China shares down over 5% again suggesting a more cautios approach today


MAJOR HEADLINES – PREVIOUS SESSION

  • EU Jun. Industrial New Orders out at +3.1% m/m vs. +1.8% expected and revised -0.5% prior

  • EU Jun. Industrial New Orders out at -25.1% y/y vs. -28.3% expected and revised -30.3% prior

  • US Jul. Chicago Fed Activity Index out at -0.74 vs. revised -1.82 prior

  • CA Jun. Retail Sales out at +1.0% m/m vs. +0.2% expected and revised +1.1% prior

  • CA Jun. Retail Sales less-autos out at +1.0% m/m, vs. +0.4% expected and revised +0.6% prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • GE Q2 Final GDP (0600)

  • Swiss UBS Consumption Indicator (0715)

  • Swiss Employment Level (0715)

  • UK BBA Loans for House Purchase (0830)

  • HK Trade Data (0830)

  • US S&P/Case-Shiller House Prices (1300)

  • US Consumer Confidence (1400)

  • US Richmond Fed Manufacturing Index (1400)

  • US House Price Index (1400)

  • UK BOE’s Bean speaks (1645)

  • CA BOC’s Lane speaks (1645)

  • US Weekly ABC Consumer Confidence (2100)

Market Comments:

Financial markets were in consolidation mode overnight following the large run-up in risk appetite on Friday. A relatively barren data slate gave precious few inputs and hence equity and currency markets were left in tight ranges. What data releases there were appeared to conform to the recent trend of beating forecasts, with Euro-zone industrial new orders coming in at +3.1% m/m versus +1.8% expected and Canadian retail sales (albeit tardy data from June) hitting strong 1.0% m/m growth versus +0.2% expected. Despite the strong EU data, EUR once again failed to clear the 1.44 mark but the CAD showed a tad more reaction to its data, pushing to a near-three week high against the greenback.

In other overnight news, a White House official was quoted over the wires confirming the US President Obama would re-appoint Ben Bernanke for a second term as Fed chairman. An announcement is expected sometime Tuesday and it is expected that President Obama will commend Bernanke’s bold actions during the “worst financial crisis the nation and the world has ever faced”. Financial markets had widely expected the re-appointment though the announcement was not expected till later this year. Reaction in the markets this morning was muted however.

Asia was content to sit and wait in ranges in the early part of the session, though most bourses started off on the wrong side of flat. It took a sharp fall in China shares, down almost 5% at time of writing to entice bears and put pressure on the “risk” currencies, though once again the selling petered out once we approached the lower end of perceived day’s ranges with Asia unwilling to push the boundaries. We may have to wait for Europe to take it further. The sell-off in China shares came despite assurances from Premier Wen that China would keep its monetary policy loose. However, additional comments that China was facing difficulties is boosting domestic consumption were seen as fresh uncertainty surrounding the sustainability of the economic recovery. In contrast, the vice-head of China’s Development Research Center reckoned that the recovery in China was solid and that the stock market’s negative reaction to talk of fine-tuning of monetary policy would be short-lived.

The question of whether current bullish sentiment has further to run near-term will likely be answered tonight with the two indicators of US consumer confidence scheduled for release. The monthly index from the Conference Board showed a surprising drop in July, the second month of declines, and may struggle to stage any bold recovery. The weekly ABC consumer confidence index has been mostly bumping along in a -45 to -55 range since February.