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Monetary policy and liquidity policy

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  • Australia's central bank cut rates a quarter point as was widely expected. The statement accompanying the decision had an implicit easing bias, but on balance we believe that the RBA has concluded the easing cycle (clearly this remains data dependent).
  • The US Senior Loan Officers' survey showed a further easing of bank lending conditions. In terms of liquidity policy this is very important, as it signals that the velocity of circulation is increasing and the necessity of pumping cash into the system is declining. Liquidity economics 101.
  • UK retail sales hit the strongest July reading for seven years (on hot weather). That, combined with the strength of the service sector (albeit based on sentiment data) is likely to promote upside risks for the UK economy.
  • The idea of a Euro area economy that has reached the bottom of its cycle is likely to receive some support with German manufacturing orders data and Italian industrial production. After six consecutive quarters of negative GDP, some end to the misery is overdue.

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