop in June and a 2.5% increase in May.

Euroland’s retail purchasing managers index recovered 0.4 points to a 2-month high of 48.9 in July, marking the fourth sub-50 result in the last five months nonetheless.  While the German and French readings of 52.0 and 51.6 connoted improved conditions, Italy’s retail PMI of 40.3 after 40.2 still indicates a steep rate of contraction.

Ireland’s service-sector purchasing managers index dropped 1.7 points to a 29-month low of 59.5.

The German construction PMI recovered from a 10-month low of 50.4 in June to print at 51.6 in July, which still connotes a weak pace of growth.

Swiss consumer confidence remained unchanged last quarter with a score of -15.

Japanese stock and bond transactions last week generated a net 610 billion yen capital inflow reversing most of the JPY 821 billion net outflow of the previous week.

Dutch CPI inflation of minus 0.3% in July was negative for the first time in nearly 30 years.  Cypriot consumer prices dropped 0.8% in the year to July.

Greek joblessness of 23.5% in May was the same as in April and 1.5 percentage points lower than a year earlier.

Still ahead: U.S. weekly jobless insurance claims, U.S. monthly factory orders, and BOE Governor Carney’s press conference.

Copyright 2016, Larry Greenberg.  All rights reserved. No secondary distribution without express permission.

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