Asia adopts a risk-aversion attitude on the news, but key levels currently holding on major pairs


MAJOR HEADLINES – PREVIOUS SESSION

  • US Jul. Wholesale Inventories out at -1.4% vs. -1.0% expected and revised -2.1% prio

  • US Sep. Univ. of Michigan Sentiment Index out at 70.2 vs. 67.5 expected and 65.7 prior

  • NZ REINZ Aug. House sales out at 39.0% y/y vs. 34.0% prior

  • NZ Jul. Retail Sales out at -0.5% m/m vs. +0.4% expected and revised -0.1% prior

  • NZ Jul. Retail Sales ex-Auto out at -0.5% m/m vs. +0.5% expected and revised -0.6% prior

  • JP Final Jul. Industrial Production out at +2.1% m/m, -22.7% y/y vs. +1.9%/-22.9% previous estimate

  • JP Final Jul. Capacity Utilization out at +3.9% m/m vs. +2.3% previous estimate


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • Swiss PPI (0715)

  • EU Euro-zone Employment (0900)

  • EU Euro-zone Industrial production (0900)

  • US Pres Obama to speak (N/A)

  • CA Capacity Utilization Rate (1230)

  • US Fed’s Duke to speak (1235)

  • US Fed’s Lacker to speak (1630)

  • UK BOE’s Haldane to speak (1700)

  • US Fed’s Yellen to speak (1950)

Market Comments:

While the early part of Friday’s session focused on further USD weakness and lower US yields, sentiment took a bit of a reversal into the NY close, though the JPY still remained the dominant currency. Data releases during the session were more supportive of the “risk on” theme, with the preliminary reading for University of Michigan Confidence coming out far better than expected at 70.2 versus67.5 expected, a strong rebound given the more moribund weekly release of ABC consumer confidence.

The weekend headlines were dominated by news that US President Obama had accepted a recommendation from the US International Trade Commission to impose additional duties on Chinese-manufactured tyres. In what is viewed as a definite tit-for-tat move China has announced it will investigate complaints that American auto and chicken products are being dumped into China markets, or are benefitting from subsidies. Markets are showing definite short-term concern that this situation could escalate and result in a new round of protectionist stances, just as the global economy appears to be in the early stages of a rebound from recession. While the impact of this particular product is minimal (2008 Chinese tyre sales accounted for only 0.5% of total US imports from China) a reversion to “protectionist tennis” will only be damaging for the global economy (Note G20 meeting on September 24/25).

Asian equity markets were soft as a result (apart from Shanghai – go figure!) and the dollar regained some of its composure but lacked momentum to push through key support levels against the majors. NZD was under direct pressure under the double-whammy of a rising dollar and weak local economic data. Retail sales followed a similar theme seen in other economies whereby “hard data” (retail sales, spending) fail to match, or keep pace with, with the rising confidence indicators. Retail sales in New Zealand contracted a disappointing 0.5% in July from a month earlier and the previous month’s data was also revised lower to -0.1% from +0.1%. The details show a sharp fall in petrol sales negating gains in department store sales.

With USDJPY slumping towards the 90 mark again there has been renewed, albeit modest, talk of the possibility of intervention. Given that the in-coming DPJ have already expressed a less-concerned attitude towards a rising JPY, it would appear that such an event would be a long way off. However, Japanese exporters were hammered aggressively on the Nikkei this morning as investors marked down such counters as the rising JPY potentially could adversely affect profits, and a fast, aggressive move below 90.0 could raise alarm bells. Note the 2009 low was 87.13 and the 2008 low 87.14 – a line in the sand?

While on the topic of intervention, the SNB may be in the spotlight again later this week. While EURCHF is not close to the previous level where the SNB stepped in (currently hugging the 200-day MA at 1.5113), volatile moves in USDCHF last week is testimony to how nervous the market is about such an event. While no change in rates from the current 0.25% is expected at Thursday’s meeting, it could be another platform for further comments on the currency’s strength.

For today, it is a slow start to the data slate. Europe only has Swiss PPI and Euro-zone employment and industrial production. The North American calendar is even more barren with just Canada’s capacity utilization rate on tap. This is more than made up for by a slew of Fed speakers – Duke, Lacker, Yellen are all scheduled while US President Obama is slated to deliver a “major speech” at Federal Hall, New York on the financial crisis one year after the Lehmans’ collapse.