But caution might overtake ahead of the key event
MAJOR HEADLINES – PREVIOUS SESSION
- CA May Int’l Securities Transactions out at 18.9b vs. 7.0b expected and 9.05b prior
- CA May Wholesale Sales out at -0.3% m/m vs. -2.0% expected and revised -0.7% prior
- US Jun. Leading Indicators out at +0.7% vs. +0.5% expected and revised +1.3% prior
- NZ Jun. Visitor Arrivals out at -3.8% vs. revised -0.1% prior
- AU Jun. New Motor Vehicle Sales out at +5.7% m/m, -7.2% y/y vs. +5.4%/-12.2% prior resp.
- NZ Jun. Credit Card Spending out at -2.1% y/y vs. -2.4% prior
- JP Jun. Nationwide Dept Store Sales out at -8.8% y/y vs. -12.3% prior
THEMES TO WATCH – UPCOMING SESSION
- Swiss Trade Balance (0615)
- UK Public Sector Finances (0830)
- US ICSC Chain Store Sales (1145)
- US Chicago Fed Activity Index (1230)
- CA BoC Rate Announcement (1300)
- US Fed Chairman Bernanke testifies (1400)
- US TARP’s Barofsky testifies (1400)
- US Treasury’s Bloom testifies (1500)
- US ABC Consumer Confidence (2100)
Market Comments:
Optimism remained the buzz-word of financial markets yesterday after a very slow start in Asia. News that CIT had avoided Chapter 11 through a private industry bailout was the initial catalyst and this was helped by yet another string of Q2 earnings forecasts that beat market expectations and further cemented by data releases - demand for Canadian securities was at a 5-year high, wholesale sales down a less-than-expected 0.3% and US leading indicators came in at +0.7% vs. +0.5%. Risk was embraced, with the USD sliding back down towards the June lows, enabling major currencies to overcome some technical resistance levels.
Once again Asia was a tad more reticent in pushing the sentiment even as Japan returned after the long weekend. There was evidence of some early cross-JPY buying but this soon faltered and we slipped back into ranges. Likely we will wait for the “handover” volatility as Europe opens to jump on the next trend.
Data highlights were centred around Australia this morning, with the RBA minutes of the July 7 meeting showing little change from the previous month ie suggesting interest rates were at an appropriate level for sustainable, low-inflation growth though there was scope for further cuts if necessary due to the benign inflation environment. The robust performance by the China economy was a great help to Australian exports and this was acknowledged in the minutes. The tone was generally upbeat with diminished downside risks and activity not as weak as feared. The AUD, however, failed to get any immediate lift post-minutes and was left hovering mid-range.
Fed chief Bernanke takes centre stage later today with his semi-annual testimony before Congress. His article written in the WSJ appears to divulge the full content of his testimony and basically reinforced that the Fed was unlikely to tighten policy in the near-term but also detailed a potential exit strategy once the economy recovers. This is something the market was keen to see, and the reiteration the US rates would remain low for some time helped flatten the US yield curve, with 10-year benchmark yields easing 5bp to 3.60%. This is something Bernanke was undoubtedly keen to see.
The other major event in the calendar today is the Bank of Canada meeting. While no change in rates is expected (where can they go from 0.25%) and QE is likely off the agenda the CAD may bear the brunt of BOC comments post-meeting. Recall after last month’s meeting the BOC warned of the negative effects on the recovery by a rising CAD (a tone and theme adopted by other central banks whose currencies fall under the “commodity-bloc” umbrella) and, looking at FX levels we are fast approaching the same level from a month ago, The BOC may well reiterate such a stance and bear in mind last month’s reaction was a sharp sell-off in the CAD, so be on guard.
Elsewhere, the data slate looks quite barren today, though UK fiscal conditions may garner a bit more attention than usual, given the IMF comments late last week about their deteriorating situation. Latest surveys suggest the Public Sector Net Credit Requirement would rise to GBP20.2 bln from GBP18.8 bln previously. Coca-cola, Caterpillar, Apple and Yahoo are among the reporters tonight.