US jobless claims in line with expectations. Market struggle for direction continues.


MAJOR HEADLINES – PREVIOUS SESSION

  • Japan Jun. Adjusted Merchandise Trade Balance out at ¥438.2B vs. ¥480.8B expected

  • Sweden Jun. Unemployment Rate out at 9.8% vs. 10.2% expected and 9.0% in May

  • EuroZone May Current Account out at -1.2B vs. -6.1B in Apr.

  • UK Jun. Retail Sales out at 1.2% MoM vs. 0.3% expected and -0.9% in May

  • UK Jun. BBA Loans for House Purchase out at 35.2k vs. 31.9k in May

  • US Weekly Initial Jobless Claims out at 554k vs. 557k expected and 524k last week


THEMES TO WATCH – UPCOMING SESSION

  • US Jun. Existing Home Sales (1400)

  • Canada BoC Monetary Policy Report (1430)

  • US Fed Meeting on Home Loan Rules (1430)

  • US Fed's Fisher to Speak (1720)

Market Comments:

The biggest movers overnight in the Asian session were the JPY crosses, which capitulated higher after the new lows failed to hold and perhaps as news emerged that Japanese banks were raising about 7 billion dollars for investment abroad (sending JPY weaker on capital flow implications). The continued risk appetite in equity land is a JPY negative, though if we cast the other eye over at the bond market, there is nothing there so far that suggests we should look for a dramatic extension of the JPY sell-off, so as long as bonds hold on to support and even rally, this may keep the JPY crosses relatively within the ranges. Later in the US morning, the US Treasury will announce how much it plans to raise at four auctions next week, an announcement that could have an important bearing on the longer end of the market, where the most focus lies after Bernanke has clearly underlined that the Fed intends to stay put at low rates for an extended period of time.

UK Retail Sales were out far stronger than expected, though many have written off the official numbers as worthless (even after attempts to fix obvious problems with the data some months ago) and prefer other measures of retail activity, like the BRC data, which looks relatively strong on a smoothed basis, as it is a rather volatile time series. GBP followed through a bit stronger on the news and on another monthly increase in mortgage lending data, but the EURGBP chart, to take an example, remains a technical mess with false starts, ephemeral reversals and the like. FT was out with a cover story talking up the threats in the US commercial real estate market, which many have touted as the next shoe to drop in the financial sector and where the losses are beginning to mount steeply. If this begins to weigh more heavily on the banks, we might expect GBP to have a hard time rallying any further vs. the market.

The US jobless claims number was in line with expectations and look like relatively good news on the surface, but the indications are that autoworker layoffs and heavy seasonal adjustments are making this data series difficult to interpret and may continue to warp the data through the remainder of the summer. On a seasonal basis, jobless claims tend to bottom in the early September time frame and accelerate into January of the following year. That time frame will be the critical one for judging how quickly we can expect the unemployment rate to top out for the cycle.

We're still scratching around for a catalyst that will shake the market out of its risk seeking and complacency and help to boost the greenback and have yet to come upon it. The Bernanke semi-annual testimony came and went with a fizzle for the shortest term market action. And a look at corporate earnings for the quarter sees relatively positive spin, but the results are beating often rather anemic expectations and still show that earnings are falling on year-on-year comparisons. On that note, as we are going to press, we see a very interesting comment from UPS crossing the wire: "We don't have any confidence that demand will pick up." A package moving company should have relatively good insight into the level of end demand, considering it is responsible for delivering the goods to the consumer. Whatever the catalyst, the time is running out for this summer doldrums silliness - the issues in the global economy are simply too pressing for the market to indulge in low volatility for much longer.

With the hopelessly inconclusive action in FX of late, we look at equities and bonds as indicators today - the former as the S&P500 has crossed to new highs for the year, and the latter to gauge the reaction to the magnitude of the auction next week.