In the overnight – early morning session the RBA minutes were published containing the reasons why, in its latest meeting on August 7th, the Australian central bank decided to cut its base interest rate by 0.25% to 2.5%. In the policy meeting notes the bank appeared to be quite neutral, the final paragraph of the publication summing up their stance and offering up a form of forward guidance. The RBA stated that;
“On balance, with growth expected to remain below trend for longer and inflation to remain within the target even with the effects of a lower exchange rate, members concluded that a lower level of the cash rate would better contribute to achieving sustainable growth in demand consistent with the inflation target. Regarding the communication of this decision, members agreed that the Bank should neither close off the possibility of reducing rates further, nor signal an imminent intention to reduce rates further. The Board would continue to examine the data over the months ahead to judge whether monetary policy was appropriately configured.”
Nikkei slumps by 2.63% as Abenomics falls apart
Japan’s main market the Nikkei fell 2.6% to 13,396 after reaching down to a seven-week low due to the uncertainty surrounding the Federal Reserve’s plan to ease its bond-buying programme. Investors and traders also continued their skepticism regarding the health of the Japanese economy, which on closer inspection has failed to respond to the Abenomics strategy of money printing in order to cheapen yen and stimulate an export driven recovery. The trade balance has worsened considerably…
Whilst exports have risen significantly, up 12.2% in July from the year previous, the exports were valued in a weakened yen. In terms of volume, actual exports only rose by a meagre 1.8%. In reality Abenomics has achieved very little in terms of stoking up an export led recovery.
As we delve a little deeper into the data we see that imports have surged 19.6%, forcing the trade deficit up to ¥1.024 trillion ($10.5 billion). This is now the thirteenth successive month of trade deficits and close to double the trade deficit seen in July 2012 when Japan had a surplus of ¥72.5 billion after the shutdown of Japan’s nuclear reactors due to the devastating tsunami and earthquake/s.
July 2013 actually represented the worst July trade deficit on record and the third largest overall, after the deficits of ¥1.6 trillion in January 2013 and ¥1.5 trillion in January 2012.
Market snapshot at 10:00 am UK time August 20th 2013
The Nikkei (as previously mentioned) fell sharply on fears that Abenomics is failing and concerns that the Fed’s tapering will hit all global indices. The fall in Asian markets was not confined to Japan as Chinese markets also fell. The Nikkei closed down 2.63%, the Hang Seng closed down 2.2% and the CSI closed down 0.81%. The ASX 200 closed down by 0.67% the RBA minutes on the rate setting policy decision failing to stimulate investor sentiment in Australia.
European indices are all ‘red’ at the mid point of the London and European morning trading session. The STOXX has fallen by 1.39%, the FTSE by 0.69%, the CAC by 1.44%, the DAX by 1.24%, the PSI by 2.2% and the Athens exchange by 2.49%.
Looking forward to the New York open the DJIA equity index future is currently down 0.07%, the SPX is down 0.05% whilst the NASDAQ equity indies future is also down marginally at 0.06% suggesting that indecision currently stalks the markets relating to how the indices will behave shortly before, or after New York opens.
ICE WTI oil is down 0.76% at $106.05 per barrel, NYMEX natural is down 0.55% at $3.44 per therm. COMEX gold is down 0.29% at $1371.80 per ounce, whilst silver on COMEX is down 1.79% at $22.74 per ounce.
FX in focus
The yen rose 0.5 percent to 97.09 per dollar early in the London session after advancing to 95.81 on Aug 8th, the strongest level witnessed since June 19th. Japan’s currency appreciated 0.5 percent to 129.50 per euro.
The euro rose 0.1 percent to $1.3349 early in the London session reaching $1.3380 on Aug 16th, the highest level witnessed since Aug 9th. It declined 0.2 percent to 129.81. The dollar slid 0.3 percent to 97.23 yen.
The U.S. Dollar Index, which tracks the greenback versus its 10 major peers, was little changed at 1,023.28 after climbing 0.3 percent during the previous two days.
Australia’s currency dropped 0.76 percent to 90.40 U.S. cents late in the Sydney session, after earlier touching 90.37, the lowest level since Aug 8th. Australia’s dollar fell for a second day, following its biggest drop this month, after the Reserve Bank said the currency’s direction will be important in determining policy.
New Zealand’s dollar slid 1.2 percent to 79.69 U.S. cents, heading for the biggest decline since July 5th. The kiwi slumped versus all of its major peers, heading for its biggest loss versus the greenback in over six weeks, after the country’s central bank chief said it will impose bank lending restrictions, reducing the need for imminent interest-rate increases.