Corporate earnings season getting underway as risk appetite at key inflection point.


MAJOR HEADLINES – PREVIOUS SESSION

  • US Weekly ABC Consumer Confidence out at -52 vs. -50 expected and -51 last week
  • UK BRC Shop Price Index rose +0.7% YoY vs. 1.3% in May
  • Japan Jun. Machine Orders fell -3.0% MoM vs. +2.0% expected
  • Japan May Adj. Current Account Total out at ¥1016B vs. ¥1206B expected
  • Australia Jul. Westpac Consumer Confidence rose 9.3% vs. +12.7% in Jun.
  • Australia May Home Loans rose 2.2% vs. 1.3% expected and 1.8% in Apr.
  • Switzerland Jun. Unemployment Rate rose to 3.8% vs. 3.6% expected and 3.5% in May
  • Sweden May Industrial Production fell -2.7% MoM vs. +0.5% expected
  • Sweden May Industrial Orders rose 3.8% MoM vs. +0.4% in Apr.
  • UK Jun. Halifax House Prices fell -0.5% MoM vs. +0.3% expected
  • Germany May Industrial Production rose 3.7% MoM vs. 0.5% expected


    THEMES TO WATCH – UPCOMING SESSION

    • US Weekly DOE Crude Oil and Product Inventories (1430)
    • US Fed's Evans to Speak (1655)
    • US May Consumer Credit (1900)
    • Australia Jun. Employment Change and Unemployment Rate (0130)

    Market Comments:

    The USD is finding plenty of support from the enormous fall in crude prices. The chicken-and-egg aspect of crude oil prices and the dollar is always difficult to untangle, but crude has been severely hit by the combination of risk aversion and new threats by the US regulatory agencies to curtail speculation in the futures market. This latter development has most certainly aggravated the severity of the drop in prices and offers therefore a supporting hand to a further rise in the greenback. Also reflecting the fading of the "devaluation trade" for the USD is the action in the gold market, where gold is close to breaking to a new low since mid-May.

    Weekly US ABC Consumer Confidence came in worse than expected at -52, not far from the all-time nadir of -54 reached on two occasions for the recent part of the cycle (late last year and in January). It feels like this recession is beginning to double dip. For the risk appetite equation at the moment, we have crossed the Rubicon technically with the break of the head and shoulders formation in the likes of the US S&P500 and the 200-day moving average (though we've yet to see a follow up day and it makes us nervous that this development is receiving so much attention in the media). Yet this is happening on the cusp of a new earnings season for Q2: so one of the key puzzle pieces in coming couple of weeks will be corporate earnings and outlooks from major companies.

    Alcoa, as usual, kicks off earnings season today. If the market decides to harvest hope from earnings season, we could stumble back into the ranges once again for perhaps a few days or weeks during these summer doldrums, but we still feel that an eventual reckoning awaits for markets on the risk front. As long as unemployment remains this high and confidence is in the dumps, it is hard to see any uptick on the demand side of the equation. As we are writing this, an analyst is touting the potential of one of the US discount grocers because of the enormous expansion in the food stamp program for feeding families with insufficient income to cover their basic nutrition needs. This is a sad reminder of the state of affairs.

    It's more than a bit interesting that China's Hu Jintao has cancelled his visit to the G8 meeting in Italy this weekend due to the riots and ethnic unrest in Xinjiang. This reminds us of another reason why the US dollar has a fighting chance for a while yet: political/ethnic violence and an autocratic regime are risks that simply don't exist for the US dollar - at least not yet. If US unemployment doubles again, however, we might have to revisit that proposition.

    The JPY has basked in the negative developments in risk appetite across the board. USDJPY is down close to those sub-94.00 lows since late February and other JPY crosses have seen a vicious week of downside action. In EURJPY, the 200-day moving average looms down just below 127.50.

    Watch out for the Australia employment report tonight. Some of the Australia data of late has been relatively positive or stable, but the employment situation is deteriorating.