A busy session ahead....BOE, ECB and US jobless claims likely to create volatility


MAJOR HEADLINES – PREVIOUS SESSION

  • US Jul. ADP Employment Change out at -371k vs. -350k expected and revised -463k prior

  • US Jul. ISM Non-manufacturing Index out at 46.4 vs. 48.0 expected and 47.0 prior

  • US Jun. Factory Orders out at +0.4% vs. -0.8% expected and revised +1.1% prior

  • UK Jul. NIESR GDP Estimate out at -0.4% vs. revised -0.8% prior

  • NZ Q2 Unemployment out at 6.0% vs. 5.7% expected and 5.0% prior

  • AU Jul. Unemployment out at 5.8%, unchanged from Jun. vs. 6.0% expected

  • JP Jun. Leading Index out at 79.8 vs. 79.7 expected and 76.9 prior

  • JP Jun Coincident Index out at 87.8 vs. 88.1 expected and 87.1 prior

  • Swiss Jul. Consumer Climate out at -42, as expected and -38 prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • GE Factory Orders (1000)

  • UK BOE Rate Announcement (1100)

  • EU ECB Rate Announcement (1145)

  • EU ECB’s Trichet News Conference (1230)

  • US Initial Jobless Claims (1230)

  • CA Building Permits (1230)

  • US ICSC Weekly Chain store sales (1500)

Market Comments:

Did we see the first chink in the armour of the recent bull trend yesterday? US data was lukewarm at best but disappointing overall. Non-manufacturing ISM data could not match the euphoria of its manufacturing counterpart and disappointed with a 46.4 reading versus 48.0 expected and 47.0 last. Business activity saw a significant pull back and, perhaps more topical, the unemployment/new orders also edged lower. On the same theme, the ADP employment report prior to that was slightly disappointing, coming in at -371k versus -350k prior though optimists will likely focus on the fact it was the smallest drop since last October.

Stock markets in Asia had a mixed morning. Initially markets were calling for a softer open after Nasdaq futures continued the slide from Wall St following CISCO’s after-bell announcements. Yet, we had a positive open and looked to head higher. JPY crosses echoed the sentiment with buying out of Tokyo but mid-morning the market concentrated on details of China’s biggest suspected bank fraud (committed late 2007 but only now going to trial). This led the Shanghai bourse lower (over 3% at one stage) and dampened the desire for JPY crosses. We were soon back at opening levels. Other activity was muted, with EURUSD sticking close to 1.44 and GBPUSD glued to 1.70 though attempted higher after a RICS report showed a revised outlook for UK housing market to slightly up in 2009 from -10% previously.

It was a “tale of two cities countries” in this morning’s unemployment releases. The New Zealand rate came in worse than expected at 6.0% against 5.7% expected and a hefty jump from the previous month’s 5.0% and now standing at a 9-month high. Australia on the other hand continued to paint a picture of a more stable economy, at least on the headline, with its unemployment rate holding steady at 5.8% versus an expected deterioration to 6.0%. While the headline number looked good, digging deeper revealed that all of the 32,200 increase in jobs were added in the part-time category and the full-time segment shed another 16k jobs after May’s 23.4k fall.
Nevertheless, markets liked the headlines and the kneejerk reaction saw AUD higher, stocks up and bonds lower but the move proved short-lived and we were back to square one in short order.

Looking ahead to the European session, central bank meetings dominate the proceedings. While both the BOE and the ECB are not expected to announce any change in rates, “other measures” will dominate announcements. Last month the BOE surprised with a perceived halt to its quantitative easing measures, or at least did not increase its asset buying target, and this will no doubt be on the agenda again this month. UK data since then has on the whole improved (though Q2 GDP data did not) and the market is finely divided as to whether adjustments will be revealed. Any increase in QE targets will likely give GBP a whack.

The ECB on the other hand has faced mundane data and “advice” from the IMF that it should not consider current interest rate levels as a perceived floor. ECB’s Trichet is unlikely to unveil a sudden dovish stance and hence the ECB rate announcement would appear to hold the least appeal for the market.

Apart from the BOE and ECB, Swiss consumer climate and German factory orders are on tap for Europe, with US initial jobless claims the highlight for North America. If jobless claims disappoint in the same vein as the ADP and Challenger reports then we may see some hasty revisions to what we see as optimistic forecasts for tomorrow’s non-farm payrolls numbers. For the record, median forecasts suggest an initial jobless claims number around 580k and a NFP number around 328k.