Markets overnight

  • The June Fed minutes released last night were notably less dovish than market expectations. Importantly, there was no suggestion of any FOMC members pressing hard for QE3 in June: a few saw more easing as likely to be necessary should data deteriorate further but a few also saw potential for more asset purchases to disrupt market functioning. However, economic data have deteriorated since the meeting was held and thus some of the conditions mentioned by the FOMC as precursors for further action may now have been met. Equities fell slightly in the US and losses extended in Asia. Treasury yields up 1-2bp around the 5Y segment.

  • Bank of Japan somewhat unexpectedly expanded its asset purchase programme by JPY5trn to JPY45trn but simultaneously cut the size of its credit loan facility. The Japanese economy is increasingly subject to global growth woes as the boost to growth from reconstruction is fading. USDJPY initially spiked but the jump proved short-lived. Meanwhile, both Brazil and South Korea cut their policy rates.

  • The Australian employment report was surprisingly downbeat with employment posting a decline of 27K in June. Indeed, an increasing division between resource and non-resource led activity within the Australian economy and the recent Chinese slowdown could lead the RBA to ease further. Both AUD and NZD lower.

  • The Spanish prime minister Rajoy yesterday announced new austerity measures – including a VAT hike and cuts to unemployment benefits and public sector wages – in order to curtail Spain’s budget deficit by 2015 in an attempt to avoid a bailout in addition to the one already sketched for the country’s banks. The Spanish 10Y yield has dropped significantly in recent days to now trade close to 6.5%.

  • The monthly USDA grains report saw ending stock estimates of notably corn slashed and grain prices jumped. While some of the price gains were later reversed, this highlights a high level of alertness to bad news in grain markets and inflation induced by surging prices of agricultural products, i.e. ‘agflation’, may soon return.


Global Daily

  • Focus today will be on markets digesting the Fed minutes: with QE3 not yet a done deal, there is enough to worry about in risky assets for now. Tailwinds for USD are thus strong at the moment and we need to see more clear signs of Fed willingness to act to stem the downturn before a turnaround for EUR/USD may be eyed. Watch out for Fed’s William (voter) speaking later in the day. Also in the US, the monthly budget statement is due to be issued which could remind markets of the looming fiscal cliff of major tax hikes and spending cuts in 2013.


Scandi Daily

  • In Sweden, the June CPI figures will be out: inflation has slowed markedly this year, down from well above 2% late last year to stand at a mere 1% y/y (headline) in May, a comfortable level for the Riksbank. Recent SEK strength should limit any upward pressure on prices.