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Daily Market Digest: Markets keep gains on stimulus hopes

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  • Equity markets continue to post gains as govt. officials hint at more stimulus in Japan
  • China exports remain weak year over year
  • BoC monetary policy awaited

Today’s Economic events

  • Australia Westpac consumer sentiment -3.0% vs. -1.0%
  • Japan revised industrial production m/m -2.60% vs. -2.20%
  • France final CPI m/m 0.10% vs. 0.20%
  • China trade balance 311bn vs. 320bn
  • China trade balance (USD) 48.1bn vs. 46.0bn
  • Eurozone industrial production -1.20% vs. -0.80%

Coming Up

  • The US import prices
  • BoC rate statement
  • BoC press conference
  • Crude oil inventories

Market Performance

FX Market Performance (12GMT, 13/07/2016)
FX Market Performance (12GMT, 13/07/2016)

Fed members weigh in post-June jobs report

Federal Reserve members Esther George and James Bullard spoke earlier this week, the first Fed member speeches following the June payrolls report. Esther George, considered a hawk maintained her view that the Federal Reserve is keeping US interest rates too low given the progress in the US economy. Esther George is the Kansas City Federal Reserve Bank president and she was speaking before a labor conference in Missouri. She said that the low-interest rates could run the risk of the financial markets running into trouble as an additional factor. She said that the Fed needs to make gradual adjustments in the short term interest rates stating that the US economic is near full employment levels while the housing sector continues to rebound.

On the other hand, St. Louis Fed President James Bullard maintained his view that only a single rate hike is required in the foreseeable future. Despite a strong rebound in jobs growth, the FOMC voting member shifted his view stating that the US had entered a period of low growth, inflation, and unemployment. In his speech on Tuesday, Bullard did not mention Friday’s payrolls report. “The policy rate would likely remain essentially flat over the forecast horizon to remain consistent with the current regime,” he said.

In contrast, Cleveland Fed President Loretta Mester said that the UK’s landmark Brexit vote added more uncertainty ahead of the Fed’s July meeting. “I’ve been one of the more positive ones in terms of the outlook for the U.S. economy, and I continue to be positive about it. But I take on board that there is increased uncertainty” she said.

Asian markets extend gains on stimulus hopes

Asian stocks continued to gains for the third day albeit the pace of gains was more subdued in comparison to the previous days. The benchmark Nikkei225 average closed 0.83% higher on the day. Investor expectations grew that Japan may consider more stimulus measures to jump-start its economy was the main theme prevailing in the markets. Japan’s Chief Cabinet Secretary Yoshihide Suga said that the Japanese government was planning a “bold economic stimulus” to defeat deflation.

The yen, however, showed signs of strengthening later on Wednesday after a top government official ruled out implementing “helicopter money.” The rumors grew as Abe’s economic advisor Etsuro Honda was reported to have suggested to the prime minister to use helicopter money.

Cabinet secretary, Suga quickly dismissed the rumors saying, “There is no truth that the government is considering such a policy” but stated that the “[government] is planning to introduce a comprehensive and bold economic stimulus.”

China posts weak exports in June

China exports climbed 1.30% on a year over year in yuan terms in June, according to data from China’s customs department on Wednesday. Imports, on the other hand, fell more than expected, falling 2.30% on the month. In dollar-denominated terms, China’s exports fell 4.80% on a yearly basis in June, slower than the expected declines of 5.0%. China’s trade surplus fell to $48.11 billion in June, compared to $49.98 billion in May. The decline in trade surplus was more than economists’ forecasts of $45.65 billion.

The decline in exports was seen due to a stronger base for comparison according to some analysts who say that imports were actually stronger than they were a few months ago. China’s trade data comes ahead of the GDP numbers due for release later this week.

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