Intraday Market Thoughts

BoE adds 50 bn QE; PBOC Cuts rates, ECB Next

by Patrik Urban
Jul 5, 2012 12:24

The BoE left interest rates unchanged at 0.5% and increased the asset purchase facility by GBP 50 bln to GBP 375 bln despite suggestions by some that lowering the bank rate might be a better option than putting more money into the system. The surprise of the day (so far) is the decision by the Peoples Bank of China to cut lending/deposit rates by 25-bps at the same time of the BoE decision.

EURUSD trades near lows of the day at 1.2490s, while gold pushes near the highs at 1620. Equities could push further up as the ECB adds the next dosage of central bank stimulus.

Markets will focus on the ECB that will announce its rate decision at 7:45 am ET. Most analysts expect 25 bps cut to a record low 0.75% but some are suggesting even 50 bps cut or an introduction of new non standard easing measures.

European data calendar was limited to UK Halifax HPI that rose 1% in June from previous 0.4% and German factory orders that rose in May 0.6% after upwardly revised April's -1.4%.

The fact that the path to a European banking union is unlikely to be without major obstacles is represented by a story published by MNI in which top German economist Hans Werner Sinn called decisions at the EU summit "wrong" and called for public protests against a banking union.

In other news, the first Spanish post EU summit auction was mixed. The average yields declined but cover fell as well and Spain was able to sell EUR 3.001 bln vs. 2.5-3.5 bln target. The Eurogroup announced that it will meet on June 20th to discuss developments in Greece and Spain.

WTI trades higher after Statoil started to prepare to halt production on the Norwegian continental shelf and after Iranian media reported threats focused on Israel and the US military bases across the Middle East amid continued testing of ballistic missiles. WTI reached above yesterday's highs and touched 88.70 before falling to current 88.05.

The US session starts at 8:15 am ET with ADP report that is anticipated to decline in June to 103K from May's 133K. The ECB press conference will start at 8:30 am along with jobless claims that are seen marginally lower at 385K from 386K. ISM non manufacturing is due at 10:00 am and it is seen lower at 53.1 in June from previous 53.7.


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