US consumer confidence slips on Brexit concerns
US consumers were less confident in July than the previous month, according to a new survey, partly due to the Brexit vote.
The University of Michigan consumer sentiment index came in at 90 for July, lower than the 90.5 expected but up on the preliminary reading of 89.5. The final figure for the previous month was 93.5. The survey’s chief economist Richard Curtin said:
Although confidence strengthened in late July, for the month as a whole the Sentiment Index was still below last month’s level mainly due to increased concerns about economic prospects among upper income households.
The Brexit vote was spontaneously mentioned by record numbers of households with incomes in the top third (23%), more than twice as frequently as among households with incomes in the bottom two-thirds (11%). Given the prompt rebound in stock prices as well as the tiny direct impact on U.S. trade, it is surprising that concerns about Brexit remained nearly as high in late July as immediately following the Brexit vote.
While concerns about Brexit are likely to quickly recede, weaker prospects for the economy are likely to remain. Uncertainties surrounding global economic prospects and the presidential election will keep consumers more cautious in their expectations for future economic growth. Based on the strength in personal finances and low interest rates, real consumer spending is now expected to rise by 2.6% through mid 2017.
Meanwhile the Chicago purchasing managers index has come in at 55.8 in July, better than the expected 54 but below the 56.8 recorded in June.
USA Chicago PMI announcement - Actual: 55.8, Expected: 54.0 pic.twitter.com/2kaIjr8fQH
— Spreadex (@spreadexfins) July 29, 2016
On that note it’s time to close for the day. Thanks for all your comments, and we’ll be back next week.
Updated
Wall Street opens lower
Following the weaker than expected US GDP figures, as well as disappointing results from Exxon and Chevron, it is no surprise that US markets have opened lower.
The Dow Jones Industrial Average is currently down 27 points or 0.15% while the S&P 500 opened 0.08% lower. But Nasdaq edged up 0.14% after positive updates from Alphabet and Amazon.
Meanwhile over in Ireland, three bankers from banks that almost bankrupted Ireland have been sent to jail today by a Dublin court, writes Ireland correspondent Henry McDonald:
The trio from the now defunct Anglo Irish Bank and the taxpayer rescued Irish Life & Permanent were given prison sentences for their part in a conspiracy to inflate the accounts of financial institutions by €7.2 bn.
Ex-Anglo Irish Bank chief risk officer Willie McAteer has been sentenced to three and a half years. Former Anglo Irish Bank treasury official John Bowe was handed down a two year prison sentence. Denis Casey, the former Irish Life & Permanent chief executive was sentence to two years in jail
The sentences were delivered at Dublin Circuit Criminal Court on Friday by Judge Mr Martin Nolan. The judge said all the men had behaved in a “reprehensible manner” and knew that they were doing was wrong. The trio stood accused of doctoring Anglo Irish Bank’s books to make it look like it had €7.2bn in its accounts. They faced charges of moving money illegally between the Anglo Irish Bank and Irish Life&Permanent.
Judge Nolan said the case was one where “honesty and integrity was sorely lacking.” Addressing the role of McAteer in the illegal scheme, Judge Nolan said: “It is grossly reprehensible what he did and a great shame.”
All three men had pleaded not guilty during a trial that has lasted 89 days. During sentencing the judge also singled out the firm Ernst & Young for its role in signing off Anglo Irish Bank’s accounts: “It beggars belief that Ernst & Young signed off on the accounts. How they signed off on the accounts as true and fair is a mystery to me.”
Judge Nolan added: “They should have known what was occurring if they were doing their job properly.”
In 2009 following the global financial crash Anglo Irish Bank was nationalised with the Irish taxpayer having to pay €30bn to rescue it. The bank was once the preferred bank of builders and property speculators. The sharp practices at the bank during the Celtic Tiger boom when it allowed Irish developers and investors to pay the global property market caused national outrage in Ireland.
Here’s our report on the US GDP figures:
The US economy grew by just 1.2% from April to June, the US Department of Commerce announced on Friday, as cut backs by businesses wiped out a rise in consumer spending.
