Asia today: Bernanke QE hopes lift risk appetite (for now)

A Tokyo holiday ensured a quiet Asian session with risk currencies locked at slightly higher levels after the strong rebound seen towards the close on Friday.

So, quiet trading with a positive bias was the name of the game though the kick-off rally did run out of steam at 1.2270 in EURUSD and 1.0250 in AUDUSD. AUD retreated as Dow Jones newswires reported Moody’s saying Australian state ratings are facing negative pressure and may see some negative ratings action near-term.

The risk rally seems to be focused on hopes for more information on possible Federal Reserve quantitative easing (QE) plans at Ben Bernanke’s semi-annual policy testimony before lawmakers on Tuesday/Wednesday this week. One of the catalysts for this thinking came from comments made by the Fed’s Lockhart Friday, where he hinted at further QE if the US recovery and unemployment did not turnaround.

Weekend comments from Chinese Premier Wen suggested that authorities stand prepared to act to stem the economy’s slide. He said the economy seems to be stabilising but further policy adjustments in the second half of the year would hold the key. He noted that H1 growth, at 7.8 percent was “within target” with fundamentals strong and evidence of “bumper summer harvests” pointing favourably to the second half, both on the inflation and economic performance fronts. However, the government would fine-tune its policies with “foresighted and effective” implications.

While on China growth, the FT questions the Q2 growth data, saying it is at odds with other data showing slower electricity output yet firmer industrial production with reference to comments made in 2007 by current PM-in-waiting Li Keqiang that GDP was “man-made” (like most things in China!) and it was more useful to focus on 3 alternative indicators – electricity consumption, rail volumes and bank lending. National Statistics Bureau spokesman Sheng Laiyun defended his corner saying "Our data are independently verified and it all matches up."

EURUSD was pushed to a fresh two-year low on Friday as global growth concerns and Italy's downgrade continued to weigh. However, a sharp reversal in trend happened in the closing stages with the week closing with a definite risk-on feel to it.

On the data front, headline producer prices were higher than expected (+0.1 percent m/m, +0.7 percent y/y) but core prices were still well-behaved. Michigan confidence was a disappointment in July with a provisional reading of 72.0 from 73.2 (73.5 expected) and the lowest reading so far this year. Wall St was encouraged by the not-so-disastrous China GDP data and QE hints and ended a six-day losing streak with gains of 1.62 percent for the DJIA, 1.65 percent for the S&P and 1.48 percent for the Nasdaq.

Data Highlights

• US Jun. PPI out at +0.1% m/m, +0.7% y/y vs. -0.4%/+0.2% expected and -1.0%/+0.7% prior resp.
• US Jun. Core PPI out at +0.2%m/m, +2.6% y/y, both as expected vs. 0.2%/2.7% prior resp.
• US Jul Michigan Confidence out at 72.0 vs. 73.5 expected and 73.2 prior
• NZ Jun. Performance of Services Index out at 54.3 vs. revised 56.6 prior
• UK Jul. Rightmove House Prices out at -1.7% m/m, +2.3% y/y vs. 1.0%/2.4% prior resp.

Upcoming Economic Calendar Highlights

(All Times GMT)

• Swiss Industrial Production (0715)
• Norway Trade Balance (0800)
• EU Euro-zone CPI (0900)
• EU Euro-zone Trade Balance (0900)
• CA Int’l Securities Transactions (1230)
• US Empire Manufacturing (1230)
• US Advance Retail Sales (1230)
• US Business Inventories (1400)

For more information on today’s events, please visit the financial calendar