Market Review - 25/08/2015 22:42GMT
Dollar rebounds as U.S. stocks swing from initial gain to loss
The greenback extended gains against the other major currencies on Tuesday due to upbeat U.S. economic reports and after China's central bank cut interest rates in a bid to bolster economic growth after a plunge in the country's stock market.
Versus the Japanese yen, although the greenback retreated to 118.88 ahead of European open after early intra-day rise from 118.25 to 120.11 in Asian trading, renewed buying interest there pushed price higher to 120.40 in European trading after China's central rate cut decision before coming off to 119.43 in New Yow morning in part due to active cross-buying in Japanese yen versus other major currencies.
The People's Bank of China cut its main interest rate by 0.25 percentage points to 4.6% in an effort to calm stock markets after two days of turmoil. It was the fifth interest rate cut since November and will take effect on Wednesday.
China Central bank then said in the following statement, 'additional 300 bps reserve requirement cut for financial leasing companies, auto leasing companies; additional 50 bps cut in reserve requirement for rural commercial banks, rural corporate banks; removes upward cap on deposits of more than 1-year tenor; economy still faces downward pressure; financial market volatility requires more flexible monetary policy tools; overall, inflation is still low; low inflation creates conditions for using policy tools to lower borrowing costs; cuts in bank reserve requirements to provide long-term liquidity, help support economy; there has been a shortfall in liquidity caused by fluctuations in forex markets; relatively low upward pressure on interest rates creates window for rate reform; in future, central bank will closely monitor changes in liquidity, use various tools to adjust liquidity; will keep money supply, credit growth appropriate to promote healthy, stable economic growth.'
On the data front, U.S. Commerce Department said new home sales rose by 5.4% to a seasonally adjusted 507,000 units last month, compared to expectations for a gain of 5.8% to 510,000. In a separate report, financial firm Markit said its preliminary or "flash" reading of its PMI for the services sector in U.S. slipped to 55.2 in August from the final 55.7 reading in July, below the 56 level expected by street's forecast. Later, the Conference Board showed U.S. consumer confidence improved to a seven-month peak in August, said its index of consumer confidence jumped to 101.5 this month from a reading of 91.0 in July, whose figure was revised from a previously reported 90.9.
The single currency came under renewed selling pressure at 1.1623 against the U.S. dollar ahead of Asian open and ratcheted lower to 1.1456 in European midday. Later, price briefly recovered to 1.1519 at New York open but only to fall to a fresh session low of 1.1406 as intra-day rally in the U.S. stocks led to broad-based demand for the greenback.
Earlier in Europe, a report from Statistisches Bundesamt Deutschland showed German GDP rose to a seasonally adjusted 0.4%, from 0.4% in the preceding quarter, whilst later the German research institute, Ifo said its Business Climate Index rose to a seasonally adjusted 108.3 (3-month high) in August from a reading of 108.0 in July, beating forecasts for 107.7.
The British pound swung from gain to loss on Tuesday. Despite ratcheting higher from Australian low at 1.5747 to a fresh 2-month peak at 1.5820 in European trading, price tumbled in New York session to a fresh intra-day low of 1.5683.
In other news, ECB's Constancio said on Tuesday, 'our new non-standard measures have successfully improved financial and credit conditions in the euro area and contributed to supporting the normalisation of price stability; confident that full implementation of the private and public sector asset purchase programmes, as announced, will lead to a sustained return of inflation rates towards levels consistent with our define; governing council stands ready to use all the instruments available within its mandate to respond to any material change to the outlook for price stability.' A little later, he said 'June ECB inflation forecasts assumed increase of price of oil; it's too soon to assess China impact on real economy; size of stock market in china not so big; there was knee-jerk contagion in stock markets of other countries, now being corrected; German Ifo means problems in china not affecting German firms; China not a major factor, oil is more relevant for inflation; too early for ECB to react to China situation.
Data to be released on Wednesday:
New Zealand trade balance, UK nationwide house prices, CBI distributive trades, and U.S. durable goods orders. Reserve Bank of Australia Governor Glenn Stevens will speak at the National Reform Summit, hosted by The Australian and the Australian Financial Review.