The lower-than-expected figure is the latest in a series of disappointing economic numbers attributed to growing uncertainty among consumers and businesses, both of whom are keeping a tighter rein on spending.
Economists polled by Reuters had expected the US government to report that gross domestic product (GDP) – the broadest measure of the economy’s health – would increase at a 2.6% annual rate after rising at a rate of 1.1% in the first quarter.
The 1.1% figure was revised down to 0.8% on Friday. The economy has now grown at an annual rate of less than 2% for three straight quarters.
The full story is here:
Updated
US GDP +1.2% (ann.) in Q2 - broadly in line with our PMI (the flash of which points to more weak growth in July) pic.twitter.com/n7pYNR95rh
— Chris Williamson (@WilliamsonChris) July 29, 2016
And here’s a chart showing how US GDP has been revised in the past:
Charting The Difference Between The Original And Revised GDP https://t.co/EhVvZA2mRz pic.twitter.com/PQ51Ad1sdi
— zerohedge (@zerohedge) July 29, 2016
Alex Lydall, senior sales trader at foreign exchange business Foenix Partners, also believes a US rate rise is now unlikely this year:
Janet Yellen will continue to sit on the fence with interest rates for the foreseeable future on disappointing news this afternoon that US GDP increased to a sluggish 1.2%, on preliminary figures where analysts had expectations of an uplift to 2.6%. Rhetoric from the Federal Reserve lately has been somewhat cautious, meaning the significant miss of growth figures will put the bearish committee members back in the driving seat. With global risk appetite tentative on the back of the EU Referendum results, the global powerhouse of the US is often seen as a precursor to global performance. If these preliminary figures signify a shift on the downside for the domestic economy in the US, not only will rate hikes be unlikely this year, but the benchmark for global risk will be adversely affected in the medium term.
Dollar taking a bit of a belated pounding now after the GDP release, two week high in gold.
— David Jones (@JonesTheMarkets) July 29, 2016
The pound is now up 0.5% against the US currency at $1.3232. The dollar has weakened against the euro to $1.1132, a level last seen on 15 July while the yen has also extended its gains against the US currency.
Despite a weaker than expected US GDP number, the underlying picture is more mixed, said economist James Smith at ING Bank:
The US economy grew by less than expected in the second quarter, growing by just 1.2% quarter on quarter (annualised). That said, the underlying picture is on balance slightly more encouraging than this headline suggests. Consumption in particular was very strong, increasing by 4.2% quarter on quarter(annualised) and follows some solid retail sales data over the past few months. There was also a large drag from inventories, which shaved -1.16% from the headline, which given that this in the most part is simply noise, the underlying growth picture was probably closer to 2% in the second quarter.
However, business investment continues to provide some cause for concern...There were also a series of negative backward revisions to overall GDP, suggesting that trend growth has been slightly lower over the past year or so than previously thought.
Overall though, this release is probably fairly neutral for the Fed, with strong consumer activity balancing out with the fall in investment. Indeed, with recent evidence tentatively suggesting that the recent shortfall in job creation was a temporary blip and inflation gradually moving in the right direction, there is fairly minimal cause for concern regarding the domestic economic picture.
However, the Federal Reserve Open Markets Committee has got its eye firmly on “global economic and financial developments”, which we think refers to uncertainty following Brexit and forthcoming political developments in the US and Europe. Thus, whilst the domestic economic picture may be sufficiently strong for another hike, the Fed will likely maintain its current cautious (although broadly positive) stance in September and ahead of the US Presidential Election in November. That said, assuming the domestic economy continues to head in the right direction, then we think there is a strong likelihood of a rate hike in early 2017. We may see FOMC speakers trying to guide markets closer to this point over coming days and weeks.
