Wall St ignites with a strong finish Thursday
Everyone now awaits the EU bank stress test results
Market Comments:
Global equity markets had a field day overnight with Europe leading the way following better than forecast PMI and industrial output data. Strong Q2 results from a slew of names also helped the situation (Caterpillar, 3M and Microsoft to name a few) while Bernanke’s performance/thoughts on policy gave added impetus. Bernanke’s testimony suggested the Fed was considering various options if more action is needed if the economy deteriorates further, or even fails to produce the strong rebound it needs. He admitted that unemployment was a big issue that needed to be addressed.
On the data front, US releases were generally better than expected – house prices were firmer in may, up 0.5% m/m versus an expected 0.3% decline while existing home sales down 5.1% m/m versus -9.9% expected, leading indicators -0.2% versus -0.3% expected though the weekly jobless claims were a touch disappointing at 464k from a revised 427k last week and 450k forecast.
For currencies it was not as straightforward with some whippy price action during the sessions but closing with the dollar generally weaker (-1.0% on the index). AUD finally managed to take out resistance at 0.8860 and powered higher on positive sentiment. Yen crosses were hesitant at first but also finished the day on a higher note. USDJPY rebounded off near 8-mth lows as US yields firmed 1-6bp down the curve.
With risk currencies near the day’s highs when Asia opened, traders were content to keep to ranges with a small bout of AUD cross selling. Chatter was that a Samurai bond issue from NAB did not meet the expected subscription rate and that was a reason for the sell-off.
An FT article (which can be read here) quoting ECB chief Trichet also hit the wires early in the session but failed to produce the market reaction one might have expected. Trichet was on his hawkish horse again, calling for a global tightening rather than additional stimulus measures. He opines that policy makers who want to prolong the stimulus are “mistaken” and cutting borrowing would have a very limited impact on growth. He cites a healthy recovery in Europe and advocates public spending cuts and tax increases.
In a late development Reuters reported that several Spanish savings banks would fail the stress tests, in contrast to comments from the Spanish FM a few days ago that all would pass. This development, perversely, might give more credence to the tests themselves that they might be more stringent than anticipated. Kneejerk reaction was to sell the EUR but looks like we may be finding a near-term base.
Otherwise it was another slow day data-wise in Asia and ranging activity was the order of the day at the end of what has been a mixed, whipsawing week in FX land. Into the European session we can expect German IFO surveys, UK Q2 GDP numbers and house loans. The EU bank stress test results will be published after the close (1600GMT) with indications and comments (leaks?) suggesting a positive outcome for most (which we think is already priced in for most asset classes). The week finishes with Canada’s CPI data for June.
Have a great weekend.
Economic Data Highlights
- US Initial Jobless Claims out at 464k vs. 450k expected and revised 427k prior
- US Continuing Claims out at 4487k vs. 4550k expected and revised 4710k prior
- US May House Price Index out at +0.5% m/m vs. -0.3% expected and revised +0.9% prior
- US Jun. Existing Home Sales out at -5.1% m/m vs. -9.9% expected and -2.2% prior
- US Jun. Leading Indicators out at -0.2% vs. -0.3% expected and revised +0.5% prior
- EU Jul. Euro-zone Consumer Confidence out at -14 vs. -17 expected and -17 prior
- AU Q2 Import Price Index out at 1.9% q/q vs. 1.0% expected and 0.3% prior
- AU Q2 Export Price Index out at 16.1% q/q vs. 13.5% expected and 3.8% prior
- SI Jun. CPI out at 2.7% y/y vs. 3.5% expected and 3.2% prior
Upcoming Economic Calendar Highlights
(All Times GMT)
- GE IFO Surveys (0800)
- UK Q2 GDP (0830)
- UK BBA Housing Loans (0830)
- EU ECB’s Tumpell-Gugerell to speak (1000)
- CA CPI (1100)
- EU Banks’ Stress Test Results (1600)