But currencies fail to break out of recent ranges. Which will give this week?


MAJOR HEADLINES – PREVIOUS SESSION

  • US Jul. Existing Homes Sales out at +7.2% m/m vs. +2.1% expected and +3.6% prior 

  • US Jul. Existing Home sales out at 5.24 mln vs. 5.0 mln expected and 4.89 mln prior 

  • AU Jul. New Motor Vehicle Sales out at -6.9% m/m, -10.4% y/y vs. revised +5.8%/-7.1% prior respectively 

  • JP Jul. Supermarket sales out at -4.8% y/y vs. -4.4% prior 

  • SI Jul. CPI out at +1.1% m/m, -0.5% y/y vs. +0.3%/-0.6% expected and -0.5%/-0.5% prior respectively


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • Denmark Consumer Confidence Indicator (0730) 

  • EU Industrial New Orders (0900) 

  • US Chicago Fed Activity Index (1230)

  • CA Retail Sales (1230)

Market Comments:

Hot on the heels of the stellar German and Euro-zone PMI data, particularly in the services index, US existing home sales data provided the further catalyst for another upswing in risk appetite. Coming in at +7.2% m/m, sales registered their biggest bounce on record and gave Wall St a strong boost into the weekend.

Yet, despite all the good news, currency markets failed to deliver a dramatic move outside recent ranges. EUR failed to move past the 1.44 mark and 1.45 certainly seemed elusive while USDJPY was firmly capped below the 95.0 mark. It was suggested that the USD was able to stage a mild rebound because, while the headline numbers looked convincing, the rising mortgage delinquency rates (notably now spreading to prime mortgages rather than sub-prime) and lower average prices may imply that a large number of transactions are still distressed sales. It looks like we will have to wait for Wednesday’s new home sales data for confirmation of a possible base in the housing slide.

In the latter part of the US session, Fed Chief Bernanke delivered his speech at the Jackson Hole central bankers’ retreat. His mood was cautiously optimistic, stating that prospects for a return to growth appear “good” though any rebound was likely to be sluggish. In addition, any rebound in the unemployment situation would be very gradual. Others adopted the same cautious approach – ECB’s Nowotny said he did not see the prospect of a double-dip recession becoming a reality but warned central bankers about launching exit strategies too soon and noted that a sustained recovery in the Euro-zone was not likely to surface until the start of 2010. His colleague Trichet was of the same opinion but defended criticism that the ECB had been behind the curve in cutting rates, saying that a more gradualist approach was the better antidote to the threat of price stability.

In contrast to ECB’s Nowotny, noted economist Noriel Roubini wrote in the FT and warned that there was still a “big risk” of a double-dip recession. He expects the global economy to bottom out in the second half of the year but expected the US and Europe to experience “anemic” and below-trend growth for at least a couple of years. He also highlighted that commodity prices were rising faster than fundamentals warrant.

The start of the week was a relatively calm affair in Asia. Stock markets recovered their losses from Friday and matched gains of Wall St with most posting gains of 2-3%. Shanghai was again a slightly contrarian affair, opening in the red and certainly lagging the rest of Asia during the session. Currency markets were steady but the “risk” currencies were seen testing higher resistance levels. At these levels there were reports of some heavy offers and these served to put an effective cap on activity and range-trading into Europe was the name of the game.

The only data release was second-tier Australian new vehicle sales, but these may have given a minor indicator of things to come. While Australia has not had an equivalent to “cash-for-clunkers” program, it certainly has been dishing out cash as part of its stimulus programs. The surprise reversal in new vehicle sales in July, down 6.9% m/m and 10.4% y/y, was the first monthly decline in four months and could be an indication that the stimulus effects of fiscal handouts and tax breaks may be wearing out. With the US’ “cash-for-clunkers” program finishing today, will we see a similar effect in US numbers?

Data releases for today include Euro-zone industrial new orders, US Chicago Fed Activity and Canada retail sales. Looking ahead to the rest of the week, US consumer confidence on Tues, durable goods orders and new home sales orders on Weds and US Q2 GDP data on Thurs will attract attention. The latter will be all the more pertinent given the above-forecast results from the Euro-zone recently. What about the UK? Advance estimates for Q2 disappointed in July but will the provisional data due on Thursday see an upward tilt? That would certainly remove one of the bearish pressures on the pound and restore the positive vibes that the worst is behind us, globally.