Dollar rebounds as U.S. stocks swing from initial gain to loss
The greenback extended gains against the other major currencies on Tuesday due to upbeat U.S. economic reports and after China's central bank cut interest rates in a bid to bolster economic growth after a plunge in the country's stock market.
Versus the Japanese yen, although the greenback retreated to 118.88 ahead of European open after early intra-day rise from 118.25 to 120.11 in Asian trading, renewed buying interest there pushed price higher to 120.40 in European trading after China's central rate cut decision before coming off to 119.43 in New Yow morning in part due to active cross-buying in Japanese yen versus other major currencies.
The People's Bank of China cut its main interest rate by 0.25 percentage points to 4.6% in an effort to calm stock markets after two days of turmoil. It was the fifth interest rate cut since November and will take effect on Wednesday.
China Central bank then said in the following statement, 'additional 300 bps reserve requirement cut for financial leasing companies, auto leasing companies; additional 50 bps cut in reserve requirement for rural commercial banks, rural corporate banks; removes upward cap on deposits of more than 1-year tenor; economy still faces downward pressure; financial market volatility requires more flexible monetary policy tools; overall, inflation is still low; low inflation creates conditions for using policy tools to lower borrowing costs; cuts in bank reserve requirements to provide long-term liquidity, help support economy; there has been a shortfall in liquidity caused by fluctuations in forex markets; relatively low upward pressure on interest rates creates window for rate reform; in future, central bank will closely monitor changes in liquidity, use various tools to adjust liquidity; will keep money supply, credit growth appropriate to promote healthy, stable economic growth.'
On the data front, U.S. Commerce Department said new home sales rose by 5.4% to a seasonally adjusted 507,000 units last month, compared to expectations for a gain of 5.8% to 510,000. In a separate report, financial firm Markit said its preliminary or "flash" reading of its PMI for the services sector in U.S. slipped to 55.2 in August from the final 55.7 reading in July, below the 56 level expected by street's forecast. Later, the Conference Board showed U.S. consumer confidence improved to a seven-month peak in August, said its index of consumer confidence jumped to 101.5 this month from a reading of 91.0 in July, whose figure was revised from a previously reported 90.9.
The single currency came under renewed selling pressure at 1.1623 against the U.S. dollar ahead of Asian open and ratcheted lower to 1.1456 in European midday. Later, price briefly recovered to 1.1519 at New York open but only to fall to a fresh session low of 1.1406 as intra-day rally in the U.S. stocks led to broad-based demand for the greenback.
Earlier in Europe, a report from Statistisches Bundesamt Deutschland showed German GDP rose to a seasonally adjusted 0.4%, from 0.4% in the preceding quarter, whilst later the German research institute, Ifo said its Business Climate Index rose to a seasonally adjusted 108.3 (3-month high) in August from a reading of 108.0 in July, beating forecasts for 107.7.
The British pound swung from gain to loss on Tuesday. Despite ratcheting higher from Australian low at 1.5747 to a fresh 2-month peak at 1.5820 in European trading, price tumbled in New York session to a fresh intra-day low of 1.5683.
In other news, ECB's Constancio said on Tuesday, 'our new non-standard measures have successfully improved financial and credit conditions in the euro area and contributed to supporting the normalisation of price stability; confident that full implementation of the private and public sector asset purchase programmes, as announced, will lead to a sustained return of inflation rates towards levels consistent with our define; governing council stands ready to use all the instruments available within its mandate to respond to any material change to the outlook for price stability.' A little later, he said 'June ECB inflation forecasts assumed increase of price of oil; it's too soon to assess China impact on real economy; size of stock market in china not so big; there was knee-jerk contagion in stock markets of other countries, now being corrected; German Ifo means problems in china not affecting German firms; China not a major factor, oil is more relevant for inflation; too early for ECB to react to China situation.
Data to be released on Wednesday:
New Zealand trade balance, UK nationwide house prices, CBI distributive trades, and U.S. durable goods orders. Reserve Bank of Australia Governor Glenn Stevens will speak at the National Reform Summit, hosted by The Australian and the Australian Financial Review.
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