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Economist: Patrick Mullane
ECB holds steady at 1%, no change in rhetoric

  • US payrolls disappoint

  • Last July, the ECB surprised the markets by raising the main interest rate by 25bps bringing the then rate to 4.25%. What a difference a year makes! Yesterday, the ECB met and kept the refinancing rate at a record low of 1% and there were no surprises from the press conference afterwards. Trichet signalled that the ECB would be keeping interest rates at this level for some time as “The current rates are appropriate”. This is the third successive month that Trichet has used this term which means there is no imminent plan to change rates. However, he also maintained, as he has done for some time, that 1% is not necessarily the floor for rates saying “we did not decide today that this was the lowest level we would attain under any circumstances”. He felt that the worst of the recession may behind the Euro area, saying “Activity is likely to remain weak but should decline less strongly than was the case in the first quarter”but a recovery is not expected until mid 2010. Trichet stated the ECB was happy with the bank’s first 12-month liquidity operation which supplied a record amount to banks. Trichet felt this move would “strengthen further the liquidity of banks and support money markets”. In addition, the ECB will begin their purchase of up to EUR60bn of covered bonds on July 6. On inflation, he said that the fall in inflation rates was mainly due to temporary effects but that even after a return to positive inflation rates the bank expected “price developments to remain dampened over time”. There was nothing new for the markets to interpret after the meeting with the ECB clearly in a holding pattern. Unless serious downside risk materialise in the second half of the year we do not see the ECB cutting rates again. We expect them to stay on hold at 1% until into 2010 and we see no sign after this meeting that we need to change that view. The Euro lost a little ground against the Dollar and Sterling in the aftermath of the meeting but remains largely unchanged. It’s currently trading at over $1.40 and £0.85 respectively. There was little effect on bonds either, 10 year bunds rose slightly with yields falling about 10bps.

    In the US, nonfarm payrolls declined by more than expected. Job losses in June were 427k following losses of 322k in May. This interrupted a trend that had seen job losses shrink in each month since the peak of 741k jobs lost in January. The 3 month moving average did improve from -498k in May to -436k in June but the numbers remain very poor. Over 6 million US jobs have been lost in the past 18 months and the unemployment rate is now up to 9.5%, a 26 year high. June’s figures are a very disappointing setback indicating this is no light at the end of the tunnel yet and the US labour market is be weak for some time. Equities fell sharply after the poor employment data; the S&P lost 2.9%, the FTSE 2.5% and the Eurostoxx 3.3%.

       
    Data section contents (changes on the day)
    Key data releases
      Prev Fcst Cons
    9.00  EA PMI Services  44.5  44.5  44.5 
    9.30  UK PMI Services  51.7  51.5  51.5 
    10.00  EA Retail Sales  0.2%  -0.1%  -0.15 
    Spot rates More details in data section
    EUR/GBP arrow 0.8539 EUR/CHF arrow 1.5184
    EUR/USD arrow 1.4017 EUR/JPY arrow 134.56
    GBP/USD arrow 1.6410 EUR/CAD arrow 1.6227
    EUR/SEK arrow 10.8920 EUR/PLN arrow 4.3460
    EUR/NOK arrow 8.9610 EUR/ZAR arrow 10.9994
    EUR/HUF arrow 270.45 EUR/CZK arrow 25.837
    Money market rates More details in data section
    Base O'night 1 week 1 M 3 M 6 M 12 M
    EUR 1.00 1.23 0.69 0.81 1.12 1.32 1.55
    GBP 0.50 0.36 0.38 0.47 0.90 1.16 1.42
    USD 0-0.25 0.29 0.37 0.49 0.76 1.09 1.51
    Long term rates More details in data section
    2 year 3 year 5 year 7 year 10 year 15 year 20 year
    EUR 1.73 2.21 2.85 3.28 3.65 4.06 4.20
    GBP 2.25 2.95 3.68 4.00 4.25 4.51 4.50
    USD 1.44 2.05 2.91 3.39 3.77 4.07 4.15
    World forex rates More details in data section
    CAD AUD NZD CHF JPY
    EUR 1.6227 1.7521 2.2108 1.5184 134.56
    USD 1.1579 1.2509 1.5788 1.0831 95.99
    GBP 1.9000 2.0521 2.5888 1.7774 157.53
    USD/CNY 6.8327 USD/BRL 1.9518
    USD/MXN 13.2440 USD/THB 34.07
    USD/SGD 1.4498 USD/ZAR 7.8500
    Prime Rate 1.3600
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    All rates quoted are indicative market rates
     
       
     
     
     
    Daily Commentary 03 July 2009
     
      Data section - changes on the day  
      Spot and forward rates Change on the day  
     
     EUR/GBP
    Change
    Spot arrow 0.8539 -0.63%
    1M 1
    3M 0
    6M 1
    12M 8
     
     EUR/USD
    Change
    Spot arrow 1.4017 -1.49%
    1M 1
    3M -2
    6M -4
    12M 3
     
