A slow data calendar for today but risk aversion looks the name of the game


MAJOR HEADLINES – PREVIOUS SESSION

Swiss Jun CPI out at +0.2% m/m, -1.0% y/y vs. +0.1%/-1.1% expected and +0.2%/-1.0% prior

  • GE Jun Services PMI out at 45.2 vs. 44.3 expected and 44.3 prior

  • EU Jun Services PMI out at 44.7 vs. 44.5 expected and 44.5 prior

  • UK Jun Services PMI out at 51.6 vs. 51.5 expected and 51.7 prior

  • EU May Retail sales out at -0.4% m/m, -3.3% y/y vs. -0.1%/-2.7% expected and revised +0.1%/-2.5% prior

  • AU TD Jun Securities Inflation out at +0.4% m/m, +1.4% y/y vs. -0.3%, +1.5% prior

  • AU ANZ Jun Job Advertisements out at -6.7% m/m vs. -0.2% prior

  • JP May Leading Indicators out at 77.0, as expected vs. 76.2 prior

  • JP May Coincident Indicators out at 86.9, as expected vs. 86.0 prior


THEMES TO WATCH – UPCOMING SESSION

  • EU Sentix Investor Confidence (0830)

  • EU ECB’s Nowotny speaks (0830)

  • US ISM Non-manufacturing (1400)

  • EU ECB’s Tumpel-Gugerell speaks (15:10)

  • NZ NZIER Business Opinion (2200)

Market Comments:

The US Independence Day holiday ensured a quiet close as the end of the European session approached on Friday, though the same theme of risk aversion resulting in USD and JPY strength that had been witnessed in Asia continued. GBP remained on the weak side, suffering the after effects of the dire Q1 final GDP number from Thursday though the EUR’s slide was slightly tempered by reported demand from an Asian central bank and a large option expiry.

European data releases were broadly in line with expectations, UK PMI services slightly firmer at 54.6 vs. 51.5 expected while the EU equivalent came in at 44.7, a slight improvement from 44.5 previously. The PMI series across the globe appear to be pointing to improvement, but we will need to see the corresponding uptick in both consumer confidence indicators and “real” economic activity data (retail sales and production).

With a fairly scant data slate scheduled for this week, the Asian session stuck to the familiar theme of taking risk off and buying the dollar and yen. Over the weekend, China’s Vice Foreign Minister He Yafei repeated his comments that the USD would continue to be the world’s reserve currency for years to come, and that talk of a “supranational” currency was “academic talk”, while the WSJ carried a piece that the Russian President had commented there was no alternative to the USD, EUR as reserve currencies. Thus, having removed the one concern for the dollar that had plagued markets of late, we would expect to see further gains for the dollar this week. Meanwhile, the FT carried a story highlighting the plight of European exporters being squeezed by the strong EUR. Asia took this as an opportunity to sell the EUR.

This morning’s data releases included Australian jobs newspaper and internet advertisements which declined for the 14th straight month, indicating no respite for the gloomy jobs outlook. Total job advertisements fell by 6.7% in June vs. -0.2% fall in May to an average of 127.346 a week. Note that Australia official unemployment data for June is due on Thursday with latest polls suggesting an additional 20k jobs were lost in June and a deterioration in the unemployment rate to 5.9% from 5.7%, and a higher number than forecast would certainly weigh on the AUD.

A quiet data slate today, with the only highlight for Europe being Sentix investor confidence. The US returns with ISM non-manufacturing data later. Looking ahead to the rest of the week, we will have the results of central bank meetings from the RBA and BOE (Tues and Thurs respectively) though no change in rates is expected from either, nor is it priced in. The UK Times suggests that the BOE may announce an increase to its quantitative easing programme by another GBP25 bln and, if this is the case, it may exert some kneejerk pressure on the GBP.

Other relevant data releases include US weekly jobless claims Thurs and trade data on Friday while Europe sees UK manufacturing production tomorrow, consumer confidence Weds. and trade data on Thurs. Highlights for Asia include Australia Westpac consumer confidence Weds. and unemployment Thurs. The G8 meeting starts on Weds for 2 days, with now only a small risk that China will want to discuss the USD and its reserve currency status (following vice fin min’s comments at the weekend).

We will also have another test of investor appetite with the US’ $73 bln worth of 3-, 10- and 30-year paper. Note that the last auction drew surprisingly strong demand from foreign central banks, though it was noted that the better appetite was found for the shorter-term tenors. The schedule indicates $35 bln of 3-year notes on Weds, $19 bln of 10-year notes on Thurs and $11 bln of 30-year notes on Friday.