The US dollar is widely mixed against major currencies. gain of 0.25% of the Swiss franc puts at the top of the table after previous earnings sterling silver were largely unwound part of turnover midmorning.
The weaker yen is the largest; extending its loss by 0.6%, to bring weekly decline more than 5%. The result before high referendum for the dollar was near JPY106.85. High today was about JPY106.30. In emerging markets, we note that the Taiwanese dollar is at 11-month highs, helped by $ 3 bln portfolio capital inflows this week.
Stock index MSCI Asia Pacific rose 0.35%. It has done every session this week. European stock markets are struggling with the Dow Jones Stoxx 600 0.5%, led by consumer discretionary and information technology. pressure travel and leisure related to the terrorist attack. Asia-Pacific and European bonds are trading with a small negative bias, while Treasuries are flat ahead of the large amount of data.
This week has been largely on the strong recovery of the pound sterling and yen fall. After dropping like a rock in Brexit news, the pound rose 3.6% this week, the biggest gain in more than a decade. It helped yesterday by the decision stand pat Bank of England.
The yen has gone in the opposite direction. It has lost 5% against the dollar. He has not seen a weekly decline of this magnitude in over fifteen years. Ideas that Japan will double in Abenomics with new measures of monetary and fiscal stimulus, with some risk of “helicopter money” Whatever it is, it encourages yen sales and purchases of Japanese stocks. The Nikkei rose 9.2% this week.
It is unclear whether Bernanke suggested that the Japanese government to issue perpetual bonds market that the BOJ purchase, or if your comments do not undermine such existing proposals in the internal discussion among politicians. Even if this is a possibility, not a short-term course. The Bank of Japan, like many other central banks, are blocked by your letter, to buy bonds directly from the government. However, if the government chooses Abe a program of debt-financed spending freshwater JPY10 trillion and the Bank of Japan increased its purchases of Japanese bonds by JPY10 trillion, the immediate results would be the same.
In any case, the key point is that investors are anticipating further monetary and fiscal stimulus in Japan, and this is the controller of the weaker yen and increased capital. The BOJ meets at the end of the month, and the details of tax plans are likely to emerge around then too.
Although the Bank of England did nothing yesterday, strongly indicates that it would in a few weeks. Specifically, the explicit reason given for that decision was the need to “deepen several packages of possible measures.” This seems to imply more than a rate cut. Many expect around GBP50 billion in new asset purchases, which some suggest could include corporate bonds, and perhaps new loan financing purposes. The scale of the action of the Bank of England will be determined by the new provisions will form part of the quarterly inflation report next month. Meaning that more than one rate cut of 25 bp likely took home BOE Haldane’s comment that “the material easing is likely to be needed in August.
Moreover, China reported a series of data was mostly better than expected. If recent events have increased the chances of further stimulus from Japan and the UK, today’s data mean that the Chinese authorities may have less of a sense that urgent action is needed. The Chinese economy grew 1.8% in Q2 to a rate of 6.7% year on year. Industrial production rose 6.2% in June, after 6.0% in May. Economists had expected a further slowdown. Retail sales rose 10.6% yoy from 10.0% in May. Also in this case the market expects weakness. The investment was the exception. It slowed to 9.0% from 9.6%.
However, the price of this economic performance was an increase in new loans. The new yuan loans rose to CNY1.38 billion CNY985.5 billion in May. The broader measure that includes non-bank financial institutions (shadow banking) rose to CNY1.63 billion CNY660 bln. What this indicates is that Chinese officials are not yet facilitating the deleveraging process that many observers and investors believe it is necessary.
After a rather moderate for US economic reports week, investors are bombarded with a barrage of reports today. The most important of which is June retail sales. The risk is lower, and the market already knows that car sales declined sequentially. The component of GDP rose 0.4% in May and is expected to increase by 0.3% in June. If so the monthly average Q2 would be about 0.5%, which is almost twice the average Q1, Q4 doubling the average 15.
The USA. also reports June CPI. It is expected the core rate to be stable at 2.2%. It is expected that industrial production and manufacturing recover all or most of the decrease of 0.4% in May. Business inventories May be useful in the calculation of Q2 GDP, but is unlikely to be a market mover. The report of the Empire State manufacturing will be one of the first readings of Q3 activity. In that vein, University of Michigan offers its preliminary estimate July consumer confidence. A drop in Treasury inflation expectations could offer some support after a heavy week that saw 10 year yields up 10 basis points.