Increasing optimism that a return to growth is right around the corner sparked another day of gains in key asset markets. Risk appetites received another shot in the arm as the pace of contraction in the US manufacturing sector slowed more than expected, according to the July ISM report. The ISM manufacturing gauge improved from 44.8 to 48.9, more than the expected gain to 46.5 and just shy of the 50 break even level between expansion and contraction. US June construction spending also posted an unexpected increase of 0.3% where a -0.5% decline had been forecast. Markets had earlier been buoyed by better readings on Chinese and European manufacturing sentiment indexes and on upbeat auto sales expectations fueled by the US stimulus program's 'cash for clunkers' rebate plan.
Riskier assets, like stocks and commodities, staged further gains, and the S&P 500 finished above the psychologically important 1,000 level, its highest close in nine months. In currencies, the risky correlation trades saw the USD tumble and carry trades extend recent gains. EUR/USD broke above its highs for the year around 1.4340 and reached to nearly 1.4450 before settling around 1.4410 in late NY trading. GBP/USD outpaced most other currencies against the USD, jumping higher in NY from around 1.6830 to a high around 1.6970, building on an earlier gains from around 1.6700 in early London trading after the UK manufacturing PMI strengthened above the 50 level for the first time since March of 2008. The commodity currencies (AUD and CAD)also posted sharp gains to new 2009 highs against the USD as precious metals and oil prices advanced. WTI crude oil futures tested just above $72/bbl , about $1 below the highs for the year, before finishing out around $71.20/bbl. USD/JPY was relatively range bound between 94.50 and 95.50, supported by carry trade buying but capped by overall USD selling.
The key event in the Asia session will be the Reserve Bank of Australia's interest rate decision, which is expected to see the central banks base rate held steady at 3.0%, but comments from the RBA could signal an end to the easing bias and suggest higher rates ahead.
Upcoming Economic Data Releases (Asia Session) prior expected
- 8/3/2009 22:45 NZ Private Wages Inc Overtime QoQ 2Q 0.60% 0.50%
- 8/3/2009 22:45 NZ Private Wages Exc Overtime QoQ 2Q 0.50% 0.50%
- 8/3/2009 22:45 NZ Average Hourly Earnings QoQ 2Q 1.10% 0.80%
- 8/3/2009 23:50 JN Monetary Base (YoY) JUL 6.40% - -
- 8/4/2009 1:30 AU Retail Sales s.a. (MoM) JUN 1.00% 0.50%
- 8/4/2009 1:30 AU Retail Sales Ex Inflation(QoQ) 2Q 1.00% 1.30%
- 8/4/2009 1:30 AU House Price Index QoQ 2Q - - 2.00%
- 8/4/2009 1:30 AU House Price Index YoY 2Q - - -4.90%
- 8/4/2009 4:30 AU RBA CASH TARGET 4-Aug 3.00% 3.00%
