RBNZ on tap tonight - Bollard will try to throw cold water on the kiwi.


MAJOR HEADLINES – PREVIOUS SESSION

  • US Weekly ABC Consumer Confidence fell to -48 vs. -44 expected and -45 the previous week
  • UK Aug. Nationwide Consumer Confidence rose to 63 vs. 62 expected and 61 in Jul.
  • UK Aug. BRC Shop Price Index was flat at 0.0% MoM, but rose +0.5% ex food
  • Australia Sep. Westpac Consumer Confidence rose 5.2%
  • Australia Jul. Retail Sales fell -1.0% vs. +0.5% expected
  • Australia Jul. Home Loans dropped -2.0% vs. -1.5% expected
  • Japan Aug. Machine Tool Orders down -71.3% YoY vs. -72.3% in Jul.
  • Sweden Jul. Industrial Production/Orders out at -19.9%/-16.5% YoY vs. -20.7%/-21.5% in Jun.
  • UK Jul. Visible Trade Balance out at -£6479 vs. -£6250 expected
  • Canada Aug. Housing Starts were 150.4 k vs. 139.5k expected and 134.2k in Jul.

THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • US Fed's Fisher to Speak about the Economy (1755)
  • US Fed's Beige Book (1800)
  • US Weekly API Crude Oil and Product Inventories (2030)
  • New Zealand RBNZ Official Cash Rate (2100)
  • Japan Jul. Machine Orders (2350)
  • Japan Aug. Domestic CGPI (2350)
  • Australia Aug. Employment Change and Unemployment Rate (0130)

Market Comments:

US Consumer Insecurity

The US Weekly ABC consumer confidence number continues to fail to rise in sympathy with the risk willingness evident elsewhere. This week's number was actually the largest drop for this index since late July. There is still very clearly a disconnect between market sentiment and consumer sentiment. The clear reason for this is the still very moribund job market, the shattered finances of over-indebted and under water , and at the lower end of the income spectrum, an alarming and spreading poverty in the US. According to a recent NY Times article, more than 35 million Americans are now receiving food stamps - that's an increase of 700,00 since May and a rise of 22% since June of 2008.


Conflicting Aussie Data

Another sour note sounded for the global economic recovery theory overnight with the very ugly Australian Retail Sales report, though it was for July data and the latest consumer confidence data was very sound. Still, an ugly data point like that could give the RBA some pause relative to the heady expectations for rate increases in the coming months. The developing downward trend in home lending data is also of interest as that market seems to have cooled. The counterargument, of course, is that Australian business and consumer confidence show boundless optimism at the moment. The standard reports oddly record the percentage increase for the Westpac Consumer Confidence number from month to month, which is rather difficult to extract meaning from in the bigger picture, so we dug around and found the index on which theses percentage moves are based, and found that it is now at 119 compared to the 79 low posted last July. The highest level ever recorded for this survey was 125 back in 2007, so this gives an idea of how far they've come off the lows - and how close they are to reaching a theoretical "maximum confidence" if there is such a thing. The net reaction in Aussie bond markets was a rather strong downtick in short term interest rates, which could mean that Aussie will have a hard time continuing this rally with the kind of enthusiasm it has shown in recent days vs. the broader market. Further Australian data is up tonight in the form of the latest employment report. The key for that report is the change in full time positions, which have dropped three months in a row now, while part time hiring has more than made up the difference.


Quiet BoE on tap?

Tomorrow we have the BoE out with its rate decision. The 0.5% rate will certainly not be tinkered with, and with signs of disagreement in the ranks of the MPC over the degree of further QE measures to undertake, the bank may keep quiet for a while until it is either encouraged by a stronger economy or discouraged by the stimulus . Again, we like the canary in the coal mine model for the UK economy - it was the quickest and biggest when the bank bailout and monetary easing game got underway in earnest last fall, and may also be the quickest to double dip - if the double dip model proves the correct one. The UK Trade Balance was out slightly worse than expected. It is a bit disappointing for the GBP outlook to see how little the UK trade balance has improved relative to the US' trade balance, for example. The UK is as dependent as ever on capital flows to keep its currency from the abyss as long as it runs these large trade deficits. With peak oil having already hit the UK in 1999, a growing oil import bill will only make the trade gap worse.


CAD house-building conundrum

Today's housing data from Canada shows strong housing starts for July while yesterday's data showed very weak building permits for the same month. The fickle USDCAD headed steeply south the day's lows on the news, but the recent strong rally is still a possible sign that the CAD may find it difficult to reach higher levels vs. the greenback. This 1.0800 area seems key.


Fed's Evans and US Treasury Auction

The Fed's Evans this morning is out talking with an interesting comment about the Fed's exit strategy, saying that the Fed must tighten faster than it did in the 2004-06 time frame. Evans also said rather impressively that deflation has been averted and that the recovery is starting. These might be a couple of troublesome quotes a couple of quarters down the road if they were to prove completely wrong. In any case, this is USD bullish stuff from an interest rate spread perspective, even if the market isn't reacting to his statements with any enthusiasm. Watch out for the results of the large $20 billion 10-year bond auction today as well as the Fed Beige Book


RBNZ on tap

The RBNZ is on tap tonight with their latest rate decision. They will not be looking to move rates at all with their currency continuing to streak higher vs. the broader market. Expect a lot of belly-aching about the strength of the kiwi from Bollard and company as NZDUSD finds itself pushing up against the 0.7000 level here - a rise of 40% from the March lows.


Chart: AUDJPY

Could we be at an inflection point here in AUDJPY? Structurally, this is an interest area for the pair, the recent rally above the old 80.50-area high was rejected and now we are at he 0.618 Fibo retracement levels for the wave from the top to the recent 76.40 low. This area coincides with the previous recent high around 80.00, so it will be interesting to see how the pair behaves here, especially after the US bond market results (from a JPY perspective) and after the Australian employment report (from an AUD perspective.)