Abe's stimulus package disappoints investors

August 3, 2016

Finally, the long-awaited news about the Japanese stimulus boost is out. The Japanese Yen soared to three-week high against the US Dollar as Abe’s government released details on the new stimulus package to spur the growth of the declining economy.

The package includes 13.5 trillion Yen of financial measures, whereas a number of direct expenses averages around 7.5 trillion Yen with the main part of it has been scheduled for the course of next two years.

The market analysts say that the total amount of incentives averages at 28.1 trillion Yen including the private budget partnerships and other costs which don’t constitute direct government spending – and therefore will fail to provide an immediate boost to the economy.

The Dollar fell to 101.53 against the yen, which is the currencies lowest level since July 11th. The US currency remains under pressure after the streak of lackluster economic data, especially about the weak GDP, which considerably reduced chances that the Federal Reserve will raise interest rates shortly.

The probability of a rate hike in September fell to 18% from the previous 22% of last week, while the chances for a rate hike in December are estimated at 43%. It seems like the previous confidence is gone as the rate lost 10% from last week.

The Dollar futures which track the greenback against a trade-weighted basket of six major currencies fell by 0.35% to 95.41. In turn stepping back to a five-week low at 95.34 points.

The Reserve Bank of Australia cut the cash rate by 25 b.p. to 1.5%, matching the analyst’s estimate. Aussies were not happy about the Bank’s decision but quickly recovered as they received gains of the commodity market.

The Pound advanced on an upbeat construction by the PMI report which slowed its decline to 45.9 points in July, beating the forecast that predicted the drop to 43.8 points. The GBP/USD rose to 1.3250, paring down gains later in the London session. Nevertheless, the construction sector in the UK fell to it’s the lowest since June 2009, with commercial activity displaying the worst performance in the entire country.

The European indices fell by 0.84% on the pound gains while the European Stoxx 50 lost 1.59% with the decline of commodity producers fuel, the French CAC 40 tumbled 1.61%.

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