Mind The Gap, a mid morning round up of London session activity before New York opens
Japan’s preliminary GDP figure disappoints, causing both yen values and the Nikkei to fall
Japan’s economy grew at an annualised rate of 2.6% between April and June, falling some way short of the economists polled by Bloomberg forecast of 3.6% growth and 1.2% below the 3.8% growth achieved in the first quarter of 2013. The month on month growth figure was 0.6%, this was below the predicted figure of 0.9% and below last month’s figure of 1.0%. What could be of concern, to the Japanese authorities and the BOJ, is the rise in price of goods charged by corporations which rose to an annual level of 2.2%, this was significantly higher than the predicted 1.9% and significantly beating last month’s figure of 1.2%. This increased commercial inflation figure could represent a problem for the BOJ given it’s monetary stimulus programme.
Consumer inflation has fallen to -0.3% above a prediction of -0.7%. The Nikkei fell on the worse than expected fundamental news, whilst in a correlated fashion yen also fell with investors and speculators believing that the BOJ and Japanese government will now have to engage in further monetary stimulus in order to ‘jump start’ the growth witnessed in the first quarter.
Greece will require further bailouts – German Bundesbank
Germany’s central bank believes that Greece will need additional bailout loans from the EZ by the start of 2014 at the latest, according to the popular weekly magazine Der Spiegel. They reported this concern on Sunday, apparently quoting a document from the Bundesbank.
Greece has had two European Union/International Monetary Fund bailouts totalling €240bn and has ‘spent’ 90% of those funds. The current package is due to expire at the end of 2014. Spiegel’s report quoted what it referred to as a Bundesbank report for the German finance ministry and the IMF. In the document, according to Spiegel, the Bundesbank predicts that European governments “will certainly agree a new aid programme for Greece” by early 2014 at the latest.
Market overview at 10:00 AM UK time
The Nikkei fell by 0.7% at the close of the Japanese session due to the poor GDP figures, however, positive news for China, in terms of sustained growth, caused the Hang Seng to close up 2.13% and the CSI to close up 2.92%. The ASX 200 also reacted positively and in a correlated manner to the Chinese indices by closing up 1.06% in the overnight/early morning session.
Looking at European markets they’re mostly down since the market open and this fall is in an environment of very little news, certainly no high impact news events have been printed specifically for Europe. The STOXX is down 0.43%, the UK FTSE is down 0.24%, the CAC down 0.24% and the DAX down 0.56%.
Turning our attention to the equity index futures market, (for our customers who trade the USA indices), the equity index future for the DJIA is currently down 0.37%, the SPX future is down 0.46% and the NASDAQ future is down 0.40%. At the time of writing the market is speculating that the main USA indices will open down.
Looking at commodities ICE WTI oil is currently down 0.12% at $105.84 per barrel, NYMEX natural is up 0.59% at $3.25 per therm. COMEX gold is currently up 1.07% at $1326.30 per ounce with silver up a significant 2.51% on COMEX to $20.92 per ounce.
Focus on FX
Yen declined 0.3 percent to 96.53 per dollar early in the London session after appreciating to 95.81 on Aug. 8th, the strongest level witnessed since June 19th. Japan’s currency also weakened 0.1 percent to 128.56 per euro. The dollar strengthened 0.2 percent to $1.3319 per euro.
The yen has weakened over the latest two sessions due to the previously mentioned government report showing Japan’s economy slowed more in the second quarter than analysts forecast, therefore causing speculation that the central bank will need to boost stimulus measures in order to spur growth. Yen has slumped by over 20 percent during the past twelve months, making yen the worst performer of the ten developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The euro has strengthened 11 percent during this time whilst the dollar has only appreciated 1.2 percent.
Sterling declined 0.2 percent to $1.5471 in the early part of the London session after advancing to $1.5574 on Aug. 8th, this was the highest level witnessed since June 19th. The U.K. currency is little changed at 86.01 pence versus the euro. Sterling has strengthened 1.2 percent during the past three months, according to the Bloomberg Correlation-Weighted Indexes that tracks the ten most developed-nation currencies. The euro has risen 3.1 percent, whilst the dollar has only appreciated 0.4 percent.
New Zealand’s currency was little changed at 80.31 U.S. cents, whilst the Aussie fell by 0.2 percent to 91.86 U.S. cents. The kiwi climbed 2.6 percent and the Aussie jumped 3.4 percent last week, this was the largest gain witnessed for both southern hemisphere currencies since December 2011.
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