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The first week of August can be called the week of changes when both central banks that held monetary policy meetings this week lowered their interest rates to record lows. Meanwhile, the U.S labor market continued to surprise the whole financial market with Friday’s unambiguously robust non-farm payrolls report.
The Reserve Bank of Australia (RBA) on Tuesday cut interest rates by another 25 basis points to a fresh record-low of 1.50% at its August monetary policy meeting, following a quarter percentage point cut in May. That was a widely expected decision by markets as the RBA is fighting to tackle low inflation. The RBA board stated “that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting”.
In the monetary policy meeting on Thursday, Bank of England officials voted to lower the main lending rate by 25 basis points to a record-low 0.25 percent as expected by markets and raise the target for the purchasing of government bonds by 60 billion pounds to 435 billion pounds from the 375 billion
The bank also stated that it will buy 60 billion pounds of government bonds over the next six months and as much as 10 billion pounds of high-grade corporate bonds in the next 18 months. Other schemes potentially worth up to 100 billion pounds are also expected to be launched to ensure banks keep lending even after the cut in interest rates.
The Office for National Statistics is to report data on U.K. manufacturing production for June on Tuesday (August 9th) which is expected to be unchanged after sliding by 0.5% in May. The confidence of surveyed purchasing managers in the manufacturing industry fell below 50 for the second consecutive month in wake of the U.K.’s vote to exit the European Union. Economic activity in the U.K. is expected to slow down sharply in the second half of the year even though the central bank held its forecast for its economic growth in 2016 unchanged at 2%.
Following a 287,000 gain in June that bulldozed all forecasts, the Labor Department continued to blow out the financial markets with stunning 255,000 rise in the headline non-farm payrolls number for July, along with satisfactory details in the breakdown numbers. The second consecutive robust report topped analyst estimates which had estimated 180,000 jobs to be added in July.
Average hourly earnings rose by 0.3% to $25.69, a little more than expected, while the participation rate ticked up to 62.8 percent from 62.7% – a good explanation for the unchanged jobless rate which held at 4.9%. The gain in payrolls was broad-based, including manufacturers, health-care, retailers, temporary-help agencies and leisure and hospitality.
The Commerce Department will publish data on July retail sales Friday (August 12). The consensus forecast is that the report will show retail sales rose 0.4% last month, following a 0.6% increasing in June. Core sales are forecast to inch up 0.2%, after gaining 0.7% a month earlier.
Canada’s employment report released on Friday was poor. Canada lost 31,200 jobs last month on a net basis. 40,200 part –time jobs were added in July. But this cannot offset the 71,400 full-time jobs lost – the biggest monthly drop in full-time work in nearly five years. The unemployment rate inched up by 0.1% to 6.9%, even when the participation rate slipped to 65.4% from 65.5%. The Canadian dollar was dealt another hard hit after Statistics Canada also reported a record trade deficit of 3.6 billion for June.
The Reserve Bank of New Zealand’s monetary policy update is due on Wednesday. The central bank is widely anticipated to cut rates by 25 basis points to a record low 2.0% in an effort to shore up the economy and boost growth.
Germany, the euro zone’s largest economy, will publish a preliminary report on second quarter economic growth on Friday with a growth of 0.3% forecast for the April-June period. The data is anticipated to show growth slowing from 0.7% in the preceding quarter.
Revised second quarter growth data for the EU as a whole shall also be released shortly afterwards. An initial estimate published last week showed that the region’s economy grew 0.3% in the three months ended June 30, compared to 0.6% in the first quarter.
China, is scheduled to release July trade figures on Monday. The data is expected to show that the country’s trade surplus narrowed to $47.6 billion last month from $48.1 billion in June. Earlier on Sunday, People’s Bank of China reported the country’s foreign exchange reserves fell to $3.20 trillion in July, in line with analyst expectations. The largest foreign currency reserves in the world fell by $4.10 billion in July, heading back to the 5-year low hit in May. Meanwhile, China’s gold reserves rose to $78.89 billion at the end of July, up from $77.43 billion at end-June
On Tuesday, Chinese consumer and producer price inflation for July are to be published. Consumer prices are forecast to rise 1.8% last month, while data on producer prices is forecast to show a 2.0% retreat. Additionally, China will publish data on July industrial production, fixed asset investment and retail sales on Friday.
Gold prices plunged to a one-week low on Friday, weighted by a stronger U.S dollar as data showed the U.S. economy created more jobs than expected in July, as gold became more expensive for holders of other currencies. The precious metal’s appeal was dampened by rising probability of an interest rate hike from the Federal Reserve in the coming months.
Gold for December delivery sank to an intra-day low of $1,340.40 a troy ounce before settling at $1,344.40 by close of trade, down 1.68%.
U.S. stocks rose considerably on Friday, as stronger than expected jobs data for July helped bolster the financial sector, propelling the NASDAQ Composite index to add 1.06% to 5,221.12 and the S&P 500 rose by 0.86% to 2,182.87, all-time record closing highs. The Dow Jones Industrial Average gained 1.04% to 18,543.53.
Asian markets are expected to trade higher on Monday, supported by positive sentiment from the U.S