Asia errs on the side of caution - risk aversion the major theme


MAJOR HEADLINES – PREVIOUS SESSION

  • US Weekly MBA Mortgage Applications out at +7.5% vs. +5.6% prior

  • US Jul. Durable Goods Orders out at +4.9% vs. +3.0% expected and revised -1.3% prior

  • US Jul. Durable Goods ex-transportation out at +0.8% vs. +0.9% expected and revised +2.5% prior

  • US Jul. New Home Sales out at +9.6% m/m vs. +1.6% expected and revised +9.1% prior

  • NZ Jul. Trade Balance out at –NZ$163 mln vs. –NZ$150 mln expected and revised –NZ$332 mln prior

  • AU Jun. Conference Board Leading Index out at +0.9% vs. -0.1% prior

  • AU Q2 Private Capital Expenditure out at +3.3% vs. -5.0% expected and revised -7.3% prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • UK Nationwide House Prices (0600)

  • GE GfK Consumer Confidence survey (0610)

  • Sweden Unemployment (0730)

  • Denmark Unemployment (0730)

  • EU Euro-zone M3 Money supply (0800)

  • Norway Unemployment (0800)

  • UK Total Business Investment (0830)

  • UK CBI Distributive Trades Survey (1000)

  • US Fed’s Lacker to speak (12:15)

  • US Q2 GDP (1230)

  • US Initial Jobless Claims (1230)

  • US Fed’s Bullard to speak (2100)

Market Comments:

Data on both sides of the Atlantic continued to surprise to the upside yesterday but risk appetite, and hence currencies and equities, failed to gain a springboard higher afterwards. First off the German IFO numbers were very strong - business climate at 90.5 vs. 89.0 expected, current assessment at 86.1 vs. 86.0 and expectations was a stellar 95.0 vs. 92.0 expected – but there was no positive response from the EUR.

The US side of things saw durable goods orders rising 4.9% vs. 3.0% expected while new home sales blew all forecasts out of the window with a 9.6% gain vs. 1.6% expected, although ex-transportation the number was a less-convincing +0.8%. While in the broader scheme of things one would expect risk appetite to soar, a tired and long-positioned market took the opportunity to hive off risk and as a result the dollar closed on a firmer note.

GBP was a major under-performer as it slid below key support at the 1.6265-75 level and lost ground against the EUR while the AUD was hit by news that China intends to curb excessive investment in a range of industries, possibly slowing growth and hence imports.

The Asian session was a tepid affair with equity markets again forcing direction. A negative tilt in local bourses saw an extension of the risk aversion theme with JPY crosses bearing the brunt of selling, as usual. The data releases were again second-tier events but were still much better than forecast. Australian capital expenditure rebounded strongly in Q2 with a 3.3% q/q increase, easily outpacing forecasts of a 5% contraction and Q1’s 8.9% slump. While the current conditions confirm that business investment has remained robust, the forward investment plans also had a positive spin. The third estimate of business capital plans for 2009/10 came in at A$90.557 bln, a massive 17.8% higher than the second estimate with a huge concentration of investment focused on the mining sector. Not surprising given China’s current thirst for natural resources. AUD received a slight lift after the data but overwhelming risk aversion momentum kept the topside capped.

US markets will focus on the second revision to Q2 GDP growth later today. First estimates showed a dramatic improvement from Q1 but it was noted most of that came from reduced imports rather than a consumption rebound. Latest polls suggest the revision may be downward to -1.5% from -1.0% at the previous estimate. Subsequently we will see the weekly initial jobless claims data. Last week was a disappointment and another number similar to last week’s 576k (surveys suggest 565k this week) will only compound the risk aversion theme. Prior to this, first German CPI numbers, EU M3 money supply and the UK CBI distributive trades survey will be on tap in Europe.