But will it last? markets uncertain and it's doubtful today's data will give fresh leads


MAJOR HEADLINES – PREVIOUS SESSION

  • US Aug. ISM manufacturing out at 52.9 vs. 50.5 expected and 48.9 prior

  • US Aug. ISM Prices paid out at 65.0 vs. 57.8 expected and 55.0 prior

  • US Jul. Construction Spending out at -0.2% m/m vs. flat expected and revised +0.1% prior

  • US Jul. Pending Home Sales out at +3.2% m/m vs. +1.5% expected and +3.6% prior

  • US ABC Weekly Consumer Confidence out at -45 vs. -44 expected and -45 prior

  • US Aug. Total Vehicle Sales out at 14.1 mln vs. 13.3 mln expected and 11.3 mln prior

  • JP Aug. Monetary Base out at +6.1% y/y, unchanged from previous month

  • AU Q2 GDP out at +0.6% q/q, +0.6% y/y vs. +0.2%/+0.3% expected and +0.4%/+0.3% prior resp.


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • Norway PMI (0700)

  • UK PMI Construction (0830)

  • EU Euro-zone Q2 GDP revision (0900)

  • EU Euro-zone PPI (0900)

  • US Weekly MBA Mortgage Applications (1100)

  • US Challenger Job Cuts (1130)

  • US ADP Employment Change (1215)

  • US Non-farm Productivity (1230)

  • US Factory Orders (1400)

  • US Treasury’s Barr to speak (1415)

  • US Treasury’s Geithner holds G-20 Briefing (1430)

  • US Fed’s Lockhart speaks (1530)

Market Comments:

Risk bulls must have thought they were sitting pretty after the US ISM manufacturing data matched the earlier stronger data out of China, as the headline came in at a strong 52.9 versus 50.5 expected, the first push into expansionary territory since January 2008, and the new orders component soaring to 64.9 but the employment component a less-stellar 46.4.

However, it was soon a different tale. Equity markets went into reverse amid talk of a pending major bank failure (two banks subsequently announced that they plan to pay back TARP funds soon) but the damage had been done and Wall St was close to 2% lower across all indices by the close.

As risk appetite waned, so the dollar was back in favour. GBP was especially pressured after the UK PMI reading failed to match positive readings elsewhere while the AUD was an under-performer, slightly surprised that the RBA was more reticent in joining the bullish recovery story.

The Asian open was a sea of red, with indices matching the despondent Wall St. The Nikkei was soon close to 3% under water and Australian stocks over 2% lower but there were more surprises in store. China shares opened flat, soon rose into positive territory, and were able to haul sentiment back from the depths.

The AUD was also given a bit of a lift from Q2 GDP data this morning. Yesterday’s less-hawkish RBA statement suggested that the numbers may not come forth as strong as expected, but this was definitely not the case.
Australia recorded 0.6% q/q growth, a similar quantum on an annual basis, compared with an expected 0.2% q/q and 0.3% annual basis. Domestic demand rebounded to a sturdy 0.8% from a 1.1% contraction the previous quarter and this is an obvious testimony to stimulus measures. Other positive contributors included new machinery and equipment (+0.5%) while household final consumption expenditure also kept pace. Still acting as a relative drag were new building construction (-0.3%) and imports (-0.5%). Treasurer swan asserted that stimulus measures had played a vital role in the more upbeat data by supporting jobs and confidence.

So, once again trend-followers are likely to be frustrated by the general inability for currency levels to break out of the recent ranges. Are we likely to see anything today that can spur a greater, and longer-lasting, move? Past experience suggests it’s doubtful. Whereas the mixed stock market reaction in Asia will likely mean an uncertain start for Europe and the US, and the path lower looks to have least resistance, yet currencies do not appear to be close to major technical levels.

On the data front, we will see Euro-zone provisional GDP for Q2 (a -0.1% q/q contraction was the first release) and PPI for July. The precursor to Friday’s employment report will be released in the US with the ADP private employment report and Challenger job cuts on tap, shortly followed by factory orders.