Pointing out the US GDP figures were subject to revision, the Bureau of Economic Analysis, said:
The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures and exports that were partly offset by negative contributions from private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
Updated
Clearly an economy in need of higher rates... https://t.co/7cZWcXImIV
— Nick Kounis (@nickkounis) July 29, 2016
US GDP badly disappoints with 1.2% – USD slides https://t.co/BfrP6KNKA8 #forex, #forextrading
— John Hall (@ForExtraReview) July 29, 2016
US Q2 GDP 1.2% is a big miss on consensus of 2.6%, but the market was already positioned down at 1.8% where the AtlantaFed tracker was
— Anthony Cheung (@AWMCheung) July 29, 2016
Updated
US economic growth misses forecasts
Further mixed signals from the US economy, with second quarter annualised GDP growth coming in at 1.2%, much lower than the 2.6% expected by analysts but up from the 0.8% seen in the first quarter.
The figures back up the Federal Reserve’s decision not to raise interest rates this week. And they may not necessarily rule out an increase later in the year although they do seen to make it less likely.
Updated
Ahead of US GDP data here are the expected openings on US markets:
US Opening Calls:#DOW 18417 -0.20%#SPX 2167 -0.09%#NASDAQ 4730 +0.22%#IGOpeningCall
— IGSquawk (@IGSquawk) July 29, 2016
Back with the markets, and European shares are trying to edge higher following the eurozone GDP figures, with Germany’s Dax up 0.37% and France’s Cac climbing 0.07%.
But the FTSE 100 has dipped 0.2%, not helped by a near 10% plunge in education group Pearson reported a bigger than expected 7% fall in half year sales and said it would cut 4,000 jobs as part of a restructuring programme.
Updated
Ahead of the results of the latest European banking stress tests, one of the most troubled of a troubled Italian banking system is seeking a solution to its difficulties:
An eleventh hour rescue deal has been tabled for Italy’s Monte dei Paschi di Siena (MPS), the world’s oldest bank, as investors and pensioners alike brace for the result of an official assessment of its financial health.
European regulators release the results of a so-called stress test of MPS, Italy’s third largest bank, and 50 other banks across the EU which are being assessed after the close of US markets on Friday.
The results will be closely followed by investors around the world but particularly in Italy, where worse-than-expected news could set off a chain of events that may have drastic consequences for thousands of ordinary Italian investors who bought debt in the bank.
The results of the stress tests have already been sent to the banks but will only be made public at 9pm London time.
There is concern that an acute banking crisis in Italy, led by troubles at MPS but possibly other banks as well, could ignite European and global banking crises.
Ahead of the stress test results, the board of the troubled Italian bank was meeting to weigh up to potential solutions: the last-minute offer received on Thursday night from the former chief executive of Intesa Sanpaolo, Corrado Passsera, and the Swiss bank UBS; and a rescue plan being co-ordinated by JP Morgan and Mediobanca. However, the MPS board is likely to reject the UBS offer, sources told Reuters.
The full story is here:
Domestic demand in the eurozone is likely to help offset any problems caused by the UK’s Brexit vote, said economist Marco Valli at UniCredit Research:
The high volatility of GDP data in the first half of the year probably mainly reflects temporary factors (supportive in the first quarter of 2016, negative in the second quarter), while the underlying growth trend seems to have remained reasonably steady, at least when looking at the most informative survey indicators.
Therefore, today’s data do not change the fundamental story. We expect signs of moderate slowdown to emerge in the coming months, mainly reflecting the Brexit fallout via the trade channel and, to a lesser extent, the confidence channel. However, the resilience of eurozone domestic demand on the back of improved fundamentals for consumption and investment is likely to provide a good buffer.
The Centre for Economics and Business Research also expects a slowdown in the coming months and warns other measures on top of monetary policy may be needed to support the economy. Managing economist Danae Kyriakopoulou said:
Data released today by Eurostat showed that the pace of quarter-on-quarter GDP expansion across the Eurozone slowed to 0.3% during the second quarter of 2016. This confirms Cebr’s view back in April that first quarter’s impressive 0.6% growth was yet another false dawn for the currency bloc. Importantly, today’s release refers to economic growth in the three months to June, ahead of the UK’s vote to leave the EU which is widely expected to negatively impact on the currency bloc. Cebr expects growth to weaken further over the remaining quarters of this year and next....
