S&P500 index's fall below the 200-day MA a key factor to watch today. Will we follow-through?


MAJOR HEADLINES – PREVIOUS SESSION

  • CA May Building Permits out at +14.8% m/m vs. +0.8% expected

  • CA Jun Ivey PMI out at 58.2 vs. 50.3 expected and 48.4 prior

  • US ABC Weekly Consumer Confidence out at -52 vs. -50 expected and -51 prior

  • UK Jun Nationwide Consumer Confidence out at 58 vs. 55 expected and revised 54 prior

  • UK NIESR Jun GDP estimate out at -0.4% vs. revised -1.3% prior

  • JP May Machine Orders out at -3.0% m/m, -38.3% y/y vs. +2.0%/-34.4% exp. and -5.4%/-32.8% prior

  • JP May C/a Balance out at +Y1.3 tln vs. +Y0.63 tln prior

  • JP Jun Bank Lending out at +3.1% y/y vs. +3.9% prior

  • AU Westpac Jul Consumer Confidence out at 9.3% vs. 12.7% prior

  • AU May Home Loans out at +2.2% vs. +1.3% expected and revised +1.8% prior

  • Swiss Jun Unemployment out at 3.6% vs. 3.5% expected and 3.4% prior


THEMES TO WATCH – UPCOMING SESSION

  • Swiss Industrial Production/Orders (0730)

  • EU ECB’s Gonzalez-Paramo speaks

  • UK Halifax House Prices (0800)

  • EU Euro-zone Final Q1 GDP (0900)

  • EU Euro-zone Household Consumption (0900)

  • EU ECB’s Tumpel-Gugerell speaks

  • GE Industrial Production (1000)

  • US MBA Mortgage Applications (1100)

  • US Fed’s Evans speaks (1655)

  • US FDIC’s Bair speaks (1715)

  • US Consumer Credit (1900)

  • G8 meeting (July 8-10)

Market Comments:

Another volatile session for FX markets yesterday with direction and sentiment seemingly shifting with the wind. Once again direction from Asia was reversed with a violent stop-hunt in EURUSD, GBPUSD and AUDUSD pulling most dollar pairs to session highs. However it was soon business as usual for bears as wall St began its slide, violating the 200-day MA support on the S&P500. The index slumped 1.97% in the end to a 10-week low as fears increased that the “green shoots” and the US economic rebound may not be sustainable. Talk of the need for a second stimulus package also weighed on sentiment and helped to USD index recapture the 80 handle.

Bears had been especially prominent in GBP as weak economic data compounded the effect of last week’s GDP disappointment. UK industrial production came in at -0.6% m/m vs. +0.2% expected and early in the Asian session GBP was given another nudge lower after UK’s NIESR noted that weak data had forced it to rethink its view from last month that the economy had troughed and growth would return in Q2. It said more likely the UK economy was “stagnating”. The next NIESR release is due on august 5 but before that we will see official Q2 GDP numbers on July 24. Certainly there has not been any good news for GBP this past week.

Also adding to the gloom, late US data in the form of weekly ABC consumer confidence confirmed the weak tone, coming in at -52 vs. -50 expected for the week to July 6 and -51 prior. Note this weekly series had given a timely warning that the June Conference Board consumer confidence index would disappoint.

US bonds markets enjoyed a good session as stock market weakness enhanced the allure of safe-haven government debt. Add to this a positive outcome in the $35bln 3-year auction and benchmark yields slid to six-week lows. The 10-year yield dropped 7bp to 3.45% despite tonight’s auction of $19 bln worth of debt. The weaker US yields provided more impetus to USDJPY’s downward thrust though 95.0

The data slate for today features EU final Q1 GDP numbers (no real surprises anticipated) followed by German industrial production. The US calendar features consumer credit number for May which is expected to show more evidence of household deleveraging (-$US8.8 bln expected following on from -$US15.7bn in April). Household non-mortgage borrowing is down about $US60bn or 2.3% since its peak with the decline mostly concentrated in the "revolving" segment of household credit. Weekly mortgage applications will also be released for the week ending July 3.