The European Central Bank made no significant change to monetary policy on Thursday. Bloomberg reports:
Jean-Claude Trichet said the European Central Bank will extend its offerings of unlimited cash and keep buying government bonds as it tries to ease tensions in money markets and fight the European debt crisis.
“It’s appropriate to continue to do what we’ve decided” on purchases of sovereign and corporate bonds, Trichet, who heads the ECB, said at a press conference in Frankfurt today. Earlier, the central bank kept its benchmark interest rate at 1 percent. “We have a money market which is not functioning perfectly.”
There was also no move from the Bank of England. Reuters reports:
The Bank of England made no change to interest rates or its bond purchase programme on Thursday, as it waits for Britain's new government to reveal the extent of its fiscal austerity measures in a June 22 budget.
The Monetary Policy Committee's decision to leave rates at a record low 0.5 percent and hold its asset purchase total at 200 billion pounds ($291.3 billion) was expected by all 61 economists in a Reuters poll, and elicited no market reaction.
It was left to smaller central banks to maintain the global monetary tightening trend.
Bloomberg reports a rate hike from New Zealand.
New Zealand’s central bank raised its benchmark interest rate for the first time in three years, signaling that faster inflation is a bigger threat to growth than further gains in the nation’s currency.
“Underlying inflationary pressures are expected to increase,” Reserve Bank Governor Alan Bollard said in a statement released in Wellington today after increasing the official cash rate to 2.75 percent from a record-low 2.5 percent. “Given the current low level of the cash rate, it is therefore appropriate to gradually remove policy stimulus.”
And from Brazil.
Brazil’s central bank raised its benchmark interest rate for a second straight meeting to contain inflation as signs the economy is overheating prevailed over concern the European debt crisis may slow growth.
The bank, in a one-sentence statement accompanying its unanimous decision yesterday, said the second consecutive 0.75 percentage point increase would help “ensure the convergence of inflation to the target trajectory.” Policy makers increased the Selic rate to 10.25 percent from 9.5 percent, matching the forecast of 50 of 52 analysts surveyed by Bloomberg.
Clearly, some economies could do with some cooling -- for example, China's. Bloomberg reports Chinese data on Thursday.
China’s exports jumped the most in six years and property prices rose at a near-record pace, signs that the economy is withstanding the sovereign-debt crisis in Europe and remains at risk of overheating.
Exports gained 48.5 percent in May from a year earlier, the customs bureau said today, more than the 32 percent median estimate in a Bloomberg News survey of 32 economists. None expected such a big gain. Real-estate prices rose 12.4 percent across 70 cities, the statistics bureau said separately.
In sharp contrast to China, the US reported a drop in exports on Thursday. Again from Bloomberg:
The trade deficit in the U.S. widened in April to the highest in more than a year as exports and imports both declined.
The gap grew 0.6 percent to $40.3 billion, the most since December 2008, Commerce Department figures showed today in Washington. A separate report showed more Americans than anticipated filed claims for jobless benefits last week.
Despite the monetary tightening by some central banks and the negative data from the US, markets were optimistic on Thursday. From Bloomberg:
Stocks rallied, sending benchmark indexes to their biggest gains in two weeks, after economic reports from China, Japan and Australia showed accelerating growth. The euro strengthened a third day, gold fell and Treasuries extended losses after a 30-year bond sale.
The Standard & Poor’s 500 Index increased 3 percent to 1,086.84 at 4 p.m. in New York and the MSCI World Index advanced 2.4 percent, the biggest gains since May 27. The euro surged 1.1 percent to $1.2114, while the New Zealand dollar strengthened versus all 16 of its most-traded peers and Australia’s dollar rose against all but the so-called kiwi. Oil climbed to a four- week high. Ten-year Treasury yields jumped 14 basis points to 3.32 percent, the biggest increase since May 27.
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