Weak China stock markets lend additional fuel to the uptick


MAJOR HEADLINES – PREVIOUS SESSION

  • US Jul. Personal Income out at flat vs. +0.1% expected and revised -1.1% prior

  • US Jul. Personal Spending out at +0.2%, as expected, vs. revised +0.6% prior

  • US Aug. Univ. of Michigan Confidence Index out at 65.7 vs. 64.3 expected and 63.2 prior

  • UK Aug. Hometrack Housing Index out at +0.1% m/m, -6.7% y/y vs. flat/-7.7% prior respectively

  • JP Jul. Ind. Production out at +1.9% m/m, -22.9% y/y vs. +1.4%/-23.1% expected and +2.3%/-23.5% prior

  • JP Aug. Nomura/JMMA Manufacturing PMI out at 53.6 vs. 50.4 prior

  • JP Jul. Retail Trade out at -2.5% y/y vs. -3.5% expected and revised -2.9% prior

  • AU Jul. TD Securities Inflation out at flat m/m, +1.7% y/y vs. +0.9%/+1.9% prior

  • AU Jul. Private sector Credit out at +0.2% m/m, +3.0% y/y, both as expected, vs. +0.1%/+3.4% prior

  • AU HIA Jul. New Home Sales out at +0.1% m/m vs. +0.5% prior

  • NZ NBNZ Aug Business Confidence out at

  • JP Jul. Vehicle Production out at -31.9% y/y vs. -34.0% prior

  • JP Jul. Housing Starts out at -32.1% y/y vs. -30.3% expected and -32.4% prior

  • JP Jul Construction Orders out at -42.8% vs. -28.0% prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • UK Bank Holiday

  • Norway Retail Sales (0800)

  • EU Euro-zone CPI (0900)

  • CA Jun/Q2 GDP (1230)

  • US Chicago PMI (1345)

  • US NAPM – Milwaukee (1400)

  • US Dallas Fed Manuf. Activity (1430)

  • EU ECB’s Nowotny to speak (1430)

Market Comments:

The USD finished last week on a soft note, with data releases more-or-less in line with expectations, while Wall St notched up its fifth straight close only marginally different from the open. Earlier, GBP had been given a leg up when Q2 GDP numbers were marginally revised to the upside (-0.7% q/q versus -0.8%) but the spike soon ran out of steam and GBP was soon back on the ropes.

Over the weekend, events in Japan dominated the headlines with The Democratic Party of Japan (DPJ) winning a landslide victory in the election. The DPJ secured 308 seats of the total 480 and was broadly in line with poll results. We saw some broad-based JPY strength during the Asian morning, unclear as yet whether this was linked to the election result or more month-end position adjustments/demand but USDJPY slid through 93.0 with relative ease and hit a 7-week low. The Nikkei started off positively, powering away to gains of over 2%, but 81 minutes later these gains were all given back, and some more, as China shares went into melt-down, falling over 5% by mid-morning to hit a 3-month low. This helped the JPY gain an even bigger advantage over other currencies.

Asia saw a host of Japanese data this morning but these were generally overshadowed by the election result. Industrial production in July was better than expected at +1.9% m/m but marked a slowdown from June’s +2.3%. Looking forward, the assessments for September and October are for a rebound to +2.4% and +3.2% m/m respectively while the overall assessment is that a “move to recovery” is maintained.

In Australia, headline data for new home sales and private sector credit were not quite a bullish as hoped. While new home sales were up 0.1% m/m, slower than the previous month’s +0.5%, it was viewed as mostly driven by the effects of stimulus packages. Comments from the Housing Industry Association (HIA), who publish the data, suggested that, while there was evidence of a recovery in “trade-up” activity beyond first-time buyer interest the was not much evidence of a broad-based recovery in private new homes demand. In quasi-related data, private sector credit numbers from the RBA for July were in line with expectations at +0.2% m/m. Housing sector credit rose 0.6% from June and was up 7.3% compared to a year earlier.

Elsewhere, Canadian finance minister Flaherty was on the wires saying he was pleased with the recent CAD stability. Recall, Bank of Canada officials had been quite vocal in recent weeks expressing their concern that a strong rise in the value of the CAD would hurt the country’s economic recovery. Speaking in Vancouver, he added that it is early days for Canada and other countries to remove any of the stimulus packages they have put in place, warning that it would be a error to assume sustainable growth was entrenched in the world’s economies.

It’s a UK bank holiday today so there is a chance markets during the European session will be quiet. However, with it being month-end today there is a risk that reduced liquidity will force some excessive moves. Analysis still suggests there will be a desire/requirement to sell dollars into the respective fixing times. On the data front, Euro-zone CPI is the only data of note for Europe while North America will see Canadian GDP for June and Q2 and Chicago PMI, NAPM-Milwaukee and Dallas Fed activity for Aug for the US.