Asis remained non-commital so looks like we will have to wait....


MAJOR HEADLINES – PREVIOUS SESSION

  • US May Case-Shiller House Price Index out at -17.06% y/y vs. -17.9% expected and -18.1% prior

  • US Jul. Consumer Confidence out at 46.6 vs. 49.0 expected and 49.3 prior

  • US Richmond Fed Manuf. Index out at 14 vs. 8 expected and 6 prior

  • US Weekly ABC Consumer Confidence out at -47 vs. -49 expected and -50 prior

  • NZ Jun. Building Permits out at -9.5% vs. -5.0% expected and revised +3.0% prior

  • JP Jun. Large Retailers Sales out at -6.7% vs. -6.0% expected and -6.5% prior

  • JP Jun. Retail Trade out at -3.0% y/y vs. -2.5% expected and revised -2.7% prior

  • AU Jun. HIA out at +0.5% vs. revised -5.6% prior

  • NZ NBNZ Jul. Business Confidence out at 18.7 vs. 5.5 prior

  • JP Jul. Small Business Confidence out at 41.1 vs. 38.0 prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • GE CPI (n/a)

  • UK Net Consumer Credit (0830)

  • UK Mortgage Approvals (0830)

  • US MBA Mortgage Applications (1100)

  • US Durable Goods Orders (1230)

  • US Fed’s Dudley speaks (1230)

  • US 5-year note auction (1700)

Market Comments:

Risk sentiment took a bit of a knock last night as US consumer confidence disappointed for the second straight month, pouring some cold water on the imminent recovery theory. Consumer confidence came in at 46.6 vs. 49.0 expected with a drag in the assessments of both present and future situations while the labour market remained a steady worry. The negative sentiment was partly offset by a strong showing in the US Case-Shiller house price index which indicated a slower pace of decline and improving prices. This would appear to confirm the more recent positive sentiments from the housing sector.

That said, the greenback rebounded from support levels on the USD index and we saw a quick retreat by the major currencies. EUR probably saw the most action, having tripped options related deals above 1.43, we were down at 1.4130 within a short space of time. AUD gave back some of the stellar gains made to 9-month highs following RBA’s Stevens’ comments. Wall St was mixed but generally in the red for most of the session.

The first of the US Treasury’s longer-dated auctions did not go down too well last night, with a lower bid/cover ratio and participation rate than last time. If you recall, the 2-year auction last time proved the most popular for investors and set the tone for the next couple of days. This time it was a different story and as a result short-term benchmark yields edged higher giving the dollar a bit more. In addition, Fed’s Yellen gave more ammunition to the bond bears when she noted that economic surprises of late have been to the upside and therefore was not expecting a double-dip recession but noted nevertheless that any recovery would be “painfully slow”. She also commented that the timing of any Fed timing was a difficult call but that it will be needed before full employment returns.

So, Asia stood on the knife-edge, wondering whether the “risk off” sentiment would extend. Initially it looked as if this was going to be the case with NZD seeing early selling. Building permits were a disappointment, coming in at -9.5% vs. -5.0% expected, but it was a rumour that Frontera would announce another big cut in dairy farmer payments tomorrow morning (subsequently refuted as they said it maintains its 2009/10 farmer payout) that induced the most selling. Yet, as Tokyo opened, retail clients looked to pour into the JPY crosses again and this helped mitigate losses and set the tone into lunch after an early bout of weakness. NZ business confidence was also stronger than expected, with the NBNZ index showing a net 18.7% of respondents optimistic for the next 12 months, a more than three-fold improvement versus June. However, with the RBNZ meeting early tomorrow gains looked limited with the risk of more verbal intervention on the NZD.

Japanese data continue to show weak tendencies with June retail sales -3.0% y/y vs. -2.5% expected and yet the Japanese Ministry of Finance raised its economic outlook for the first time since April 2004. The wording of the statement said “Economic conditions remain tough, but there are signs of bottoming and a slight recovery” with assessments of 10 out of the reporting 11 regions raised.

Asia leaves with currencies stable mid-range and the debate whether “that was it?” will continue into the European session. On the data front, German CPI, UK consumer credit, mortgage lending and money supply are on tap, while in the US it will be durable goods orders that excite. Over to you……..