Market wrap
A trifecta of central bank easing failed to boost risk sentiment. The ECB cut both its lending and deposit rates by 25bp to 0.75% and 0%, respectively; the BOE expanded its asset purchase program by GBP50bn to 375bn (QE4); and the PBOC surprised by cutting its 1yr lending rate by 31bp and 1yr deposit rate by 25bp. All of this helped push risk markets higher for an hour but the ECB press conference quashed hopes further unconventional measures would be signalled, sending markets lower. The S&P500 is currently down 0.2%, losing 1.3% in the ECB press conference aftermath. Oil is down 0.8%, copper -1.4%, and gold -0.7%. US 10yr treasury yields rose from 1.58% to 1.62% shortly after the central bank moves but reversed the gain after the ECB comments. Among Eurozone peripheral bonds, the 10yr Spanish yield closed 36bp higher at 6.78%, and Italy's rose 21bp to 5.98%.
The US dollar index (DXY) rose by around 1%. EUR underperformed following the ECB announcement, falling from 1.2530 to 1.2364 – a six week low. GBP also suffered, falling from 1.5606 to 1.5500. USD/JPY rose sharply in response, from 79.60 to 80.10. AUD initially bounced from 1.0280 to 1.0329 on the central bank news but the ECB disappointment pushed it down to 1.0249. It then recovered to just under 1.0300, following US equities which found support from the private sector payrolls data. NZD spiked from 0.8040 to 0.8076 and then slumped to 0.8006,finally steadying around 0.8040. AUD/NZDfirmed from 1.2780 to 1.2810.
Economic wrap
US ISM non-manufacturing down from 53.7 to 52.1 in June, its lowest reading since early 2010. Business activity was the main component loser, down 4 pts; orders were down 2 pts and jobs rose 1.5 pts. All held above 50 but just as happened in 2010 and 2011, early year optimism engendered by rising services confi dence proved to be unsustainable by mid-year.
US ADP private payrolls jumped 176k in June, the fastest gain in Q2 but still weaker than the gains in thefive months between Nov and March. In Q2 ADP averaged a 141k monthly gain down from 205k in Q1; the BLS private payrolls count averaged 209k in Q1 but averaged just 85k in May-June, suggesting some risk that June BLS payrolls could surprise to the upside. Other job market news included a 14k decline to 374k for initial jobless claims in the week ended 30/6; and a –9.4% yr decline in corporate layoff announcements. US chain store sales growth slows from 1.7% yr to 0.2% yr in June, its slowest growth pace since late 2009.
The European Central Bank cut its repo rate a further 25bp to the historical low of 0.75%, with 'downside risks to the outlook materialising... and heightened uncertainty'. There was no hint at the press conference that the ECB might add to the ESM's bond purchasefirepower, not wanting to risk the credibility of the bank by doing something outside its mandate, in ECB chief Draghi's words. As we keep saying, they will deny it till they do it.
German factory orders rise 0.6% in May, partially reversing their April fall of 1.4%. However orders are still down 5.4% yr, weaker than their pace of decline in thefirst couple of quarters of the 2008 recession.
The Bank of England announced it was expanding its asset purchase program by a further £50bn to £375bn, citing the growing risk that Europe's problems would risk UK inflation undershooting the 2% target in the years ahead. On the data front, house prices rose 1.0% yr in June, for an annual pace of decline of –0.5% yr, according to the Halifax.
China eases policy again. The PBOC cut the benchmark lending and deposit rates by 31bp and 25bp to 6.0% and 3.0% respectively, the second rate cut in four weeks
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