Risk appetite has seen a marked improvement with risky assets again finding favour in complete contrast to sentiment 24 hours earlier. A cautiously positive tone with respect to the US and global recovery in Treasury Secretary Giethner's speech in London yesterday and again in Saudi this morning combined with positive expectations ahead of today's Goldman Q2 earnings report has boosted sentiment and lifted equity markets. Sterling found additional support from a better than expected RICS housing report, the AUD found relief in the positive (+4) posting in the NAB June business confidence survey and the NZD was supported by comments from the RBNZ's Bollard that New Zealand may recover ahead of its trading partners.
Not all the news released this morning was positive. Germany's ZEW survey unexpectedly fell to 39.5 in July from 44.8 in June. This is a survey of investor confidence, however, and therefore reflects the falling away in market confidence over the last month that drove the move back into safe haven. The smaller than expected gain 0.5% m/m in May Eurozone industrial production was tempered by the upward revision to the April data. Overall these numbers are in line with stabilisation in the sector.
In the UK, the RICS house price balance was a positive surprise. This improved to -18.1% from a revised -43.8% in May. The improvement in the headline was supported by data showing that newly agreed sales are rising more widely across the market than at any point since data were first collected by the RICS in 1999. While the recovery in the UK housing market will likely be bumpy, these data cement the view that stabilisation is occurring. The UK Jun CPI data were less of a surprise. At 1.8% y/y this was in line with the market consensus. It does show that finally CPI inflation has fallen below the BoE's 2.0% y/y target. On the margin this may support calls for further QE from the BoE. Comments from the BoE's Bean yesterday suggested that the Bank is cautious about withdrawing QE. Cable's rally this morning has taken it back to the 1.6300 area, EUR/GBP has seen a greater increase though is reluctant to push above 152.00. So far EUR/GBP has been unable to hold below 0.8570.
The impact of the positive remarks made by the RBNZ's Bollard with respect to the NZ economy were offset by accompanying remarks calling for a weaker NZD. Bollard cited recent activity in the NZD as being unhelpful. The fact that RBNZ intervened in the market as recently as 2007 increases the potential impact of Bollard's comments.
Australian business sentiment has recorded its first positive number for 19 months. It follows a 9.3% surge in consumer confidence and better housing finance data and will strengthen the view that there may be no more rate cuts from the RBA this cycle. AUD/USD has edged back above the 0.7880 level this morning.
Earnings reports will be in centre stage this afternoon. US June retail sales will also be of prime interest. Jun PPI, May business inventories and Jul 12 ABC consumer confidence data are also due. In Canada May new vehicle sales data will be an interesting barometer.
