Financial Markets: Headlines for July 10
£ The BoE maintained the current size of the asset purchase programme at £125bn and said it will review the scale of the programme again at its August meeting; the decision defied markets expectations of an extension of £25bn to the Bank’s asset purchases, which would have brought the total amount of planned purchases to the full £150bn authorised by HM Treasury in March; Bank Rate was left at 0.5% as expected
£ The BoE announced that it is slowing the pace of its gilt purchases and will offer to purchase up to £2.25bn in 2022-2030 gilts and £2.25bn in 2015-2019 gilts next week; this marks a £2.0bn reduction in weekly purchases, which will allow QE to continue until 29 July, a week before the MPC meeting begins on 5 August
€ The ECB purchased €23m in covered bonds during the inaugural operation his week, out of €60bn in purchases planned for the next year
$ The Fed’s balance sheet declined 0.6% to $1.99trn in the week to 8 July but is up 122% from a year ago
$ US Fed’s Kohn (voter): "Any substantial erosion of the Federal Reserve’s monetary independence likely would lead to higher long-term interest rates as investors begin to fear future inflation"
$ US Fed’s Duke (voter) said that the US economy is stabilizing but activity is at a low level; she encouraged banks to make “all possible loans to credit-worthy borrowers”
$ US Fed’s Stern (non-voter): "I continue to think that improvement in the economy is close at hand"; higher inflation from an expanded Fed balance sheet is not inevitable
$ US initial jobless claims were lower at 565k in the week ended 4th July versus an upwardly revised 617k in the week prior (initially 614k); auto layoffs that were lower than usual at this time of year due to the earlier plant shut-downs in May and June; the 4wk moving average continued on a moderating trend, at 606k versus 616k in the week prior and the lowest since early-February; continuing claims rose to a new record high of 6.883m in the week ended 27 June although the 4wk moving average has stabilized in recent weeks
$ US wholesale inventories fell for the ninth consecutive month in May, down 0.8%MoM versus a revised decline of 1.3%MoM in April (initially -1.4%); the ex-petroleum inventory-to-sales ratio moderated to 1.38 versus the previous 6m average of 1.41
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