- Markets quickly shook of the initial disappointment after Fed chairman Bernanke’s statement before Congress and the US stock market recovered strongly supported by a couple of well-received US corporate earnings. The S&P 500 closed up 0.7% after an initial drop of 1.2% while Dow Jones industrial Average finished up by 0.6%. US 10-year benchmark Treasurys rose 3bp to 1.5078% but have dropped back below 1.50% again overnight. In the Asian trading session, focus turned towards the poor economic outlook and Nikkei and Topix are two of only a few regional markets to stay in positive territory. Both indices are up by 0.2% while Hang Seng is down by 0.8%. In FX markets, the EUR/USD regained the initial drop from 1.2280 to 1.2189 after Bernanke’s speech and is this morning trading around 1.2290.
- There was no hint of imminent QE in Bernanke’s statement before the US Congress. In general, the content of the statement did not deviate substantially from the content of the statement from the Fed’s June meeting. It appears that Bernanke certainly does not feel confident that there will be enough support for further QE on the FOMC board to make any commitments at this stage. Based on Bernanke’s comments, it looks less likely that there will be announced additional QE in connection with the August meeting. QE in connection with the September meeting is still possible, but it will be data-dependent.
- Data released overnight showed that prices for new homes in China increased for the first time since June 2011. Prices for existing homes also increased 0.1% m/m in June after declining 0.1% m/m in May. Sales of new homes also improved markedly in June for the second month in a row and even though most restrictions on the property market remain in place, it appears that the recent sharp decline in mortgage rates has lured buyers back in the property market. All in all, today’s release is in line with other recent data that suggests that the Chinese property market has started to stabilise.
- Focus today will be on minutes from the 5 July meeting of the Bank of England and UK jobless figures. Today’s release will get attention after the central bank added GBP50bn to its asset purchase programme this month and the market will look for hints of further easing as UK consumer prices released yesterday showed the biggest June drop since 1996. Fed Chairman Bernanke gives his semi-annual report to the US House. However, based on yesterday’s statement before the US Congress, it is very unlikely that his speech today will reveal anything new. Tonight the Fed releases its Beige Book survey ahead of the coming FOMC meeting on 31 July. The report is likely to confirm that the economic growth will continue at a moderate pace going forward. In the US only tier 2 data releases are in the calendar today. However,look out for housing starts to surprise on the upside. The earnings season continues with Bank of America and BNY Mellon reporting today.
- There are no major market events in Scandinavia today.
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