US retail sales on the horizon so expect caution in early trading


MAJOR HEADLINES – PREVIOUS SESSION

  • US Jun. Budget out at -$94.3 bln vs. -$97.0 bln expected and +$33.5 bln prior

  • UK Jun. BRC Retail Sales out at +1.4% vs. -0.8% prior

  • UK RICS Jun. House Price Balance out at -18.1% vs. -40.0% expected and revised -43.8% prior

  • SI Q2 Adv GDP out at +20.4% q/q, -3.7% y/y vs. +13.4%/-5.4% expected and revised -12.7%/-9.6% prior

  • AU NAB Jun. Business Conditions out at -2 vs. -14 prior

  • AU NAB Jun. Business Confidence out at +4 vs. -2 prior

  • NZ Jun. Non-Resident Bond Holdings out at 73.0% vs. revised 73.9% prior


THEMES TO WATCH – UPCOMING SESSION

  • UK DCLG UK House Prices (0830)

  • UK CPI (0830)

  • UK RPI (0830)

  • EU Euro-zone Industrial production (0900)

  • GE ZEW Survey (0900)

  • US ICSC Weekly Chain Store sales (1145)

  • US PPI (1230)

  • US Advance Retail sales (1230)

  • CA New Motor Vehicle sales (1230)

  • US Treasury’s Barr testifies (1300)

  • US Business Inventories (1400)

  • US ABC Weekly Consumer Confidence (2100)

  • US Fed’s Plosser speaks (2230)

Market Comments:

What started off as a relatively quiet session in Europe with GBP the star performer (in a negative way) and markets playing the “risk off” trade performed a smart u-turn once the US session kicked in.

A broker upgrade for the US financial sector on the cusp of the Q2 earnings reporting season provided the catalyst for the shift in sentiment, and those risk aversion trades put on earlier were soon wiped out. Bullish appetite for the riskier commodity-bloc currencies intensified once the S&P500 charged back above the 200-day MA, a level that had grabbed the headlines in recent sessions, notably on the way down.

Officials across the globe were out in force projecting a more positive outlook on growth for the remainder of this year. US Treasury Secretary Geithner, on tour, said there was a very strong chance of economic growth returning in the coming quarters. His comments echoed those of UK Chancellor Darling who opined that Britain should return to growth in 2009, but both added the proviso that there were still a lot of uncertainties in the world. BOE Deputy Governor Bean, also on tour in the UK to explain the BOE’s QE measures, added that the economy had probably hit the bottom of the trough but was again cautious that the road to recovery would be a long haul. He calculated that the impact of the recent QE measures would take at least 9 months to filter through to the real economy and produce the desired effect.

When it comes to growth, there were some positive developments in Asia as Singapore reported a stellar quarter-on-quarter performance, increasing 20.4% q/q vs. +13.4% expected, a welcome respite from the 4 quarters of negative growth recorded recently. While there is the risk that the growth was centred around a couple of volatile sectors undergoing an inventory re-build, nevertheless the headline numbers lifted spirits. Is this a precursor for a better-than-expected number for China’s Q2 growth scheduled for release on Thursday? Latest surveys suggest the Chinese economy accelerated to 7.8% y/y growth from 6.1% in Q1.

In what might be seen as a response to S&P’s warning yesterday that the rapid rise in loans growth in China during the first half of 2009 may intensify pressure on the banking system, the PBOC has remarked that local lenders had been advised as early as last week to more closely monitor the rapid growth in lending amid concerns that the funds might be flowing into more speculative sectors of the economy. Could this be the beginning of a lending slowdown (and higher rates?) which may put the recovery at risk? Guess we have to wait and see….

So, we head into today with risk appetite on the up, stock markets buoyant and all eyes on the Goldman Sachs earnings report later. In the wake of the broker upgrade, and hefty expectations for performance, the standard has certainly been set at a higher level. Has it been set too high? While the financial sector looks set to benefit from the agency fees from all the debt issuance, it may be more relevant to look at Intel’s performance this evening (they are also slated to report) to gauge the broader economic situation.

US retail sales are also due to be released and may spoil the party if they don’t match up to expectations in converting sentiment and confidence into actual activity. Median forecasts are for a 0.4% increase and ex-autos +0.5%. Elsewhere on the data calendar we will see UK CPI and RPI, Euro-zone industrial production and Germany’s ZEW survey (economic sentiment). US PPI and business inventories complete the diary.