Recap 7-5-12

Main Items:

  • ECB cut the refi rate by 25bps to 75bps as exp. The deposit rate was cut to 0% vs 25bps, which was a surprise. Vote was unanimous.
  1. On the basis of current futures prices for oil, inflation rates should decline further in the course of 2012 and be again below 2% in 2013
  2. JPM: Draghi noted in particular that the changes made late last year made sense: banks make loans to the real economy and can then use those loans as collateral with the central bank. At present, the haircuts applied to these ‘credit claims’ are very large, which limits their use as collateral. Hence, rather than just broadening the collateral pool to new assets, the ECB could review the haircuts it applies. At that point, further 3-year LTROs would also become more useful.
  3. Draghi also noted that a negative deposit rate is a possible non-standard measure.

BoE increases QE by 50bn over 4 months

China cut 1y deposit rates by 25bps, and 1y lending rates by 31bps

US ADP Employment jumped to 176k last month vs 100k exp and 133k prev

US Initial Jobless Claims declined to 374k in last week vs 385k exp and prev

ISM Non-Mfg Composite declined to 52.1 in June vs 53 exp and 53.7 prev

Apartment rents are surging according to a new study. Rents increased in all 82 markets tracked by Reis in Q2. The biggest jump was in NYC, where rents increased 1.7% Q/Q. The extremely tight supply conditions have contributed to the rent increases. The nation’s vacancy rate hit 4.7% in Q2, the lowest since ’01. WSJ


  • Ireland returned to the bond market for the first time since 2010 and sold 500mm euro in bills at 1.80%.
  • The head of the Christian Social Union, the sister party to Merkel’s Christian Democrats, said he may have to talk away from the coalition if Germany proceeds to allow aid to be disbursed from the ESM w/o rigorous conditionality – FT
  • AU Services PMI improved to 48.8 in June vs 43.5 prev
  • China HSBC Services PMI declined to 52.3 vs 54.7 prev
  • Italian Services PMI improved to 43.1 vs 42.5 exp and 42.8 prev
  • EU Composite PMI for June was finalized to 46.4 vs 46.0 exp and prev
  • UK PMI Services declined to 51.3 vs 52.9 exp and 53.3 prev

Upcoming Data:

  • Fri: Swiss CPI, UKPPI, US Payrolls, Unemployment, Canada Unemployment
  • Mon: Japan Trade Balance, China CPI, Japan Eco Watchers Survey, Sentix Investor Confidence, AU NAB Business Confidence, China Trade Bal
  • Tues: US NFIB Small Business Optimism, Jults Job Openings
  • Wed: FOMC Minutes, AU Employment,
  • Thurs: BoJ, US Jobless Claims, China IP, GDP, Retail Sales

Commentary & Links:

Whisper expectations for payrolls tomorrow is probably north of the consensus figure, following the strong ADP print today and a few broker upgrades. Also note the price action in peripheral EU bonds and bunds today, despite the fact that the ECB did more than expected.