Member Article

Central Bank action fails to inspire markets

In the morning, European Stock markets were almost flat awaiting the policy decision later in the afternoon on Thursday. The Sterling was little changed against the Dollar at $1.5590 on early trading but almost 0.85% below its week’s high of $1.5723. The euro remained quite steady against the GBP but with regard to his whole performance during the year, the currency has already declined 7.4% against the save-heaven Dollar.

Concerning the bond markets, Spain sold 3 billion euro ($3.8 billion) at an auction today where Spanish 10-year yield bonds were sold at an average yield of 6.43% (6.044% last auction on June 7) and bonds maturing in 2015 yielded an average of 5.536% (5.353% on June 21). Ireland returned to public debt markets today (Thursday) for the first time since an almost two-year absence after a EU/IMF bailout in November 2010, sold 500 million euro of treasury bills (Short-term debt backed by the U.S) at an average yield of 1.8%.

The Bank of England has announced it would leave UK interest rates unchanged at 0.5% and decided to start a third round of money stimulus by pumping further £50 billion into the economy. After a prior stimulus of Quantitative Easings (QE) – or asset purchase programme - to the amount of £325, data confirmed that June was one of Britain’s worst month in over three years and that the UK economy is back in a recession. Further decision made by the BoE and ECB was the already expected main policy rate cut by a quarter from 1% to a record low of 0.75% as a response to the reducing economy growth in the euro-zone and the increasing struggling banking sector. The ECB also cuts the deposit rate in order to stimulate inter -bank lending and to reduce general market interest rates. Also China has cut its benchmark lending rate by 31 basis points from 6.31% to 6% and its deposit rate from 3.25% to 3%.

Very good news came from U.S whose monthly published Nonfarm Employment Change report, created by Automatic Data Processing (ADP), in partnership with Macroeconomic Advisers (LLC), figured an increase in the U.S private-sector employment of 176.000 in June from 136.000 in May. Further good news from the US was presented by the Labor Department saying that the initial jobless claims for unemployment-insurance benefits fell by 14K. The people who filed the first time for unemployment insurance during the past week decreased from 388K to 374K whereas the Continuing Jobless Claims measured a rise from 3302K to 3306K. Service industries in the U.S. decreased in June to its lowest level since January 2010. The Institute for Supply Management’s (ISM) non-manufacturing index (PMI) dropped to 52.1 from 53.7 in May, a sign that the biggest part of the economy is struggling to gain momentum.

Back to the UK, shares of GKN (LSE: GKN), a multinational and aerospace components company, jumped 13% today after the “attractive acquisition” of the world’s number two truck maker Volvo for £633 million. Also one of Britain’s largest homeware retailer Dunhelm Mill (LSE: DNLM) had a good day and reported a good revenue growth by 12% and a rise in Share prices of 18% since the beginning of the year. The retailer said “like-for-like sales growth was exceptionally strong, boosted by the unusually wet weather over much of the quarter which ensured consistently strong footfall into stores.”

After the ECB decided to cut the rates U.S and European stocks finished mostly red and gold declined by 0.72%.The FTSE 100 closed marginally up at 5696 a gain of 0.21% and the DAX closed down at 6536 (-0.43%).

This was posted in Bdaily's Members' News section by James .