MAJOR HEADLINES – PREVIOUS SESSION
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US Initial Jobless Claims out at 522k vs. 553k expected and revised 569k prior
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US Continuing Claims out at 6273k vs. 6850k expected and revised 6915k prior
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US May Net Long-term TIC Flows out at -$19.8b vs. +$16.5b expected and +$11.5b prior
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US May Total Net TIC Flows out at -$66.6b vs. -$11.2b expected and -$38b prior
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US Jul Philadelphia Fed Index out at -7.5 vs. -4.5 expected and -2.2 prior
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US Jul. NAHB Housing Market Index out at 17 vs. 16b expected and 15 prior
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AU Q2 Import Price Index out at -6.4% q/q vs. -6.0% expected and -2.8% prior
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AU Q2 Export Price Index out at -20.6% q/q vs. -16.0% expected and -4.6% prior
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JP Final May Coincident Index out at 87.1, as expected vs. 86.9 prior
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JP Final Leading Index out at 76.9 vs. 76.8 expected and 77.0 prior
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SI Jun Non-oil Domestic Exports out at -11.0% y/y vs. -10.8% expected and revised +5.3% prior
THEMES TO WATCH – UPCOMING SESSION
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EU Euro-zone Trade Balance (0900)
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EU Construction Output (0900)
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CA CPI (1100)
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CA Leading Indicators (1230)
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US Housing Starts (1230)
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US Building Permits (1230)
Market Comments:
It was a cagey start for markets yesterday with the China data neither confirming nor refuting the prospects that the country would lead the world out of its recession. News that CIT would likely head towards bankruptcy weighed on sentiment and stock markets initially but received a quick fillip from what appeared to be a very good headline number for the initial jobless claims numbers (522k vs. 553k expected on a s/a basis).
However, closer inspection suggested seasonal factors related to the auto industry played a significant role in the data, with non seasonally-adjusted numbers showing a deterioration to 667k. Continuing claims also showed a surprising improvement to 6273k vs. 6850k expected and a record 6915k last week. This would have been the largest one-week decline in continuing claims on record but has largely been explained by the timing of benefit expirations.
Apparently, after 26 weeks of benefits, claimants are moved to “extended benefits” which are (hopefully!) reflected in a different data set.
Thursday’s earnings releases continued to support the uptick in risk appetite, with JP Morgan, IBM and Google all beating market expectations and this was enough to pull Wall St higher in the closing stages to register its fourth up-day in a row. Later US data took a bit of the edge off risk appetite and gave the greenback a chance to recover. TICS data showed a net outflow of -$19.8 bln in May after the +$11.5 bln inflow seen in April. The net outflows were driven mainly by net selling of US Treasuries and partly by US buying of foreign stocks and bonds. The Philadelphia Fed Index also looked disappointing on the headline, coming in at -7.5 vs. -4.5 expected. However, there were small positives to be seen in the components, with new orders actually showing further improvements.
Asia continued its hesitant stance towards risk this morning (as it has done for the past three sessions) but turned gradually risk averse as the session progressed. GBP was one of the first to take it on the chin after a couple of IMF headlines came out with negative undertones. Firstly, the IMF suggested that UK banks would be in need of additional capital if the economic situation declines and loan defaults rise, a distinct possibility if its scenario of a “slow and subdued” recovery in the UK pans out. Secondly, and with a more direct impact on GBP, was the comment that the PM and Chancellor would need to come up with a credible plan to reverse the rapid deterioration of public finances else risk losing the “benefit of the doubt” sentiment witnessed in both bond and FX markets. Predictably GBP slid on the news, though only by some 50 pips.
Asia sentiment was also rocked by breaking news of bomb blasts in the Indonesian capital Jakarta. Latest reports suggest 8 fatalities at 2 hotels though other details/claims are sketchy. The AUD bore the brunt of the sell-off in risk in the early stages, with the EUR following shortly after. Asian bourses retreated from early gains of close to 1% but still mostly remained in the black.
Additional pressure was felt by the AUD as Fitch announced it was downgrading the State of Queensland’s local currency rating to AA+ from AAA while affirming its long-term foreign currency rating at AA+ with a stable outlook.
The data slate is a little barren today, with EU trade balance, Canada CPI and leading indicators and US housing starts and building permits the only items on tap. Citigroup, BOA, GE and Revlon report Q2 earnings this evening but has the market enough conviction to take Wall St even higher as the weekend looms?. Watch this space…….
Have a great weekend, it’s a long one in Japan with a public holiday on Monday.