We maintain our view that monetary policy has largely reached its limits in terms of the support it can provide to the recovery and that it needs to be complemented by non-monetary stimulus measures in order to succeed. In that respect, this week’s decision to by-pass the rules of the Stability and Growth pact and not fine Spain and Portugal for breaching the 3% deficit threshold is a welcome move by the European Commission. Further flexibility, leniency, and initiative on other levers of economic policy, particularly among those economies that can afford it, will be key in ensuring a sustainable recovery for the Eurozone going forward.
The eurozone GDP figures show the economy is still growing but inflation remains uncomfortably low, says Peter Vanden Houte at ING Bank. And the second quarter growth figure of 0.3% is likely to be revised, he adds:
After the strong growth in the first quarter (+0.6%), which was helped by some temporary factors like the mild winter weather, it was no surprise that there would be some pay-back in the second quarter.
The disappointing 0% growth in France, largely due to a decline in inventories, was one of the culprits behind the weaker Eurozone growth performance. Bear in mind though, that in a number of big member states, comprising Germany and Italy, GDP figures still have to be published, implying that today’s figure is prone to revision.
While no demand components have been published yet, we believe that household consumption remained an important growth driver for the Eurozone, as unemployment continued to fall over the previous quarter. Looking at the European Commission’s sentiment indicators, exports probably didn’t play a major role in second quarter growth, though we still pencil in a positive growth contribution.
The third quarter started on a good footing, but it is probably too soon to start downplaying the potential negative impact of Brexit on Eurozone growth.
In a separate report the flash HICP inflation estimate was published, showing that headline inflation came out at 0.2% in July, slightly higher than expected.
Today’s set of data gives policy makers only limited comfort. The good news is that the economy still has some momentum, though there is little acceleration to be expected as long as the Brexit story continues to inject some uncertainty into the external environment. At the same time, inflation remains uncomfortably low, whilst the ECB’s toolbox is getting emptier. The ECB looks set to remain in a wait-and-see mode, but we can imagine that the pressure to come up with something new will increase again, especially if growth shifts more decisively into a lower gear.
Updated
The European Central Bank president Mario Draghi is probably pleased that eurozone inflation is creeping up, although it is still far shy of his 2% target. Alex Lydall, senior sales trader at Foenix Partners, said:
A subtle smile will likely creep across Mario Draghi’s face this morning as an uplift in eurozone CPI figures for July (0.2%) gives an element of breathing space which perhaps market participants were not expecting.
In what is now a post-Brexit era, little has been noted of the impact on the eurozone, rather focus has largely been on the UK, so solid GDP figures this morning and the inflation rise will give hope that the eurozone is (at least) starting this era on an improved status. Negative sentiment is rife and global impacts largely unknown at present, but as Draghi recently pointed out, the initial headwinds have been dealt with efficiently, and the rest remains to be unknown. One step at a time, but for now, measurable success is emanating from the eurozone.
Peter Read, co-founder of trading network Pelican, said:
ECB President Mario Draghi will be relieved to see the encouraging inflation data released today, which swiftly followed strong numbers from the two pillars of the eurozone, Germany and France.
Yet Draghi will know that hitting his own two per cent yearly growth target for the eurozone off the back of strong German and French economies alone will be difficult.
Uncertainty about the UK’s relationship with the EU won’t be going away anytime soon, and many observers are now casting nervous looks at the troubled Italian banking sector to see whether the positives from the rest of the continent will be overshadowed by yet another crisis.
The eurozone GDP figures do not really include any effects of the Brexit vote, of course. Dennis de Jong, managing director at UFX.com, said:
After a strong first quarter for eurozone GDP it comes as little surprise that second quarter growth has slowed. The effect of the UK’s Brexit vote hasn’t set in yet, although many will expect numbers to continue to slide.
We’ve already seen the Bank of Japan underwhelm the markets this morning with just a modest expansion of its stimulus programme, and it will be the Bank of England’s turn to announce its policy decision next week.
