Equity markets have pushed higher again sapping enthusiasm for the USD and the JPY. The first boost to the risk trade came as yesterday's concerns that Chinese Bank may restrict lending were offset by comments from the PBOC which specified adherence to a ''moderately loose'' monetary policy. A positive spate of earnings reports subsequently underpinned the better tone of equities. That said, increased scepticism is being voiced in the market over the ability of the stock markets to continue its strong upward trend. Cost cutting has enabled the better than expected performance of the corporate sector in Q2, this underpinning the continuing trend of rising unemployment.
Until there is clear evidence of a pickup in final demand revenues of the corporate sector are set to remain constrained. Continued caution on the outlook for economic recovery in the G7 is consistent with the decent underlying demand for the USD and the JPY and the inability of the majors to break out of recent ranges. EUR/USD has edged higher from last night's close in tune with the better tone of stock markets though it has been unable to reclaim 1.4100, EUR/JPY is also modestly higher but still below 134.00. Sterling has received a boost on the better than expected Nationwide House price index which increased 1.3% m/m in Jul.
The unexpected rise in the UK's Nationwide house index brought further evidence that the UK housing market is stabilising. It is consistent with yesterday's BoE data showing a rise in mortgage approvals data to GBP 47.6K in Jun and, although other surveys are still showing more moderate signs of stabilisation in price, the data gives a little further credence to speculation that the BoE will not extend their QE program at next week's policy meeting.
Cable tested the water above the GBP/USD1.6500 this morning, EUR/GBP managed to plough down to 0.8520 before finding buyers. Worse than expected German July unemployment data had only a modest impact on the EUR. German joblessness rose by 52K (-6K s.a.). The use of gov't subside to encourage reduced working hours continues to protect the unemployment rate from sharper deterioration and reduces the clarity of this data series. The Eurozone July confidence data was slightly better in July.
The rhetoric from the RBNZ overnight was a stark reminder that not all economies are in the relatively comfortable position that Australia finds itself in. In contrast to this week's remarks from the RBA which suggest its next policy move is a hike, the RBNZ unequivocally left the door open for another rate cut following its policy meeting overnight and criticised the strength of the NZD. AUD/NZD has shifted sharply higher and, while the AUD has gained vs the USD on the rise in risk appetite drawn from the better tone in stocks, NZD/USD remains well below last night's close albeit well off its overnight lows.
Initial claims data will be watched this afternoon for clues going into next week's payrolls release.
