Confidence not likely improving as US frets about healthcare, lack of job opportunities. EURGBP breaks big resistance level.


MAJOR HEADLINES – PREVIOUS SESSION

  • Switzerland UBS Consumption Indicator out at 0.766 vs. 0.951 in Jun.

  • Switzerland Q2 Employment Level fell -0.4% YoY vs. -0.1% expected

  • UK Jul. BBA Loans for House Purchase rose to 28181 vs. 37800 exp. and 35564 in Jun.

  • US Jun. S&P/CaseShiller Jun. Composite-20 Home Price Index fell % YoY vs. -16.4% expected and -17.06% in May


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • US Aug. Consumer Confidence (1400)

  • US Aug. Richmond Fed (1400)

  • US Jun. House Price Index (1400)

  • Switzerland SNB's Jordan to Speak (1515)

  • UK BoE's Bean to Speak (1645)

  • US Weekly API Crude Oil and Product Inventories (2030)

  • US Weekly ABC Consumer Confidence (2100)

  • Japan Jul. Merchandise Trade Balance (2350)

  • Japan Jul. Corporate Service Prices (2350)

  • Japan Aug. Small Business Confidence (0500)

Market Comments:

Obama plans to reappoint Fed Chairman Ben Bernanke - a move that makes sense given the impression on the surface of things that the US economy and financial system have been stabilized and are even on the road to recovery. If markets continue in their present state of fantasy for another few months, then Bernanke could sail through the nomination hearings with hardly a speed bump. An ugly return of the bear, however, and the hearings could get more interesting - though we suspect that times would need to be south of desperate before Bernanke risks the boot. He is very likely to survive to "complete his work" (or go down in flames - is there really any third scenario between these two extremes?). Politicians are not great risk takers and testing the unknown would be more politically risky than reappointing Mr. Bernanke.

Judging from the reversal in the USD once again to the weak side and resilient risk appetite trade, we may be on track for a test to new lows in the USD if the US confidence numbers fail to surprise significantly to the downside. As we have stated ad nauseam in the recent past, however, we have a very jaundiced view of this rally in the bigger picture and the tendency of this market has been to frustrate bulls and bears at almost every turn with reversals just as it appears a new move is getting under way.

Regarding those US confidence numbers: recall that the preliminary Michigan survey data for August month showed a sizable drop from 66 to 63.2 vs. a rise to 69 expected. The weekly ABC data, also out later today, has shown little life despite consistent expectations for improvement. Last month, the Consumer Confidence number fell to 46.6 - considerably lower than its May peak at 55+. This time, the market is once again looking for improvement. We wonder if there is a risk of yet another downside surprise in line with the other surveys. The question is whether this market cares and perhaps simply writes it off as a symptom of the US healthcare debate, which is also rubbing off on Obama's popularity ratings. If the market does take umbrage at a negative result, EURUSD still needs to close well below 1.4300 to set up any new reversal that would give the bears encouragement.

Elsewhere, the market is moving in line with expectations considering the surrounding variables. The biggest standout in the action is the weak pound sterling, where collapsing short rates after King's recent comments are crushing the pound versus most of the rest of the market. EURGBP is now above the former resistance area at 0.8700 and could set its sights on the 200-day moving average, now at 0.8860. It's very difficult to stomach buying the Euro, but the market is more than willing at the moment. This is more of a rate driven move than anything else, and the ECB was also extremely dovish in its most recent statements, so we wonder how much fuel there is for this rally.

The US home price numbers were extremely positive - many are calling the Q2 data a turning point. A stabilization is one thing, but a new bull market in housing will not occur for a decade or more. Housing prices are recovering as a frozen market has become a flowing one again. Let's see how the market performs after the expiration of the December 1 tax break and as the US consumer stays on strike in coming years. A flat market is the best possible scenario, it would seem.

Besides the US confidence numbers up shortly, watch out for the SNB speech later today, as the SNB's Jordan may have a word or two to say on the SNB's stance on the prospects of its easing-through-intervention policy. Also watch out for the weekly US crude inventories, which will see more focus than normal after last week's blowout -8 million-barrel draw in crude.