These are testing times for central banks all over the world and the markets are looking for swift and strong action.
There are also inflation and unemployment figures out from the European Union.
Eurozone inflation came in higher than expect in July, up 0.2% from 0.1% in June according to the initial estimate from Eurostat. It said:
Looking at the main components of euro area inflation, food, alcohol & tobacco is expected to have the highest annual rate in July (1.4%, compared with 0.9% June), followed by services (1.2%, compared with 1.1% in June), non-energy industrial goods (0.4%, stable compared with June) and energy (-6.6%, compared with -6.4% in June).
Eurozone CPI Estimate Y/Y (Jul) +0.2% versus +0.1% expected, previous +0.1% | Core Y/Y (Jul A) +0.9% versus +0.8% expected, previous +0.9%
— Sigma Squawk (@SigmaSquawk) July 29, 2016
Meanwhile the eurozone unemployment rate for June came in as expected at 10.1%. Eurostat said:
The euro area seasonally-adjusted unemployment rate was 10.1% in June 2016, stable compared to May 2016 and down from 11.0% in June 2015. This remains the lowest rate recorded in the euro area since July 2011.
The EU28 unemployment rate was 8.6% in June 2016, stable compared to May 2016 and down from 9.5% in June 2015. This remains the lowest rate recorded in the EU28 since March 2009.
Eurozone Unemployment Rate (Jun) 10.1% versus 10.1% expected, previous 10.1%
— Sigma Squawk (@SigmaSquawk) July 29, 2016
In the wider European Union, the 28 member states saw GDP rise by 0.4% quarter on quarter, down from 0.5%. Year on year, EU GDP came in unchanges at 1.8%.
Eurozone economy slows in second quarter
The eurozone economy slowed in the second quarter, but performed slightly better than expected.
GDP growth came in at 0.3% quarter on quarter, down from 0.6% in the first three months of the year but in line with forecasts.
Year on year the rise was 1.6%, down from 1.7% but higher than the expected figure of 1.5%.
Oil continues to come under pressure on worries of a supply glut and slowing demand. On Thursday West Texas Intermediate - the US benchmark - entered bear market territory by falling 20% below its June high. Now Brent crude has followed suit:
Brent crude #oil enters bear market (down 20% from high for year) and drops below 200-day moving average #OOTT pic.twitter.com/qtuKk6avVl
— David Sheppard (@OilSheppard) July 29, 2016
UK mortgage approvals hit more than one year low but consumer lending rises
In the weeks leading up to the EU referendum, UK mortgage approvals fell to their lowest level since May 2015.
But lending to consumers rose at its fastest pace for nearly 11 years, according to new Bank of England figures.
The Bank said 64,766 mortgages were approved compared with 66,722 in May, below analyst expectations of a figure of 65,650.
As for consumer lending, it jumped by 10.3% year on year although this may slow down in the months following the referendum, if the latest drop in consumer confidence is any guide.
Updated
German retail sales for June seemed to have held up in the run-up to the UK’s referendum. Reuters reports:
German retail sales fell by 0.1 percent on the month in June but a stronger-than-forecast yearly rise suggested consumer spending, which is expected to drive growth this year, remains a pillar of support for the economy as foreign trade weakens.
The volatile indicator, which is often subject to revision, was in line with expectations in a Reuters poll for a 0.1 percent monthly drop, data from the Federal Statistics Office showed on Friday.
The monthly data for May was revised down to a rise of 0.7 from a previously reported increase of 0.9 percent.
On the year, annual retail sales in Europe’s largest economy climbed by 2.7 percent in real terms - far more than the 1.3 percent increase forecast by economists in a Reuters poll.
Updated
France’s economy could weaken further after the Brexit vote, says ING economist Julien Manceaux:
French GDP growth slowed to 0.0% in the second quarter. This is in line with expectations that first quarter’s consumption rebound could not last without more signs of higher employment growth. Government actions to boost corporate investment seem to have been less effective in the second quarter while net exports remained the weak spot of the French economy. If employment growth fails to accelerate, the risks materializing from the Brexit shock could lead to further weaknesses in the second half of this year.
