Risk extended higher as the earnings euphoria continued and markets shrugged off relatively poor economic data. The S&P climbed for the fourth day in a row and added 0.9% on the day as earnings from a prominent bank beat expectations handedly. US initial jobless claims printed a low-ball 522K on seasonal adjustment difficulties surrounding earlier than anticipated auto shutdowns in June. The market took the number with a grain of salt as the potential for a snapback in claims towards the end of the month remains non-trivial. The more important report was the Philly Fed manufacturing index and it printed a worse than expected -7.5 after a -2.2 result the previous month. The details were dreadful with employment sinking further, new orders and shipments negative and visible margin compression. Equities managed to push higher nonetheless.
The reaction in FX was relatively predictable and most of the gains were once again in the yen crosses. EUR/JPY recovered from a low by 131.60 to a NY close near the 132.90 area. The cross followed stocks extremely closely and so any reversal in risk appetite should see it come under intense pressure. EUR/USD traded in choppy fashion but was sitting more than 50 pips above the NY lows at the close. Expect good resistance into the 1.4160/70 area initially. The focus now turns to the balance of the bank earning in NY tomorrow and the key is that the weaker constituents will report. The risk rally looks long in the tooth and if earnings disappoint, we could be in for an ugly day ahead of the weekend. Ugly, however, would be positive for the US dollar.
Upcoming Economic Data Releases (Asia Session) prior expected
- 7/17 1:30 GMT AU Import price index (QoQ) 2Q -2.80% -6.00%
- 7/17 1:30 GMT AU Export price index (QoQ) 2Q -4.60% -16.00%
