* The Federal Reserve's policymaking Federal Open Market Committee Wednesday announced that it will reduce its monthly bond-buying by another $10 billion in August, noting a rebound in second quarter economic activity and a further drop in unemployment. In the policy statement after the two-day meeting, the central bank also upgraded its assessment of economic conditions since the last meeting in June, but cautioned that there remains "significant" slack in the labor market. It also noted that inflation has made some progress towards the FOMC's long-term 2% target. The FOMC kept its zero interest rate policy in place but the vote was not unanimous this time around, as Philadelphia Fed President Charles Plosser dissented against the forward guidance that rates would remain low "for a considerable time" after the bond buying ends. He said he believes the phrase does not take into consideration the "considerable progress" the economy has made towards the FOMC's targets.
* The Group of Seven, stripped of its Russia inclusion, Wednesday issued a statement of "grave concern" about what it said was Russia's continuing efforts "to undermine KUkraine's sovereignty, territorial integrity and independence." It said "Russia has not changed course" and warned that if it doesn't, "We remain ready to further intensify the costs of its adverse actions."
* The U.S. Q2 GDP report Wednesday showed the expected rebound from the weather-induced slowing in Q1, though the magnitude of the changes, at a revised -2.1% in Q1 and +4.0% in Q2 was a little surprising. On net there was still a slowing in the first half from a very fast growth pace (also revised) a year earlier. The Q2 upturn reflects more consumption, exports and inventories than in Q1. The Commerce Department assumed rising inventories and a slightly worse trade balance for missing June data. In Q2, durables spending surged, led by motor vehicles and recreational goods, consistent with strong unit sales data for new cars. Durables had their best quarter since Q3:2009 after the recession caused pent-up demand.
* Americans are out buying cars this summer, taking advantage of better credit access and rich buying incentives to trade in their recession-worn rides, according to auto dealers around the country. Auto salespeople tell MNI that July has been another sturdy month for new-vehicle sales, particularly in the profitable pickup-truck segment. Credit access is broader and deeper, and so-called sub-prime lending is expanding swiftly. Manufacturers' incentives are generous and apparently successful. Used car prices, meanwhile, are softening. This has boosted used-vehicle sales for many dealers, but some are finding that lower trade-in values are shrinking would-be buyers' equity and squeezing a few of them out of the new-vehicle market.
* Standard & Poor's chief economist for Europe said it is difficult to imagine a scenario where Russia, in response to increased economic sanctions from Europe and the United States, retaliates by cutting off energy supplies to its European customers. Doing so would only cost it the oil and gas revenue that is the lifeblood of the Russian economy, Jean-Michel Six told MNI. In a wide-ranging interview during a sit-down in Washington, Six also described the slightly slower pace of growth in China as "very controlled," but said the challenges for other major emerging market countries such as Brazil, South Africa and Turkey will remain high as the Fed continues to withdraw monetary stimulus. He also analyzes the Middle East and Africa.
* Prices received by Canadian producers as goods leave the plant declined by 0.1% in June, pulled down by lower prices for motorized and recreational vehicles as well as the appreciation of the Canadian dollar against the U.S. dollar, Statistics Canada said Wednesday. This third consecutive monthly decline brought the year-over-year increase in the Industrial Product Price Index to +3.0% in June from +3.4% in May. On average, however, the IPPI was unchanged in 2Q versus 1Q, an analyst told MNI.
* Mexico Finance Ministry officials Wednesday hailed early signs of recovery in construction and the surprisingly good 4.0% U.S. GDP growth in the second quarter, as indications the nation is finally in true recovery, while playing down concerns raised recently by the Bank of Mexico that public spending was not having the hoped-for effect. "The earliest data we have for the second quarter (for construction) are very encouraging," Finance Ministry Planning Director Ernesto Revilla said at a press conference, noting April was the strongest month for the construction sector in the previous five months, up 3.2% from April.
* U.S. Treasury yields maintained a firm tone at Wednesday's close, although yields were down from the best levels of the day. Five-year U.S. Treasury yields were trading around 1.768%, after posting a high just under 1.80%, the highest levels since early April. In contrast, 10-year U.S. Treasury yields held around 2.545%, down from an earlier high of 2.563%, and well below the 2.60% to 2.80% yield range seen from late January to mid-May.
* On the FX front, the euro was closing at $1.3395 and dollar-yen at Y102.84, after trading in respective ranges of $1.3367 to $1.3415 and Y102.04 to Y103.09. Traders leaned toward buying dollar dips and will look at euro rallies into the $1.3400/50 zone to sell into, with an eye on a move back to the next downside target, the November 7, 2013 low at $1.3296. Dollar-yen players also preferred to buy the dip. A clear-cut close above Y102.80, if followed by a break of the Y103.12 breakdown highs from April 8, would scope for further gains towards the April 2014 highs near Y104.13, they said.
* NYMEX September light sweet crude settled down $0.70 at $100.27, after trading in a $99.43 (after hours trading) to $101.67 range. WTI was trading at $99.65/bl in after hours trading. There was little lasting reaction to EIA data released earlier, showing a crude stock decline of 3.7mn barrels to $367.4 mn barrels in the July 25 week, more than the -2.4mn barrels expected.
* U.S. stocks closed mixed Wednesday, with interest rate sensitive stocks harder hit than other stocks with US yields firming. The DJIA closed down 32 at 16,880.36, the Nasdaq Composite was up 20 at 4,462.902 and the S&P 500 closed flat at 1,970.07.
* S&P lowered the boom on Argentina late Wednesday, saying it has defaulted on some of its foreign currency obligations. "The Republic of Argentina failed to make a $539 million interest payment on its discount bonds maturing in December 2033 (Discount Bonds)," S&P said, referring to the long anticipated result of the country's attempt to deal with a court decision that orders payments that would force even greater payments to others, those who have already settled after the last default. "We are therefore lowering our long- and short-term foreign currency sovereign credit ratings on Argentina to selective default ('SD') from 'CCC-/C', indicating that Argentina defaulted on some of its foreign currency obligations," the ratings firm said. If Argentina works out the payments impass, "we could reives our ratings."
--MNI Washington Bureau; tel: +1 202-371-2121; email: dgulino@mni-news.com