Cheap money to stay

There were no surprises from central banks on Thursday as the Bank of Japan, Bank of England and European Central Bank all left monetary policy unchanged.

Unlike last month there was no further forward guidance from Bank of England governor Mark Carney, however ECB president Mario Draghi again reiterated that the ECB's monetary policy stance would remain accommodative for as long as necessary, despite the recent raft of excellent economic data for the region.

Bucking the trend the new Indian central bank chief, Raghuram Rajan, announced measures to prop up the rupee, pledging to raise shortterm interest rates and introduce capital controls.

CDS spreads on the State Bank of India tightened by 15bps to 350bps and the iTraxx Asia ex-Japan Index tightened 7bps to 151bps. Spreads on China also continued their splendid performance for the week, tightening a further 7bps to 91bps after closing last Friday at 107bps.

Thursday marked the first day of G-20 summit in St Petersburg. Not too long ago it was expected that the focus of the Russia summit would be tax avoidance and Fed stimulus cuts, however talks are now guaranteed to be dominated by Syria.

Market concerns on an imminent US strike were again soothed when top officials at the G-20 summit aligned themselves more closely with Putin than Obama on the issue.

The Markit iTraxx Europe index was trading 1bp wider at 106bps however it is noteworthy from a regional perspective that 27 of the 34 UK constituents of the index were tighter as the excellent PMI data from earlier this week continue to weigh.

In the US, initial news that the ADP employment growth numbers missed expectations, at 176,000 for August, was offset by a better than expected drop in jobless benefit claims to 323,000.

However we'll have a better view of the US jobs market on Friday, when non-farm payroll figures are released. Meanwhile, the Markit CDX.NA.IG index was 1bps tighter at 82bps.


Frans Scheepers, CFA
Vice President

Markit

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