Thurdsay 31st July 2008
The central banks are working together
The dollar was given a boast by the US ADP employment change reporting 9000 jobs were added to the private employers sector for the month of July. The ADP report which was forecast to show a fall of 60,000.00 jobs surprised the market with the figures hitting the positive mark. For a further day the dollar has exceeded expectation to bring some well needed assurance back to the market; however this is not to be mistaken as a future trend for the dollar. Importantly this report comes in advance of Non farm payrolls on Friday where analysts are already predicting a loss of 75,000 jobs.
The Fed revealed a strategy to expand its lending scheme for the fourth time in five months to struggling financial institutions. This scheme was set to mature in September but the Fed has decided to expand it for a further six months. Also the scheme which allows investment banks to swap their badly trading securities for treasury bonds under the Term Security Lending Facility will be permitted until January of next year. The Fed has also expanded its loans under the Term Auction Facility for banks selling 84 days loans in addition to their 28 day loans. It brings to question that despite positive US employment figures the Fed who are the best placed to access the US economy still views it as very much a fragile market.
The European confidence figures were released yesterday; the figures were much worse then expected toppling five year lows. The European Commission said confidence fell to 89.5 points it’s lowest since March 2003. These figures have been the latest in a long line of negative data for the eurozone and will weight heavily on the ECB’s decision on Euro interest rates next month. The expectation in the market is still for interest rates to remain stagnant for the next few months at 4%. Important to note the ECB and Swiss Central Banks in conjunction with the Fed have also extended liquidity policies. In particular they are to auction dollar loans to European institutions for the 84 days alongside the 28 day loans.
The speculation around oil is still apparent with oil rising to $4.58 to $126.77 yesterday. News that crude oil inventories declined by 100,000 last week seems to be the main driver of this market movement.
Banking stocks finished on a high note yesterday off the back of the central banks efforts to boost financial markets liquidity.
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