     GBP/USD
    Change
    Spot arrow 1.6410 -0.72%
    1M -1
    3M -3
    6M -7
    12M -19
     
      World forex rates Change on the day  
     
     EUR currency pairs
    Change
    EUR/CAD arrow 1.6227 -0.16%
    EUR/AUD arrow 1.7521 0.46%
    EUR/NZD arrow 2.2108 0.48%
    EUR/CHF arrow 1.5184 -0.07%
    EUR/JPY arrow 134.56 -2.12%
    EUR/SEK arrow 10.8920 1.61%
    EUR/NOK arrow 8.9610 0.01%
    EUR/HUF arrow 270.45 0.89%
    EUR/PLN arrow 4.3460 0.84%
    EUR/ZAR arrow 10.9994 0.17%
    EUR/CZK arrow 25.837 0.61%
     
     USD currency pairs
    Change
    USD/CAD arrow 1.1579 1.31%
    USD/AUD arrow 1.2509 1.98%
    USD/NZD arrow 1.5788 2.06%
    USD/CHF arrow 1.0831 1.35%
    USD/JPY arrow 95.99 -0.69%
    USD/CNY arrow 6.8327 -0.03%
    USD/MXN arrow 13.2440 0.68%
    USD/SGD arrow 1.4498 0.51%
    USD/BRL arrow 1.9518 1.00%
    USD/THB arrow 34.07 0.18%
    USD/ZAR arrow 7.8500 1.20%
     
     GBP currency pairs
    Change
    GBP/CAD arrow 1.9000 0.40%
    GBP/AUD arrow 2.0521 1.32%
    GBP/NZD arrow 2.5888 1.20%
    GBP/CHF arrow 1.7774 0.53%
    GBP/JPY arrow 157.53 -1.44%
    GBP/SGD arrow 2.3788 -0.18%
    GBP/MYR arrow 5.7763 -0.82%
    GBP/NOK arrow 10.4901 0.63%
    GBP/HKD arrow 12.7179 -0.73%
    GBP/SEK arrow 12.7530 2.26%
    GBP/DKK arrow 8.7163 0.60%
    GBP/ZAR arrow 12.8802 0.99%
     
      Money market rates Change on the day  
     
      Base   O'night   1 week   2 week   1 M   2 M   3 M   6 M   9 M   12 M
    EUR - 1.00 arrow 1.23 - 0.69 arrow 0.74 arrow 0.81 arrow 0.97 arrow 1.12 - 1.32 - 1.46 - 1.55
    GBP - 0.50 arrow 0.36 arrow 0.38 - 0.43 - 0.47 arrow 0.72 arrow 0.90 arrow 1.16 arrow 1.31 arrow 1.42
    USD - 0-0.25 arrow 0.29 arrow 0.37 arrow 0.35 arrow 0.49 - 0.62 arrow 0.76 arrow 1.09 arrow 1.38 - 1.51
     
     
    Long term rates Change on the day
      2 year Chng 5 year Chng 7 year Chng 10 year Chng
    EUR arrow 1.73 -0.10 arrow 2.85 -0.07 arrow 3.28 -0.06 arrow 3.65 -0.05
    GBP arrow 2.25 -0.15 arrow 3.68 -0.12 arrow 4.00 -0.09 arrow 4.25 -0.06
    USD arrow 1.44 -0.08 arrow 2.91 -0.14 arrow 3.39 -0.09 arrow 3.77 -0.06
    Equity indices Change on the day
    Change
    ISEQ arrow 2670 -0.96%
    DOW Jones arrow 8281 -2.63%
    S&P 500 arrow 896 -2.91%
    SMI arrow 5355 -2.15%
    Nasdaq arrow 1797 -2.67%
    FTSE 100 arrow 4248 -2.45%
    Eurostoxx 50 arrow 2370 -3.27%
    Nikkei arrow 9816 -0.64%
    Commodities Change on the day
    Change
    Brent arrow 66.85 -3.11%
    WTI Cushing arrow 66.96 -3.72%
    Gold arrow 933.10 -1.23%
    Wheat arrow 498.75 -1.19%
    Emissions Allowance arrow 13.10 -1.50%
     
    Government bond yields (YTM) Change on the day
      2 year Chng 5 year Chng 10 year Chng 30 year Chng
    Ireland arrow 0.79 0.02 arrow 3.37 -0.03 arrow 5.22 0.01
    Germany arrow 1.21 -0.11 arrow 2.38 -0.12 arrow 3.33 -0.09 arrow 4.15 -0.07
    US arrow 0.98 -0.06 arrow 2.42 -0.10 arrow 3.50 -0.05 arrow 4.32 -0.01
    UK arrow 0.72 -0.06 2.20 0.00 arrow 3.74 -0.03 arrow 4.46 -0.03
     
     
    Prime Rate
     
    Bank of Ireland prime rate    1.36
     
      Market data supplied by Reuters  
     
    Disclaimer
    Produced by the Economic Research Unit at Bank of Ireland Global Markets ("GM"). Bank of Ireland incorporated in Ireland with limited liability.
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