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Morning Business Briefing

It’s going to be a jittery day on global financial markets Add to ...

These are stories Report on Business is following Wednesday, July 10, 2013.

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Markets uncertain
Two of the issues that have plagued investors for some time now – central bank stimulus and China’s economy – means another uncertain day on global markets.

That doesn’t necessarily mean a bad day, or a good one at this point, just one of uncertainty as investors digest the latest trade data from Beijing and await the minutes of the last meeting of the Federal Reserve and a speech by Fed chairman Ben Bernanke.

What investors are looking for most are signals on the Fed’s timeline for easing its stimulus measures.

Add to that the continuing issues in the troubled euro zone, and yesterday’s downgrade of the global economic outlook by the International Monetary Fund, and what you’re left with is “a distinct element of caution to be felt in early trade as investors await further information about U.S. monetary policy,” said market analyst Alastair McCaig of IG in London.

He was referring to the release this afternoon of the minutes from the last session of the U.S. central bank’s policy-setting group, the Federal Open Market Committee. That will be followed by Mr. Bernanke’s speech, though it’s uncertain how much he’ll touch on that issue. The speech is on Fed history.

The FOMC is poised to begin easing its extraordinary asset-buying stimulus program, known as quantitative easing, or QE, as early as the fall, and possibly ending it altogether sometime next year.

Investors have been hanging on every word and indicator, seeking assurance that the U.S. economy and the markets can withstand what’s now simply referred to as “tapering.”

“It is unlikely that Mr. Bernanke will acquiesce to market speculation on timing, given that any such actions would have to be agreed at FOMC level first, but the bullishness or otherwise of the tone of his speech could well prompt the market to read between the lines on when we could expect to see such a program begin,” said senior analyst Michael Hewson of CMC Markets in London.

Weighing on the markets, too, are today’s trade numbers from China, which showed a surprising drop in exports and imports in June.

China is seen as the engine of the world’s recovery and any suggestion that it’s running low on power is troubling.

Still, the Fed is the more important story today, as it has been for some time, particularly given that the latest reading of the U.S. jobs market last Friday was better than anticipated, a signal for a central bank whose actions are being guided by the high level of unemployment.

For now, global markets are mixed.

Tokyo’s Nikkei lost 0.4 per cent, while Hong Kong’s Hang Seng rose 1.1 per cent.

In Europe, London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were down by between 0.2 per cent and 0.4 per cent by about 9:15 a.m. ET.

Dow Jones industrial average and S&P 500 futures were little changed.

China’s trade data disappointing
China’s trade numbers weren’t just disappointing. They also suggest more trouble ahead.

Indeed, a customs official told reporters today, according to Reuters: “China faces relatively stern challenges in trade currently. Exports in the third quarter look grim.”

Exports are one thing, given what they mean to the domestic economy. Imports are another entirely, given what they mean to other economies, particularly those heavy into commodities, are counting on China.

Chinese exports fell 3.1 per cent in June from a year earlier, according to official measures, while imports slipped 0.7 per cent.

“China’s exporters in June had their worst single month since the depths of the financial crisis,” said Mark Williams and Qinwei Wang of Capital Economics in London.

“Imports for domestic use fell too,” they added in a research note.

“Commodity imports performed relatively well, though there is no sign that the year-long stagnation in real import demand has ended.”

EU proposes bank plan
Another pitched battle is brewing in Europe, this one over a new proposal for dealing with troubled banks.

And, as is usual in the European Union, Germany is poised to fight it.

The European Commission today unveiled a proposal for a “single resolution mechanism” for the region’s banking union, one that would put power in the hands of a panel of officials from the EC, the European Central Bank and the “relevant” nations involved.

This centralized body would decide how to restructure or wind up failing banks. The country whose bank is at the heart of the matter, however, would lead the execution, though “under the supervision” of the oversight panel.

"We have seen how bank crises can quickly spread across borders, sending confidence into a downward spiral throughout the euro area,” said Michel Barnier, the region’s internal market and services commissioner.

“We need a system which can deliver decisions quickly and efficiently, avoiding doubts on the impact on public finances, and with rules that create certainty in the market,” he added in a statement.

The EC said its role “would be limited to the decision to trigger the resolution of a bank.” There’s more there than meets the eye: The key is that the EC would have that deciding power in the first place.

Germany, the deep pockets in the ongoing euro zone crisis, has already warned of encroachment on sovereignty.

“I would strongly ask the commission in its proposal for an SRM to be very careful, and to stick to the limited interpretation of the given treaty,” German Finance Minister Wolfgang Schaeuble said yesterday, according to Bloomberg News.

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