A quiet Asia session due to Japan holiday, but risk mostly embraced again


MAJOR HEADLINES – PREVIOUS SESSION

  • US Jun. Housing Starts out at 582k vs. 530k expected and 532k prior

  • US Jun. Building Permits out at 563k vs. 524k expected and 518k prior

  • UK Jul. Rightmove House Prices out at +0.6% m/m, -3.1% y/y vs. -0.4%, -5.5% prior resp.

  • AU Q2 Producer Prices out at -0.8% q/q, +2.1% y/y vs. -0.2%/+2.9% expected, -0.4%/+4.0% prior


THEMES TO WATCH – UPCOMING SESSION

  • GE Producer Prices (0600)

  • UK M4 Money Supply (0830)

  • HK Unemployment (0830)

  • UK BOE Trends in Lending Report (0830)

  •  CA Int’l Securities Transactions (1230)

  • CA Wholesale sales (1230)

  • US Leading Indicators (1400)

  • US Treasury’s Krueger speaks (1615)

  • US Fed’s Lockhart speaks (1730)

Market Comments:

Friday produced a relatively subdued US session compared to the hype and excitement witnessed early in the week, even though the host of Q2 earnings releases continued to beat forecasts. Whether it was the Jakarta bombings taking the edge off sentiment, or a deeper assessment of the headline numbers suggesting more caution, or simply a case of traders taking a breather it is difficult to pinpoint, but nevertheless Wall St finished the day broadly flat.

Minor positives could be garnered from the US housing data that was released Friday, with housing starts and building permits both beating forecasts with the former coming in at 582k vs. 530k expected in June and an upward revision to 562k for May while the latter hit 563k vs. 524k expected and 518k previously. Coming on the back of the slight improvement in the NAHB housing index the day before this has led to a more optimistic view of the housing sector (or stabilization is seen as a positive). We may see further confirmation of this in the next related data – house price index on Wednesday and existing home sales on Thursday.

GBP managed to overcome its early weakness following the IMF report on UK finances, rebounding from a 1.6265 low against the USD having failed to make further progress towards the 1.60 low seen just over a week earlier.
This morning data from UK’s Rightmove suggested the housing market may have bottomed, with its house price index rising 0.6% m/m in Jul compared with a 0.4% decline in June. However, GBP is notably still stuck in the broader 1.60-1.67 range and looks set to remain there near-term.

As a result of the IMF story on Friday, tomorrow’s public sector fiscal data may garner a bit more interest than usual (already a sharp deterioration in the cumulative net credit requirement is predicted) and this may act as a brake on GBP’s recent rebound. Weekend UK press could also be seen as giving further reasons to sell the pound with a Times article highlighting that a recent white paper from shadow-chancellor proposes “large” banks that combine retail banking with the more risky investment banking either have larger capital requirements or be excluded from having their deposits guaranteed by the taxpayer. Also, a leading UK Think-tank, the Ernst & Young Item club, expects the UK economy to shrink 4.5% this year and warns that any signs of a recovery could be short-lived. Other data releases this week could make GBP the centre of attention with BOE minutes on Wednesday, retail sales on Thursday and Q2 GDP on Friday.

Elsewhere, it is another relatively mild data slate this week, with Fed chief Ben Bernanke’s semi-annual testimony the highlight on Tuesday and Wednesday.

Activity in Asia was limited by the Japan market holiday but nevertheless showed small hints of a preference for risk. The USD gave back 0.1% of the 0.3% gains registered on Friday while JPY also retreated with the usual suspects the major beneficiaries. EURUSD edged past Friday’s high to touch 1.4180, GBPUSD attempted to push up to above 1.64 and AUDUSD attempted 0.81 (as the local bourse rallied 1.3%). JPY crosses held a biddish tone but not aggressively so. Seems today’s risk is that we remain stuck in major/minor ranges with little to influence either way.