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Marketwatch

Nikkei suffers biggest one-day fall in 8 weeks on strong yen

Wed Aug 7, 2013 7:14am BST
TOKYO, Aug 7 (Reuters) - Japan's Nikkei average tumbled 4
percent on Wednesday, suffering the biggest one-day percentage
loss since mid-June as the dollar fell to a six-week low to the
yen, while heavyweights were sold off ahead of Friday's options
settlement.

The benchmark Nikkei shed 576.12 points to a
one-week low of 13,824.94. The broader Topix dropped 3.2
percent to 1,155.26 in relatively thin trade, with all of its 33
sectors falling.

Toyota Motor Corp slipped 2.4 percent and Sony Corp
fell 4.3 percent, while index heavyweights Fast
Retailing Co and SoftBank Corp slid 6.1
percent and 4.7 percent, respectively.

CHF SECO Consumer Climate -9 -2 -5

French Trade Balance -4.4B -5.0B -5.7B

US QE tapering fears drives FTSE100 lower early doors

Economy News

Bank of England ties future rate rises to drop in unemployment

By David Milliken and Olesya Dmitracova

The Bank of England plans to keep interest rates at a record low until unemployment falls to 7 percent - something unlikely for another three years - in a major new departure for British monetary policy.

Barely a month after Canadian Mark Carney took over from the long-serving Mervyn King as BoE governor, the central bank said on Wednesday that it would keep interest rates at 0.5 percent unless inflation threatened to get out of control or there was a danger to financial stability.

"Until the margin of slack within the economy has narrowed significantly, it will be appropriate to maintain the current exceptionally stimulative stance of monetary policy," the BoE said.

BoE policymakers said they stood ready to buy more government bonds if additional stimulus was needed and would not reverse existing purchases while unemployment was too high.

The BoE said that growth was likely to be "weak by historical standards", even though economic recovery was "taking hold" and inflation was forecast to stay above its 2 percent target until the second half of 2015 based on market rate expectations.

"Attempting to return inflation to the target too quickly risks prolonging the period over which the nation's resources are underutilised," the central bank said.

A growing number of major central banks are providing so-called forward guidance to help nurse their economies back to health after the damage of the financial crisis.

For the BoE, the challenge is to hold off a premature rise in British borrowing costs at a time when signs of economic recovery at home and the U.S. Federal Reserve's decision to phase out stimulus are already starting to push up market interest rates.

Last month the BoE's Monetary Policy Committee took a step towards guidance by saying that a rise in British government bond yields was not justified by economic fundamentals, and it reiterated that point on Wednesday.

Markets already did not expect the BoE to start to raise interest rates until late 2015 at the earliest.

The BoE said Britain's economy had strengthened over the past three months. But output still remains more than 3 percent below its pre-crisis peak, a much weaker recovery than in the United States or Germany.

The BoE now forecasts that the economy will grow 0.6 percent during the current quarter - the same as between April and June, and that growth will reach an annual rate of 2.6 percent in two years' time, compared with 2.2 percent forecast three months ago, assuming interest rates stay on hold.

Unemployment is forecast to fall only slowly from its current level of 7.8 percent of the workforce, with the central bank expecting it to average 7.1 percent in the third quarter of 2016, the end of its forecast horizon.

This implies that the BoE expects to keep interest rates unchanged until at least that time, unless one of three conditions is breached before then.

The BoE will consider raising interest rates if their low level poses a threat to financial stability, if the public's medium-term inflation expectations rise dangerously high or if it forecasts that inflation in 18-24 months will be at 2.5 percent or higher.

The BoE said that if these thresholds or the 7 percent unemployment rate are reached, the MPC would consider the case for interest rate rises on a month-by-month basis.

"There is therefore no presumption that breaching any of these knockouts would lead to an immediate increase in Bank Rate or sale of assets," it said.

Inflation is forecast to average 2.9 percent in the last three months of this year - close to its current level and a lower peak than previously thought - and then to fall roughly as predicted three months ago.

Finance minister George Osborne named Carney in November to succeed King, impressed by the Canadian's reputation for innovative thinking and applying forward guidance while he led Canada's central bank.

Carney has previously stressed the importance of reassuring ordinary people and businesses that their debt costs are not going to rise any time soon in order to give them more confidence about spending which would help the economy.

(Reporting by David Milliken and Olesya Dmitracova)

German Industrial Production m/m 2.4% 0.3% -1.0%

FTSE100 sharply lower at midday as miners turn tail

CAD Building Permits m/m -10.3% -2.5% 4.5%

CAD Ivey PMI 48.4 56.3 55.3

FTSE100 ends sharply lower as miners continue to lose ground

FTSE ends session at four-week low on monetary tightening fears

LONDON | Wed Aug 7, 2013 5:10pm BST

(Reuters) - Britain's top share index closed at a four-week low on Wednesday on concerns the Bank of England and the U.S. Federal Reserve may start tightening monetary policy earlier than expected.

A day after two Fed officials suggested the U.S. central bank may cut the pace of bond purchases as early as next month, the Bank said it planned to keep interest rates at a record low until unemployment fell to 7 percent from 7.8 percent now, which it views as unlikely for another three years.