MAJOR HEADLINES – PREVIOUS SESSION
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New Zealand Jun. Trade Balance out at -417M vs. +215M expected and +907M previously
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Australia Q2 NAB Business Confidence rose to -4 from -24 in Q1
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UBS Jun. Consumption Indicator out at 0.963 vs. 0.748 in May
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Sweden Jun. PPI out at -0.8% MoM vs. +0.1% expected
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Sweden Jun. Retail Sales out at -0.4% MoM vs. -0.3% expected
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UK Jul. CBI Distributive Trades Sales rose to -15 vs. -21 expected and -17 in Jun.
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US May S&P/CaseShiller Composite-20 Home Price Index fell -17.06% YoY vs. -17.9% expected
THEMES TO WATCH – UPCOMING SESSION
(All times GMT)
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US Jul. Consumer Confidence (1400)
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US Jul. Richmond Fed Manufacturing Index (1400)
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US Fed's Yellen to Speak (1635)
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US Weekly API Crude Oil and Product Inventories (2030)
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US Weekly ABC Consumer Confidence (2100)
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New Zealand Jun. Building Permits (2245)
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US Treasury Secretary Geithner to Speak to US-China Business Council (2300)
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Japan Jun. Retail Trade (2350)
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New Zealand Jul. NBNZ Business Confidence (0300)
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Japan Jul. Small Business Confidence (0500)
Market Comments:
The RBA's Stevens was out with a stream of rosy comments on the Australian economy and its prospects overnight, which boosted the Aussie to new highs since September of last year. He said that the downturn was not the worst since World War II and that risks were in balance for the economy. The Australian housing market is so strong, apparently, that "supply constraints are an issue". The contrast with the US is starkand present conditions make a compelling argument for the Aussie well above 0.8000 here. But markets should be - and usually are - as much about expectation as current reality. And the expectations for the Australian economy are very much intertwined with the prospects for China, as it is China commodity buying that has allowed the Australia economy to keep an even keel through this global recession.
The expectation from the RBA's side is clearly that China will continue to offer the Australia economy some support, but we wonder if this is realistic. As we've stated before, we think it is more than difficult to believe that China can make a seamless transition from the days of global imbalances and overwhelming dependence on a production-based, export-driven economy to a brave new world of harmony and balance. Of course, The strength in AUD is also at odds with signs of nervousness in equities and a resurgent Yen today. If equities sell-off and bonds rally this week, the AUD break higher will not hold here.
The eternal tease in EURUSD continues today as yet another early attempt at a new high in EURUSD was brushed back quickly once EURUSD tried above the 1.4300 level. Signs of Euro exhaustion are now pretty clear - is the world finally beginning to recognize the problems we have pounded on the table about for months now as Euro has languished in the ranges during these summer doldrums? There's more wood to chop before we get a more decisive move, the EUR/rest of G10 basket is showing the first signs of a trend in a long time and is in fact poised at the lowest level since December of last year. Our favorite way to look at a weaker EUR is against the JPY and the USD and NOK (though that last one may be overdone a bit in the short term.) We would normally include CHF in that list, but the signs are that the SNB is very determined to keep the exchange rate stable there. It is interesting to note that all of the risk appetite over the last couple of weeks has failed to lift EURCHF even one percent from its lowest levels earlier this month.
The positive housing data of late is grabbing headlines of late. The May S&P/CaseShiller data showed the first uptick in prices since July 2006 - the very top of the housing market. As well, New Home Sales for June (released yesterday) showed a strong recovery. Clearly the housing market is stabilizing - but this is no great surprise considering that the housing starts long ago reached unsustainably low levels and considering the massive credit easing in the mortgage market from the Fed's frantic purchasing of mortgage debt. We'll probably bump along the bottom for years now at best. For at least the next five to seven years, the housing market deserves little focus on the upside potential and more on the downside potential if signs eventually materialize that we are in for a double dip in prices. After all, there is still an overhead of potential supply in the housing market from foreclosed homes and homes that have not yet been foreclosed on but have tenants in default on their mortgages.
Watch out for the US Consumer Confidence out shortly as a possible accelerator for the day's action. Also, the US Treasury auction results today bear watching as $42 billion of two-year notes are on the block. Later, Geithner will be out talking about the US-China economic dialog.
