Q2 earnings likely to remain the focus for market direction today.
MAJOR HEADLINES – PREVIOUS SESSION
- US Jun. Chicago Fed Activity Index out at -1.80 vs. -1.30 expected and -2.30 prior
- CA BOC leaves official rates unchanged
- US Weekly ABC Consumer Confidence out at -50, as expected, vs. -51 prior
- AE Jul. DEWR skilled vacancies out at -1.7% m/m vs. revised -3.1% prior
- AU Q2 CPI out at +0.5% q/q, +1.5% y/y, both as expected, vs. +0.1%/+2.5% prior resp.
- JP Jun. Supermarket Sales out at -4.4% y/y vs. -2.0% prior
THEMES TO WATCH – UPCOMING SESSION
- UK BOE MPC Minutes (0830)
- EU Industrial New Orders (0900)
- UK CBI Industrial Trends (1000)
- US MBA Mortgage Applications (1100)
- CA Retail Sales (1230)
- US House Price Index (1400)
- US Fed Chairman Bernanke testifies (1400)
- US Treasury’s Wolin speaks (1400)
- US Treasury’s Allison testifies (1800)
- EU ECB’s Noyer speaks (2000)
Market Comments:
Fed Chief Bernanke’s testimony before the House panel last night stuck more-or-less to the content of the article that appeared in the WSJ earlier. However, what discrepancies there were tended to downplay the economic recovery theory. His comments that “a highly accommodative stance of monetary policy will be appropriate for an extended period” appeared to counter the need to present viable exit strategies, and this was compounded by his thoughts that unemployment will be a major factor in determining the state of the housing market during the coming months. His comments helped the longer-end of the US yield curve to ease back further, dropping some 13bp on top of the 5bp the day before. While equity markets finished in the black, FX markets were a tad more reticent and we saw some profit-taking after the recent moves.
Sentiment took a quick hit during the US session after CIT announced that it may still have to seek bankruptcy protection despite the $3 bln rescue package from bondholders. This cast renewed doubt on the state of the financial sector (Bernanke was also cautious on the sector, saying the banking system remained fragile), and the Big Bank Index slid 4.2% though the S&P managed a recovery into the close.
The Bank of Canada meeting was the other major event overnight, and they left official rates unchanged at a record low 0.25%. While the Bank still made reference to the strength of the CAD, the tone of the language could be interpreted as being slightly milder in that they appeared to be more comfortable with CAD’s gains IF it was accompanied by a corresponding tick up in fundamentals (they themselves saw a recent improvement in the local economy) and commodity prices. USDCAD dipped briefly below the 1.10 mark after the meeting but soon rebounded strongly.
There was a little more of what could be considered negative press for GBP overnight. A Telegraph article highlighted that Barclays and RBS would need additional billions in capital if they wanted to continue to grow their investment banks if reformed regulatory rules are adopted. Elsewhere, BOE’s Bean repeated his recent mantra that there is not much sign of a recovery taking hold yet and that quantitative easing measures would take time to work through. GBPUSD however appeared nailed to 1.64 during the Asian session.
Later the BOE minutes from the meeting earlier this month may draw attention after the MPC did not announce any increase in its QE program. At the time there was some concern that the bank may be hinting at a pause to the program but subsequent comments from MPC members countered the concerns. Expect the minutes to show that the program is still alive and well with the chance of an extension if deemed appropriate.
China also featured in the news overnight with an FT article stating that China would begin to use its substantial FX reserves to support and accelerate expansion and acquisitions by Chinese companies. The article reported comments made by Chinese Premier Wen and this is the first time such a policy has been officially mentioned. Elsewhere, Assistant Minister of Finance Zhu Guangyao said he hoped that Washington would ensure that the dollar remained basically stable to protect their extensive overseas investments.
The potential for RBA rate hikes was raised in overnight press and this morning’s data possibly added fuel to the fire. Noted RBA watcher Terry McCrann suggested that the tone of the RBA minutes hinted the next move in AUD rates would be up rather than down. Today’s release of Q2 CPI numbers were, at the headline, bang on estimates but the average of the RBA’s trimmed mean and weighted mean at 3.9% was marginally above the 3.75% assumed by the RBA in its May statement.
Another fairly barren data slate today with EU industrial orders the only highlight from Europe while the second day of Bernanke’s testimony is not expected to change much from last night. So, we will likely remain equity watchers for direction again today. The DOE’s crude oil inventory data may provide some interest after API data yesterday showed a large inventory build. This may take the shine off oil’s recent rally. “Reporters” tonight include eBay, Eli Lilly, Boeing, and from the financial sector Morgan Stanley, US Bancorp and Wells Fargo.