Daily Market Report 06/07/16

GBP

Britain’s central bank announced plans to boost credit by up to £150 billion in a bid to control risks to the economy following the Brexit vote. Bank of England Governor Mark Carney said there was the “prospect of a material slowing of the economy” and that the measures would help major U.K banks relax lending rules. His remarks came after the release of the Bank of England’s twice-yearly financial stability report, which said there was evidence that some post-Brexit risks had begun to “crystallize”. The announcement means U.K. banks must now stop building up a “rainy-day buffer” and instead release £5.7 billion in funds until June 2017. The bank said this translated into £150 billion for lending to British households and businesses in the wider economy. In addition to this it is widely expected that the BoE could slash interest rates to zero percent as early as next week in another post-Brexit measure.

Sterling hit a fresh 31-year low against the dollar on Tuesday, as investors worried about the economic and financial fallout of Britain's vote to leave the European Union. Sterling did briefly inch higher after Bank of England Governor Mark Carney’s speech, but it then gave up those gains to trade down 1.1 percent. The BoE also expressed concern about a fall in investor demand for British assets, which could make it harder for the country to finance its large current account deficit, as well as trouble in commercial real estate making it harder for businesses to use their property as collateral to obtain loans.

A survey of Britain's services sector showed that uncertainty in the run-up to the referendum had slowed growth last month to a three-year low, and sent business expectations to their weakest since 2012. A survey of Britain's services sector showed that uncertainty in the run-up to the referendum had slowed growth last month to a three-year low, and sent business expectations to their weakest since 2012.

Britain's finance ministry said on Tuesday that it made no interventions in the foreign exchange market in June, the month when the country voted to the leave the European Union, triggering a slide in the value of the pound. In a monthly statement, the finance ministry said the government's net foreign currency reserves rose by $1.6 billion in June to $39.6 billion. Valuation effects accounted for all of the increase.

USD

Wall Street opened lower as investors sought shelter in safe-haven assets amid a drop in oil prices and global growth worries. U.S. government bond yields were at an all-time low as weak data from China added fuel to the uncertainty stemming from Britain's vote to leave the European Union. Oil prices fell nearly 3 percent as a potential economic slowdown weighed on prospects of demand. Data from China showed that the country's services sector activity rose to an 11-month high in June, but a composite measure of activity including manufacturing fell to its lowest in four months.

EUR

The recent Brexit vote immediately sparked speculation about which country may be the next weak spot in Europe following on from the recent situation in Greece. And increasingly, it's clear the answer may be Italy. Seventeen percent of bank loans in Italy are bad, which comes out to a combined 360 billion euros in bad debt, is more than three times the bank loans that were bad in the U.S. on a percentage basis during the height of the financial crisis. The report comes as investors are already on edge due to an upcoming referendum on sweeping political changes and a report suggesting that Italy could be prepared to bypass European banking regulations.

Key Announcements

09:00 – EUR: ECB President Draghi is due to deliver opening remarks at the 8th ECB Statistics Conference, in Frankfurt

 15:00 - USD: ISM non-manufacturing PMI; predicted at 53.3 up from 52.9

19:00 - USD: FOMC meeting minutes