CENTRAL BANK CHIEF COMMENTS BOOST MARKET SENTIMENT - After the European Central Bank's monthly governing council meeting in Frankfurt yesterday, its president Mario Draghi revealed the meeting was split on whether interest rates should be cut further beyond the current record low of 0.5%. The ECB took the unprecedented step, however, of signalling that rates will be held at least at current levels for "an extended period". Draghi's counterpart Mark Carney, the newly installed Bank of England governor, also committed to keeping interest rates at current record low levels for an extended period.
Peter O'Flanagan, head of trading at Clear Currency in London, says that Mr Draghi's comments signal a massive turnaround for the ECB. The currency trader says Mr Draghi - and Mr Carney in London - have given confidence to the markets that will rates will not rise until at least the end of 2014 or 2015. This means that the supply of money will remain cheap for euro zone and UK businesses, which will give them - and the euro zone and UK economies - a chance to grow. Mr O'Flanagan says that markets rallied very strongly on the comments from the central bank chiefs. He points out that people are not earning very much on their savings and so are going to need to invest on equity markets to see any return on their money.
On the US non-farm payrolls, Mr O'Flanagan says that markets are looking for a figure of 165,000 new jobs to be added for the month of June. He says that a figure around this should keep the dollar firm.
MORNING BRIEFS - The world's largest smartphone maker Samsung reported record profit early this morning of $8.3 billion for the three months to the end of June. That is a 47% jump from a year earlier and 8% growth from the previous quarter. Its newly launched Galaxy S4 phone hit 10 million units in May, less than a month since its debut. It got to the 10 million mark 20 days faster than its predecessor the S3. But Samsung shares fell 4% in Seoul because sales and profit growth were not as strong as the market had expected.
*** Spain's banks are looking to the government in Madrid to allow them to include large sums of deferred tax credits towards their regulatory capital requirements. The Financial Times this morning reports the sum in question is around €50 billion and it made up of provisions for losses the banks expect to make on bad loans. Their ability to offset these against future tax bills is, from the bank's point of view, an asset. But under new rules for banks agreed at the recent Basel III summit they can only be treated as capital if the Spanish government agrees to have them reclassified as deferred tax credits. Deferred tax credits have to be honoured by the government even in the event of bankruptcy. In Ireland, AIB and Bank of Ireland have amassed some €5 billion in losses to offset against future tax bills.
*** Employers in the US are thought to have added 165,000 new jobs during June, slightly less than the 170,000 figure recorded in May. That is the consensus figure among economists ahead of the release of the non-farm payroll figures later this afternoon. The non-farm payrolls is a key indicator of the health of the US economy. But the figures are being even more closely watched in recent months as investors bet on what the US Federal Reserve will do in the event of either an unexpectedly strong figure or an unexpectedly weak one. Fed chairman Ben Bernanke rocked stock markets recently by indicating the Fed would ease off its $85 billion a month stimulus measures provided employment and economic growth were sufficiently healthy.