We had two announcements of central banks in the Europe. First was Bank of England with a new boss Mr. Carney. Second was ECB. The Bank of England mentioned that forward guidance and intermediate thresholds would likely be considered at the August assessment which means some change of monetary policy but otherwise there were no changes and the BoE kept rates and QE program unchanged. The Governing Council of the ECB expects that the key ECB interest rates remain at present or lower levels for an (not exactly specified) extended period of time. As you see the same story we heard from Mr. Carney. It is expected that rates will stay low or will be lower at least for 12 month. We have witnessed here some change of the policy of the ECB because it refused to pre-commit anything about rates in the past. This could lead to some currency wars regime between Europe and USA because FED is allegedly considering tightening its monetary policy. But FED could be forced not the change its policy because of actions of ECB and BoE due to the fact that Euro could weaken compared to US dollar which would be negative for the US export activities.

The ECB decided last week that Cyprus’s government bonds are temporarily ineligible as collateral after country´ credit rating was cut by Fitch Ratings and Standard & Poor’s. The central bank said it will reassess the potential eligibility of Cypriot marketable debt instruments upon the conclusion of the bond exchange.

Greece has to reassure Troika that it can deliver on conditions attached to its bailout in order to receive its next tranche of aid in August worth of € 8.1 billion. Greece missed a term placing 12,500 state workers into a „mobility scheme“, under which they are transferred or dismissed within a year to plug a fiscal gap. This could cause that IMF might stop its support to avoid of violating its own rules. But I would not be so afraid that the tranche will not come because we have German election in less than 3 month and Germans are eager to avoid any talk about yet another debt haircut for ailing Greece. Indeed, German Finance Minister Wolfgang Schäuble ruled out such a possibility just last week. Tensions over bailout terms have also mounted in Portugal. Finance Minister Vitor Gaspar resigned on Monday due to the protests against austerity programs. But it is more than obvious that any delays of austerity program will push Portugal towards some sort of further assistance or some form of debt restructuring. Who know maybe we will see finally how the OMT will work and what are its exact rules.

Europeans are furious by revelations that U.S. spied on EU representations in Washington and New York. Some have called for a suspension of talks on the trans-Atlantic free trade agreement. The documents indicate the US intelligence service was more active in Germany than in any other country in the European Union. But tensions were calm very soon and France and Germany have backed down on threats to suspend US trade talks once US promised to create more groups which will deal with the data protection.

So will it be China which trigger a new global economic problem or not? Difficult to tell but there are coming still interesting news from China. China suspended the release of industry-specific data from a monthly survey of manufacturing purchasing managers last week. So it seems that China is not only manipulating economic data it starts not releasing them. China´s shadow banking reached $ 6 trillion or 69 % of country GDP and regular banks works as intermediaries within the system. E.g. last month many wealthy Chinese received text message promoting 6 % return (far above official rate 3.3 %) on special financial product with 90 day duration. The problem with the shadow banking in China is that almost nobody knows where money is invested and some are wondering if these products are not some kind of Ponzi scheme.

Non-farm payroll data were released on Friday which were + 195 000, more than expected; the unemployment rate stayed at 7.6% despite expectations of a drop to 7.5%. Prior to this report ADP private payrolls data were released which were positive as well. During the month of June, the U.S. private sector added 188,000 jobs, driven by gains across all sizes of businesses, and with small companies showing the largest overall monthly increase. So far good news? It would be if full time jobs were not down by 240 K and part time jobs were not up by 360 K. But what do they cause? Will the FED change its policy? My bet is that there will not change but only time tells us.

Matúš Pošvanc