This will likely ensure that we stay in established ranges near-term after yesterday's attempt higher


MAJOR HEADLINES – PREVIOUS SESSION

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

  • US Weekly Continuing Claims out at 6225k vs. 6390k expected and revised 6313k prior

  • US Jun. Existing Home Sales out at +3.6% m/m vs. 1.5% expected and revised +1.3% prior

  • JP May All Industry Activity Index out at +0.7% vs. +0.9% expected and +2.6% prior

  • SI Jun. Industrial Production out at -9.3% y/y vs. -6.4% expected and revised +2.1% prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • GE PMI Manufacturing/Services (0730)

  • GE IFO Survey (0800)

  • EU PMI Manufacturing/Services (0800)

  • UK Q2 GDP (0830)

  • EU ECB’s Gonzalez-Paramo speaks (1000)

  • US Michigan Sentiment Survey (1400)

  • US Bernanke, Bair and Geithner testify (1430)

Market Comments:

Another see-saw session overnight though the final numbers suggest it was a definite risk-on day. Concerns that technical indicators may stall the current risk rally were easily blown out of the water as stellar Q2 earnings reports continued to roll in. Nasdaq completed its 11th straight session gain and the DJIA rallied above the 9,000 mark for the first time since early January as the likes of eBay, Ford and AT&T all beat market expectations. After the bell it was a different story though as Microsoft and Amex both disappointed.

The bullish tone was confirmed by a marginally better than expected US existing home sales report (+3.6% vs. 1.5% forecast) although the previous month’s data was revised down by over 1%. Initial jobless claims were also marginally better than expected on the headline, coming in at 554k vs. 566k expected, though indications are that autoworker layoffs and heavy seasonal adjustments are making this data series difficult to interpret and may continue to skew the data through the remainder of the summer. Bond markets slid on the firmer data/equity rally and ahead of next week’s heavy issuance with the 10-year yield rising 11bp to 3.66%. This was another factor helping USDJPY overcome the 95.0 handle.

In the early risk appetite environment, the USD edged lower to touch a 7-week low of 78.42 on the Index and EUR targeted 1.43, AUD attempted above 0.82 and the JPY slid further, helping the crosses to build on the gains started in the Asian session. CAD was the star performer overnight, feasting on the bullish tone of the Bank of Canada’s monetary policy report. The BOC stated that “the recession will end in this quarter” and predicted growth of 3% in 2010 and 3.5% in 2011. A lack of direct reference to the strength of the CAD (though the BOC used 1.15 in its projections) gave bulls the green light and USDCAD was soon down at 1.0850 having sojourned at 1.10 recently.

However the Microsoft and Amex earnings forced a rethink and the greenback regained some of its composure.
A reported defense of a options barrier at 1.43 proved successful while AUDUSD lacked oxygen above 0.82. JPY crosses were softer rather than firmer during Asian trade even though equity markets started strongly with 1%+ gains. Initial reports suggested that demand for the Toshin issuances was not as high as had been expected judging by the buying frenzy seen yesterday and we saw a general drift lower in anything JPY-related.

Yesterday’s UK Retail Sales were out far stronger than expected (+1.2% m/m vs. +0.5% f/c), though the integrity and validity of the data series has been questioned of late with other measures of retail activity, like the BRC data, preferred. Nevertheless, GBP caught a bid on the back of this and another monthly increase in mortgage lending data, and comments from the BOE’s sentence about a possible pause in the bond plan if justified by current forecasts, heading to 1.66 but, like the rest of the majors, eased back as the dollar rebounded.

Q2 GDP numbers are the major focus for today with median forecasts looking for a 0.3% contraction q/q, slower than Q1’s -2.4% while the year-on-year numbers are expected -5.2% compared to Q1’s -4.9%. The German IFO survey, EU PMI and final US Michigan sentiment are the only data on tap.

Have a great weekend.