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Markets showing more stable tendencies but nerves still evident

Fri, Jul 10 2009, 06:57 GMT
by Saxo Bank Strategy Team

Saxo Bank

Eastern Europe featuring in a mild EUR sell-off in Asia

MAJOR HEADLINES – PREVIOUS SESSION

• US Initial Jobless Claims out at 565k vs. 603k expected and 617k prior

• US Continuing Jobless Claims out at 6883k vs. 6710k expected and 6724k prior

• US May Wholesale Inventories out at -0.8% vs. -1.0% expected and revised -1.3% prior

• US Jun ICSC Chain Store Sales out at -5.1% y/y vs. -4.6% prior

• JP Jun Domestic Corp. Goods Prices out at -0.3% m/m, -6.6% y/y vs. -0.1%/-6.4% exp. and -0.5%/-5.5% prior

• GE Jun Wholesale Price Index out at +0.9% m/m, -8.8% y/y vs. +0.1%/-8.9% prior

THEMES TO WATCH – UPCOMING SESSION

• Denmark CPI (0730)

• Sweden Unemployment (0800)

• Norway CPI (0800)

• UK PPI Input/Output (0830)

• CA Unemployment (1100)

• US Trade Balance (1230)

• CA Int’l Merchandise Trade (1230)

• CA New Housing Price Index (1230)

• US Univ. of Michigan Sentiment (1400)

• US Tres. Sec. Geithner testifies (1400)

• G8 Meeting (last day)

Market Comments:

The Bank of England’s decision to leave rates unchanged yesterday was widely expected, but the decision to leaves things related to its quantitative easing program status quo was not. There had been growing talk of an additional GBP25 bln of asset buying, bringing the BOE’s funds available to the limit of the chancellor’s GBP150 bln permitted, and even talk of a request for additional funds up to GBP200 bln. As a result it appears that the market was heavily positioned short of GBP in a “punish the printers” kind of trade and the subsequent reversal and stop-outs were fast a brutal. GBPUSD rallied to its highest level of the week, recouping all of its losses and it looks like we will need to wait until next week for the next swing.

The headline numbers for the weekly jobless claims data helped the positive mood build up during the US session as it dipped below the 600k mark for the first time since January 23, hitting 565k versus an expected 603k.
However, bear in mind that the data was for the July 4 week, a holiday-shortened week in the US and, combined with seasonal factors, makes the numbers almost defunct. More of a worry though was the continued rise in continuing claims, which hit a record high 6.883k.

The verbal intervention by Japan’s chief cabinet secretary Kawamura in yesterday’s Asian session were followed up by additional same-themed and toned comments from Vice Finance Minister Sugimoto later in the day. The effect on markets was the same with USDJPY pushing up to just above the Asian high, but finding a slew of willing sellers there. USDJPY’s slide back through the 93.0 mark was marginally surprising given the US 10-year bond yields edged higher after yesterday’s decline. The demand for the US’ auction of $11 bln worth of 30-year bonds was not as strong as that seen earlier in the week for shorter tenors. The yield was set at 4.303%, slightly above an anticipated 4.292%, with a bid/cover ratio of 2.36 compared to 2.68 at the June auction. Slight steepening in the yield curve was witnessed and should have given USDJPY a bit more support. A sign of more USDJPY losses to come?

The Asian session was a quiet affair though the dollar did appear to be making a mini comeback( up 0.3% on the index). However, ranges remained intact and with few data inputs it will be left for Europe to determine direction into the weekend. Some traders were linking EURUSD’s slide through 1.40 to an article in Germany’s Handelsblatt (auf deutsch) highlighting that the IMF were in negotiations with at least 10 Eastern European states to provide billions of dollars in aid programs as the financial crisis hits more than previously. GBP found some bids below 1.63 in Asia in the aftermath of the BOE meeting yesterday and may get an additional lift from today’s PPI input/output prices. Input prices are seen higher than a month ago as commodity prices rose in June, but the full extent of price rises is not expected to be passed on to the end-consumer with output prices rising less severely.

Elsewhere in Europe, we see German wholesale prices, Swedish unemployment and Denmark, Norway CPI. It is a more important data slate for Canada today with unemployment and trade data. The US also follows with trade numbers and the Univ. of Michigan Sentiment survey towards the close of the session may give us a barometer of customer sentiment ahead of next week’s retail sales numbers.

Published on  Fri, Jul 10 2009, 06:59 GMT