Event risk onslaught continues today with US ISM Non-manufacturing number. BoE and ECB on tap tomorrow.
MAJOR HEADLINES – PREVIOUS SESSION
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US Weekly ABC Consumer Confidence out at -49 vs. -47 expected and -47 last week
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UK Jul. BRC Shop Price Index rose 0.5% YoY vs. 0.7%
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Australia Jul. AiG Performance of Services Index out at 44.1 vs. 50.2 in Jun.
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Australia Jun. Trade Balance out at -441M vs. -800M expected and -737M in May
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UK Jul. Halifax House Prices rose 1.1% MoM vs. 0.6% expected and -0.4% in Jun.
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Germany Jul. Final PMI Services out at 48.1 vs. 48.4 preliminary estimate
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EuroZone Jul. Final PMI Services out at 45.7 vs. 45.6 preliminary estimate
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UK Jul. PMI Services out at 53.2 vs. 51.8 expected and 51.6 in Jun.
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UK Jun. Industrial and Manufacturing Production out at +0.5%/+0.4% MoM vs. 0.0%/-0.1% expected, respectively
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EuroZone Jun. Retail Sales out at -0.2% MoM vs. +0.3% expected and -0.5% in May
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US Jul. ADP Jul. Employment Change fell -371k vs.-350k expected and vs. -463k in Jun.
THEMES TO WATCH – UPCOMING SESSION
(All times GMT)
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UK Jul. NIESR GDP Estimate (1400)
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US Jul. ISM Non-manufacturing (1400)
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US Jun. Factory Orders (1400)
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US Weekly DOE Crude Oil and Product Inventories (1430)
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New Zealand Q2 Unemployment Rate and Employment Change (2245)
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Australia Jul. Employment Change and Unemployment Rate (0130)
Market Comments:
Two relatively quiet data releases (judging from the market reaction) crossed the wires late yesterday and overnight that don't mesh very well with the ebullient market action of late. First, the US weekly ABC Consumer confidence number remains mired at very low levels and actually dipped this last week. The history of this data suggests that prolonged divergences in the data cannot be expected to last indefinitely. Either confidence must come up quickly or equities must go down at some point.
The second data point was Australia's Services PMI, which plummeted to a recessionary 44.1 level in July vs. the 50 level expected. The market hardly took notice, but we fear for the Australia economy on the potential combination of a housing bubble implosion and China stepping away on the bid in the commodities market as it deals with a double dip in coming months. It is interesting to note that the dip in the Services PMI is already here without those two factors, suggesting the risk of some unrecognized weakness Down Under. The Australian Trade Balance was better than expected overnight, but is still negative and well off its large positive numbers from the commodity rally heyday of 2008.
The heavy Australian calendar continues tonight with the July employment report.
The still sour mood in the US was not in evidence in the UK's consumer confidence data, which vaulted to the highest level in over a year in July. This combined with a strong Services PMI and robust production data today pushed GBPUSD through the 1.7000 level for the first time since October, though it is slipping slightly back through this level as of this writing. GBPCHF also managed to poke its way above 1.8000 on today's developments. The BoE is up tomorrow, but the bank traditionally doesn't release any statement with its rate decision, which is certain to remain at 0.50%. The market can only hope that BoE officials throw it a bone in the form of some kind of guidance on their thinking at this point. The UK was the quickest to move to radical fiscal bailout and stimulus measures once the alarming nature of the financial meltdown had become clear and is not clearly benefiting the most from those moves. The question remains, of course, whether the strength is sustainable. A slight dissonance in the UK data was also in evidence as last night's BRC shop price data showed YoY inflation at a measly 0.5% - the lowest reading since December, though we must keep in mind that the year on year comparisons are with the height of the oil spike last summer.
The onslaught of data and event risks for the remainder of the week in US and Europe was kicked of today with the US ADP employment report out slightly worse than expected today at -371k, but still down almost 100k from last month's revised level. Last month's Nonfarm payrolls was -467k and expectations are running for about -300-325k this time around, with many with far more optimistic expectations for the number.
Late last night, the Canadian Finance Minister Flaherty warned on the strength of the loonie, after its torrid recent gains against the USD over the last month. The market responded with a sharp rally in USDCAD. At these levels below our pain threshold of 1.0800 and with belligerent officialdom, it would seem tough going for CAD to make any further progress against the greenback and we would look for a consolidation here back toward 1.1000-1.1200 unless oil decides to tack on another 15 dollars a barrel and/or equities manage another sustained leg up in the coming days and weeks.
Keep an eye on the ISM non-manufacturing data out shortly. Expectations for US growth in Q3 have gone nearly stratospheric relative to recent quarters, but this survey of the largest portion of the US economy has not yet crossed the 50 threshold since falling below that level "for good" last fall. Just as we are going to press, the US treasury announces that it will be selling $75 billion of treasury debt next week - including an interesting auction of $23 billion in 10-year securities and $15 billion in 30-years. This will be an interesting test of demand for long duration government securities.
Chart: EURJPY
It is interesting to see EURJPY attempting to scale new heights here ahead of tomorrow's ECB. Short interest rates in Europe have vaulted sharply higher over the last few days in support of this move higher (more support has come from the general background of risk willingness). But will the ECB have any hawkish message to deliver? Tomorrow's meeting will like generate significant volatility in the Euro crosses as we are poised at interesting levels in many of the Euro crosses (EURJPY, EURUSD, and EURGBP) and it appears that the Euro has started a real bear trend recently.
