CAD and NZD big movers overnight, but Asia locked in tight ranges - caution creeping in…


MAJOR HEADLINES – PREVIOUS SESSION

  • US Jun. Personal Income out at -1.3% vs. -1.0% expected

  • US Jun. Personal Spending out at +0.4% vs. +0.3% expected

  • US Jun. PCE Deflator out at -0.4% y/y vs. +0.3% expected

  • US Jun. PCE Core out at +1.5% y/y vs. +1.7% expected and 1.6% prior

  • US Jun. Pending Home Sales out at +3.6% m/m vs. +0.7% expected and revised +0.8% prior

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

  • UK Jul. Nationwide Consumer Confidence out at 60 vs. 59 expected and revised 59 prior

  • AU AIG Jul. Performance of Services Index out at 44.1 vs. 50.2

  • AU Jun. Trade Balance out at –A$441 mln vs. –A$800 mln expected and revised –A$737 mln prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • UK Halifax House Prices (0600)

  • GE PMI Services (0755)

  • EU PMI Services (0800)

  • UK PMI Services (0830)

  • UK Industrial Production (0830)

  • EU Euro-zone Retail Sales (0900)

  • US Weekly MBA Mortgage applications (1100)

  • US ADP Employment Change (1215)

  • US Treasury’s Barr testifies (1330)

  • US ISM Non-manufacturing (1400)

  • US Factory Orders (1400)

Market Comments:

It was a day for risk bulls to take their foot off the pedal overnight, though the built up momentum kept on rolling along. The performance on Wall St was distinctly muted even though data indicated that the US consumer was showing signs of coming out of his shell. Personal spending exceeded income in June and the savings rate dipped to 4.7% from 6.2% previously, though it was joted that most of the increased spending was driven by rising gasoline prices. Pending home sales also rose a staggering 3.6% m/m compared with expectations of +0.7% yet Wall St only managed marginal gains, and most of those in the closing stages.

There was also a sense of hesitancy to push risk appetite further in currency markets with most pairs settling ranges, certainly not attempting to push the envelope to the upside (USD weakness). The CAD attracted some attention with Canadian Finance Minister Flaherty expressing some concern about the rapid appreciation of the CAD and stressed that there were steps that the BOC could take to dampen it (echoes of the RBNZ last month).
The kneejerk reaction was to pull USDCAD higher though the subsequent retracement almost reached 80%.

While mentioning NZ, the NZD rallied strongly after this month’s Fonterra dairy auction saw milk powder prices rise 25.8% from a month earlier, and the largest rise since last November. Was it a question of reduced supply or increased demand? If the latter proves to be the case, maybe the RBNZ will tone down its verbal intervention rhetoric on the strength of the Kiwi. The market appeared overly positioned long in the AUDNZD cross and the move gathered pace.

The same hesitant theme dominated activity in Asia with FX ranges the narrowest we have seen in quite some time. Data releases were again Australia-centric and proved a mixed bag. The AiG Performance of Services index could not match the peep above the 50.0 mark in June and came in a disappointing 44.1. This put another barrier in front of the 0.85 mark and even though the subsequent trade data came in better than forecast (an A$441 mln deficit compared with A$800 mln expected, though May’s deficit was revised higher to A$737 mln), AUD failed to make any headway past 0.8460. Asian bourses are finishing mostly in the red though there are no specific drivers to note , so caution may be the strategy into Europe/US.

For the rest of today, attention switches to the services category for PMI data with Germany, EU and UK on tap and forecasts looking for further improvements, though not quite as spectacular as the non-manufacturing category earlier this week. UK industrial production, manufacturing production and EU retail sales are also on tap. The first of the jobs-related data are released this evening with the US ADP employment change and Challenger job cuts as a prelude to Friday’s non-farm payrolls. This is followed by ISM data for the non-manufacturing sector together with factory orders.