Profound lack of USD momentum continues. German employment and US ISM figures on tap later today.


MAJOR HEADLINES – PREVIOUS SESSION

  • US Aug. Chicago PMI out at 50.0 vs. 48.0 expected and 43.4 in Jul.

  • US Aug. NAPM Milwaukee out at 56.0 vs. 48.0 expected and 45.0 in Jul.

  • US Aug. Dallas Fed Manufacturing Activity fell -9.0% vs. -14.0% expected

  • Australia AiG Aug. Performance of Manufacturing Index rose to 51.7 vs. 44.5 in Jul.

  • China Aug. Manufacturing PMI out at 54.0 vs. 53.3 in Jul.

  • Australia Q2 Current Account Balance fell to -13,347M vs. -10,700M expected and -6346M in Q1

  • Australia Jul. Building Approvals rose 7.7% MoM vs. 3.3% expected

  • China Aug. HSBC China Manufacturing PMI rose to 55.1 from 52.8 in Jul.

  • Australia RBA Cash Target leaves rates unchanged at 3.00% as expected


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • Switzerland Q2 GDP (0545)

  • Germany Jul. Retail Sales (0600)

  • Sweden Swedbank PMI (0630)

  • Switzerland Aug. SVME PMI (0730)

  • Germany Aug. Unemployment Change/Rate (0755)

  • Germany & Eurozone Aug. Final Manufacturing PMI estimates (0755)

  • UK Aug. Manufacturing PMI (0830)

  • UK Jul. Mortgage Approvals (0830)

  • US Aug. ISM Manufacturing and Prices Paid (1400)

  • US Jul. Construction Spending (1400)

  • US Jul. Pending Home Sales (1400)

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

  • US Weekly ABC Consumer Confidence (2100)

Market Comments:

Markets were in a holding pattern in Asia after the end-of-month fixing flows weakened the greenback slightly late in yesterday's European session with London closed for a bank holiday. A relatively weak equity close in the US session yesterday and US long treasuries ending on a high note for the day failed to generate any further excitement. After Chinese equities fell off a cliff in Monday's session, the action in Asia's Tuesday session failed to see that market following up on the downside momentum.

RBA and AUD

All eyes instead were on Australia's RBA, which the market expects will be the first major central bank to tighten rates - some think as early as October. We suspect that if the RBA does raise rates in the coming months, it will be much like the ECB's final act of defiance in hiking rates in the summer of 2008 - on the cusp of a global financial meltdown. For the next twelve months, close to 200 bps of tightening has already priced in for the RBA. For today, the RBA decided not to tinker with the 3.00% rate level.

The stream of comments coming out of the meeting failed to provide any shockers: the positive comments mostly referred to the economy being stronger than expected of late, with expectations of further strength in 2010 even if "spending may soften in the near term." The bank also noted rising house prices and the risk willingness in global markets (including the willingness to buy AUD, we might add!) .On the negative side, the bank fretted the state of bank balance sheets and noted that business spending is declining and that credit has held back some capital spending. The bank described inflation as "declining" of late, but noted that undershooting the target seemed less likely in the future. All in all, this is a pretty ho-hum meeting and doesn't fully live up to the hawkishness built into the AUD forward curve. All other things being equal, the meeting looks relatively AUD-negative, but if global equity markets kick off a new rally here, the market could quickly get over this humdrum meeting. Regardless, this meeting gives absolutely no indication that the bank is ready to pull the trigger on rates next month.

CAD

CAD is suddenly on fire again after pronounced weakness in the wake of a correction in oil prices recently. But an announcement overnight that China plans to invest $1.7 billion in a Canadian oil sands project may be one of the factors keeping a lid on USDCAD at the moment. The size of the deal is peanuts, but leads to the market imagining bigger deals in the pipeline. It's also very interesting to contemplate what the long term geopolitics of Canadian oil may be as the US is traditionally the destination of the vast majority of Canadian oil output. This has to be raising eyebrows in Washington.

The rest of the week...

As we head into the rest of this data-filled week, it seems like we should finally be seeing a break of the ranges. We still insist on crying "Wolf!" for another week after last week's very uncertain close, the watershed Japanese election, and the nervousness in China. A close either above 1.4400 or below 1.4000 in EURUSD could finally help provide a directional indicator for that supermajor for subsequent weeks. As of this writing, the USD index is rather close to recent lows, but has gone absolutely nowhere over the last 7 trading days, and in the bigger picture, hasn't seen any real momentum since early June - as we enter the fourth month of a rangebound market.

Here again is a brief rundown of the calendar highlights for the remainder of this rather busy week:

Today:

  • Germany Aug. Unemployment - still has a long way to go to the upside if it continues to track the US employment situation with a huge lag like it normally does due to the inflexibility in German labor markets. The real headline rate is already far higher than the 8.4% expected

  • US Aug. ISM Manufacturing - likely fairly strong and is expected to push over the 50 level for the first time since January of 2008. While the situation has improved, remember that durable goods orders are still down some -20% year-on-year, meaning that things at this point have only gotten much better than the horrors of the fall/winter of '08-09. Today's 50 and 2007's 50 in the ISM is a comparison of apples and oranges - that's the nature of these surveys.

  • US Aug. Vehicle Sales - this will get a lot of press due to the Cash for Clunkers giveaway - but look for this month's numbers to cannibalize on the numbers for the rest of the year

Wednesday

  • Australia Q2 GDP - backward, not forward looking - but still interesting.

  • EuroZone Q2 GDP - expected to show a small contraction and -4.7% YoY

  • US Aug. ADP employment change - a smaller contraction in employment expected this time around - but weekly claims have shown no improvement off July levels

  • US Q2 Nonfarm Productivity and Unit Labor Costs - the effects of firing lots of employees and squeezing more out of the remaining ones is painfully clear in these numbers.

  • US FOMC Meeting Minutes

Thursday

  • Australia Aug. Performance of Services Index

  • Sweden Riksbank - if markets are in a sour mood this week, we might look for a consolidation higher in EURSEK and USDSEK

  • UK Aug. Services PMI - expected well above 50 again - are we nearing the peak of the middle of the W in the UK economy?

  • EuroZone ECB Interest Rates - the ECB has been maintaining a very consistently dovish tone - no change expected and the outlook is likely to be very cautious

  • US Weekly Initial Jobless Claims - ever important as the market looks for this lagging indicator to begin improving further after flattening out in recent weeks

  • US ISM Aug. Non-manufacturing - more important than the . We have to imagine that this survey will peak soon if we are to believe in the double-dip scenario for this fall.

Friday

  • Canada Aug. Unemployment Rate - Canadian unemployment is ramping rapidly higher and the central bank is frowning at the strong CAD of late.

  • US Unemployment Rate and Change in Nonfarm Payrolls - let the monthly circus began. It is very doubtful that we see a fall in the unemployment rate again with initial jobless claims consistently running well above -500k through August.

  • Canada Aug. Ivey PMI - this number seems suspiciously strong of late - it's been an erratic mover in the past.