Rmbcompany: Interest Rates ETSB and Bank of England. Results

RMBCompany believes that Thursday July 5 was supposed to become very busy for financial markets during the day, due to the expected decisions on the rates of the ECB and the Bank of England, and due to the large number of important macroeconomic statistics. However, hardly anyone could assume that everything will be even more interesting.

First, the Bank of England, as expected, increased the asset purchase program by £ 50 billion to £ 375 billion, which became known at 15:00 (Moscow time). As we expected, contrary to classical logic, the pound strengthened immediately after the release of the data, as investors were inclined to view such actions by central banks as support for the economy. However, just a minute later it became known that the People's Bank of China lowered the refinancing rate to 6.00% from 6.31% (the deposit rate was reduced to 3.00% from 3.25%), which was the second rate cut in China per month. At 15:45 (Moscow time) the decision to reduce the basic interest rate to a new historic low of 0.75% was published by the ECB (as expected). However, the actions of the Chinese regulator have already changed the mood of investors: they began to view the actions of central banks more as evidence of a worsening economic situation, rather than help in accelerating growth. The euro rate within 45 minutes after the announcement of the new rate level fell by more than 100 points - to 1.2400 on the EUR / USD pair, after which it was even more "finished off" by Mr. Draghi (minimum quotation - 1.2364) Press conference that "downside risks to the economy materialized," and the rate cut will have a limited effect. At about 6 pm (Moscow time), the central bank of Denmark contributed to the reduction of rates, and the refinancing rate was reduced to 0.00%, and the deposit account went to the negative area (!) - now it is -0.20% ( That is, the banks of Denmark will have to pay their central bank for deposit deposits).

Market participants even after the "Chinese news" began to buy the only currently defensive asset - the US dollar, which provoked its rapid strengthening and the fall of all risky assets. This was also due to published employment data, according to the ADP report, the change in the number of employed in the private sector was 176,000 in June compared to May's 136,000 and the forecast of only 100,000, while initial applications for unemployment benefits last week amounted to 374,000. Against the previous indicator of 388 thousand and a forecast of 385 thousand. As a result, the dollar index for the ICE rose to a weekly high, reaching the level of 83.00. Since, despite the policy easing by central banks, the negative sentiment wins, the major stock indexes also finished trading sessions on Thursday in the red zone.

Analytical department of RMBCompany notes that Asian stock markets are declining today, acting out yesterday's negative caused by the actions and comments of the mentioned central banks, futures for US and European indexes are also in the red zone. All attention today will be focused on data on unemployment in the US, which should shed light on whether the situation in the world's largest economy is indeed not as tragic as it seemed recently. And, of course, the data will provide a basis for predicting further actions of the Federal Reserve System.