19 August 2011 at 6:04 GMT
Asia had little to latch on to in the way of data so sentiment was determined by Wall St’s poor performance Thursday. Asian equities settled down 2-2.5% mid-morning and this left a heavy air to the usual risk currencies. USDJPY had a minor scare ahead of the fixing where hefty buying prompted fears of BOJ activity and the pair jumped a quick 40 points but lack of follow-through soon saw the pair retreat back.
We did hear wild rumours circulating of an emergency Fed meeting which helped to but a base under risk pairs during the morning and the rest of the session was spent bouncing around in relatively tight ranges. Lending further support was a late comment from the President of the Bank of China (note NOT the central bank) that the Yuan should appreciate, but in a gradual way. Meanwhile China’s VP Xi (meeting with US VP Biden) said the China economy would not have a hard landing and the US economy is highly resilient. Gold witnessed some profit-taking as we hit new record levels versus the dollar, but it did not last long.
The European session is also quiet on the data front with UK public sector finances and German producer prices on tap so we can expect more of picking up the pieces after yesterday’s bloodbath. The North American session focuses on Canada with CPI data for July. We close the week with speeches from Fed’s Dudley and Pianalto.
A full house of weak US data sends Wall St reeling
Another night of doom and gloom as European banking shares led global equity markets lower and extremely poor US data added to the negative sentiment. Currency markets saw less extreme volatility then the equity side but nevertheless the risk-off trade dominated proceedings. Concerns over the troubled European banking sector set the ball rolling with the DAX shedding almost 6% but it was a dire Philadelphia Fed index that cemented the negativity.
The index fell to -30.7 from +3.2, seeing its biggest one-month drop in over a decade and now at levels last seen during the latter stages of the recession, with the new orders weak and the employment index falling sharply. (a similar outlook to the empire manufacturing survey earlier in the week). The weekly jobless claims data was also a disappointment, rising back above the 400k mark to 408k and with last week’s sub-400 number revised marginally higher to 399k, while existing home sales completed the full set of disappointments with at 3.5% m/m contraction from +0.8% last month and an expected +2.7%. Inflation perked up in July, rising 0.5% m/m from -0.2% prior while core CPI was as expected up 0.2% m/m. This lent support to the USD with its dampening effect on QE3 prospects. In the face of all the negatives, Wall St capitulated and tumbled accordingly – DJIA down 3.68%, S&P down 4.46% and the Nasdaq -5.22%.
CHF and JPY remained the natural safe-haven plays while GBP shrugged off a disappointing UK retail sales number (+0.2% m/m from +0.8% and ex-fuel/autos +0.2% from +1.0%) with suggestions that M&A demand lent support. The AUD did not suffer as much as it might have done as gold exploded back above 1,800 but oil remained pressured, as was the CAD, amid double-dip recession fears.
Have a great (deserved!) weekend.
Economic Data Highlights
- US Jul. CPI out at +0.5% m/m, +3.6% y/y vs. 0.2%/3.3% expected and -0.2%/+3.6% prior resp.
- US Jul. Core CPI out at +0.2% m/m, +1.8% y/y vs. 0.2%/1.7% expected and 0.3%/1.6% prior resp.
- US Initial Jobless Claims out at 408k vs. 400k expected and revised 399k prior
- US Continuing Claims out at 3702k vs. 3700k expected and revised 3695k prior
- US Aug. Bloomberg Economic Expectations out at -34 vs. -22 prior
- US Weekly Bloomberg Consumer Comfort Index out at -48.3 vs. -49.1 prior
- US Jul. Leading Indicators out at +0.5% vs. 0.2% expected and 0.3% prior
- US Aug. Philadelphia Fed Index out at -30.7 vs. 2.0 expected and 3.2 prior
- US Jul. Existing Home Sales out at -3.5% m/m vs. 2.7% expected and revised 0.6% prior
- NZ Jul. Credit Card Spending out at +1.0% m/m, +7.3% y/y vs. revised 0.5%/4.6% prior resp.
Upcoming Economic Calendar Highlights
(All Times GMT)
- GE Producer Prices (0600)
- UK Public Finances (0830)
- CA CPI (1100)
- US Fed’s Dudley to speak (1230)
- US Fed’s Pianalto to speak (1235)