...It should be noted that the US and the UK were large contributors to growth last year, which helped limiting the negative net export growth contribution of 2015 to -0.3%. With the Brexit risk materializing and a weaker US dollar, this position will probably deteriorate further in the second half of the year.
After the Brexit shock, we have revised our GDP growth forecast downwards to 1.4% in 2016 after 1.2% in 2015, and to 1.1% in 2017. With no room for manoeuvre left as far as reforms are concerned, the French economy can only count upon the stimulus added by recent policies (lowering labour costs and giving investment tax breaks). We think this will not be enough to secure a stronger recovery path before the 2017 Presidential election, especially if employment growth does not accelerate strongly in the near term.
But Spain, despite its political troubles, is performing well. ING’s Geoffrey Minne says:
Once again, Spanish figures remain strong and GDP growth rate of 3.2% year on year leaves Spain as a solid leader among large Eurozone countries.
Looking at the economic situation, nearly everything seems to continue in the right direction...While the detail about GDP components is not available yet, we suspect consumption to be at the heart of the recovery, as households still benefited from the same cocktail of rising real earnings, decreasing unemployment and rebounding housing prices. The second good news of today is that the inflation rate continues to move towards the positive territory. The harmonized CPI went progressively from -1.2% year on year in April to -0.9% in June and -0.6% in July.
Looking at the political situation, nearly everything seems to go wrong. After two election rounds, no concrete solution is on the table and even if Rajoy would like to see a government in the beginning of August, it seems unlikely.
All in all, political turmoil has barely scratched GDP growth and job creation in the first semester and Spain has appeared more resilient than expected. The effect of Brexit and national political uncertainty can still suddenly come into play but with current tailwinds, GDP growth in 2016 is set to hover around 3%. However until the end of the year, slippages are possible, caused by political events be it in Barcelona or in Madrid.
The French GDP figures could be a bad omen for the forthcoming eurozone GDP figures, says Capital Economics:
Stagnation in France's GDP in Q2 largely down to slower h'hold spending & suggests EZ Q2 GDP (10am BST) also weak. pic.twitter.com/xJLw5Auj7m
— Capital Economics (@CapEconEurope) July 29, 2016
Another warning about the UK property market - London in particular - in the wake of the Brexit vote, this time from estate agency Foxtons.
Spanish economy holds steady
Despite a second election in six months during the second quarter, Spain’s economy still managed to show steady growth.
Spain’s GDP rose by 0.7% quarter on quarter between April and June, in line with expectations and up 3.2% year on year.
Spanish GDP (QoQ) Q2 P: 0.7% (est 0.70%; prev 0.80%)
— Livesquawk (@Livesquawk) July 29, 2016
-GDP (YoY) Q2 P: 3.20% (est 3.10%; prev 3.40%)
Earlier in the week, Spain avoided a fine from the European Union over its budget deficit and was given an extra two years to achieve a target for its deficit to be no more than 3% of GDP. Portugal was given similar dispensation.
Updated
Mixed start for European markets
Contrary to expectations, the FTSE 100 has fallen in early trading, down 14 points or 0.2%.
Barclays is leading the risers, up 4% after its results while British Airways owner International Airlines Group is down nearly 2% after it reported a lower than expected 4.7% rise in second quarter profit and said it no longer expected to grow 2016 profits by €900m as it had forecast in February.
But Germany’s Dax and France’s Cac both opened 0.4% higher.
Ahead of the eurozone GDP figures, Unicredit analysts say they expect a modest expansion in the second quarter:
After a strong first quarter, GDP growth likely weakened in the second quarter of 2016: we forecast +0.3% quarter on quarter, with risks tilted to the downside. Hard data suggest that private consumption and construction investment slowed substantially, while the trade channel is unlikely to have picked up the slack. On the output side, industrial production lost traction.
There are also eurozone inflation and unemployment figures due, while in the UK we get mortgage approvals for June, and in the US, second quarter GDP.
