A strong earnings report from Intel has allowed risk appetite to continue to improve this morning. Asian stocks benefitted from the news, the Nikkei lagging, and the stronger tone has been extended into European hours. EUR/USD saw a burst of activity at the London open to 1.4060 on the back of improved sentiment, though consolidative activity has followed. The yen is lower across to board in tune with the swing towards risky assets. As expected the BOJ left interest rates unchanged overnight but cut its growth forecast and said it will extend emergency lending in view of the poor economic backdrop. This weighed on the Nikkei but had little discernable impact on the JPY.
The BoJ now expects the Japanese economy will shrink by -3.4% this year, more than its previous estimate of -3.1%. Next year it sees modest growth of 1.0%, down from 1.2%. The forecasts are in contrast with those of the government which yesterday raised its assessment of the economy for the 3rd consecutive month. It is also out of line with other news stemming from the Asian region this week. Singapore wowed the market yesterday with a Q2 GDP of +20.4% q/q saar. Korea is expected to post strong Q2 GDP data next week and China's Q2 GDP report this week is also expected to support to view that conditions in the Asian region are 'stabilising' better than elsewhere. China today reported that reserves rose to USD2.13 trn in Q2, the flow has been aligned to a return of investment interest in the country.
At first glance the UK employment data is in tune with the better tone that has stemmed from Asia. In Jun the claimant count rose by 23.8K, far below the 41.3K median forecast indicative perhaps that the worse of the downturn is over. However, a closer look provides a gloomier picture of the UK labour market. The ILO unemployment rate rose to 7.6% in the 3 mths to May, up over 2.4% over the year which is the largest quarterly increase in the unemployment rate since 1981. Sterling initially softened on the news, but cable continues to hold above last night's close and well within the confines of its range. Comments from the BoE's Bean asserted that the Bank has not ''paused'' on QE. Having deflected a decision on QE last week, speculation over the likely course of action after the August policy meeting will mount over the coming weeks. Any indications that QE may be extended are set to weigh on the pound.
Comments from New Zealand Finance Minister English overnight reasserted those of the RBNZ's Bollard yesterday that the value of the NZD is higher than fundamentals warrant. He also drew attention to the large size of the current account deficit. The NZD, however has remained well supported this morning on the increase of risk appetite with NZD/USD edging higher towards 0.6430.
The US CPI report is due this afternoon. Headline inflation is expected at -1.5% y/y. The July Empire manufacturing survey and the June industrial production report are also due. Also in focus will be the minutes of the June 24 FOMC.