Back to the French GDP numbers, and in volume terms growth was flat in the second quarter after a 0.7% rise in the previous three months. Household expenditure fell sharply from 1.2% to flat, while imports dropped by 1.3% and exports declined by 0.3%.
Year on year, GDP grew by 1.4% compared to 1.3% previously but below forecasts of a 1.6% increase.
French GDP Q/Q (Q2 A) 0.0% versus +0.2% expected, previous +0.6% revised +0.7% | GDP Y/Y (Q2 A) +1.4% versus +1.6% expected, previous +1.3%
— Sigma Squawk (@SigmaSquawk) July 29, 2016
And here’s how the French GDP figures break down:
Here are the forecasts for the European market open.
Our European opening calls:$FTSE 6734 up 12
— IGSquawk (@IGSquawk) July 29, 2016
$DAX 10336 up 61
$CAC 4447 up 27$IBEX 8526 up 47$MIB 16618 up 95
Meanwhile the Nikkei is currently up 0.56% while the Hang Seng has slipped 0.86%.
Eurozone growth expected to show decline
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The eurozone economy will be in the spotlight today with growth figures for the second quarter - the run up to the UK’s Brexit vote - expected to show a slowdown. But bear in mind that UK second quarter GDP ended up being better than forecasts despite the concerns about the referendum.
Meanwhile the Bank of Japan has disappointed the market with its latest stimulus package, leaving interest rates at their previous negative level but slightly boosting its stimulus package.
Not quite what traders were looking for...#BOJ disappoints and markets react: #USDJPY down 2% #Nikkei down 1.1%
— IGSquawk (@IGSquawk) July 29, 2016
Our story is here:
Jasper Lawler, market analyst at CMC Markets UK, said the disappointment from the new Japanese measures could put more pressure on Bank of England governor Mark Carney. The B0E is odds on to cut interest rates next week but the scope for an underwhelming result here has increased, said Lawler:
The Bank of Japan has eased policy but it hasn’t impressed markets...The Japanese yen has rallied against every major currency following the BOJ announcement, taking USD/JPY down 200 pips to 103. Further declines for another test of the key 100 level appear likely. It was a missed opportunity for the BOJ to have done more at its first meeting after Prime Minister Abe was re-elected with a new mandate to expand Abenomics.
Even the Japanese stock market, which is the single biggest beneficiary of the policy change saw shares drop, with the Nikkei choppy before falling nearly 1%. The shift into the yen, typically perceived as a haven asset will have repercussions on demand for risky assets including European stocks.
The impact of Japan’s weak monetary stimulus is being interpreted differently across Europe.....
Mark Carney has boxed the Bank of England into a corner, with market expectations now 100% that it will cut interest rates in August, primarily because of his “more monetary easing by summer” comment. The Bank of Japan’s governor Kuroda appears to have felt compelled to act given the weight of expectation but has delivered something underwhelming. Mark Carney might be at risk of doing the same.
Back with eurozone GDP and the figures will be scoured for any sign of a Brexit effect. The agenda looks like this:
SuperFriday! Lots of very important data coming from Europe tomorrow. {BI ECON} on the terminal for timely analysis. pic.twitter.com/Fdx0nmCXOa
— Maxime Sbaihi (@MxSba) July 28, 2016
The figures from France are already out and show a flat performance compared to expectations of a 0.2% rise quarter on quarter:
In Q2 2016, French GDP levelled off: In Q2 2016, GDP in volume terms* was stable : 0.0% after +0,7% in Q1.
— Forex Warrior (@Forex_warrior) July 29, 2016
... https://t.co/VlHeZGzf2c
More on that in a moment.
Also high on the agenda are the results of the latest European banking stress tests, with Italian banks in particular in the spotlight on concerns about their balance sheets and non-performing loans. The report is due out after the close of the US market.
Speaking of banks, Barclays has just reported a 10% fall in half year underlying profit.
Elsewhere there are updates from British Airways owner International Airlines Group, and there is likely to be more fallout from the last minute delay to the Hinkley Point C nuclear deal with EDF:
Updated
