Risk continued to advance as U.S. stock markets extended yesterday’s gains, however the dollar traded relatively flat. This morning saw initial jobless claims decrease to 472K from the prior week’s 478K which was slightly better than the expectations of a 475K print. 2Q final nonfarm productivity softened to -1.8% from the prior -0.9% and July factor orders were released at +0.1% from the prior -0.6%. Pending home sales for July surprised to the upside with a rise of +5.2% from the previous month’s -2.8% (cons. -1.0%). On balance, the mix of economic data was viewed as a positive for risk. The reaction was somewhat muted however as investors await tomorrows employment report.
The ECB announced that it will keep its interest rates at 1.00%. This came as no surprise to the market. Following the announcement, ECB President Trichet commented at a press conference on that the bank is committed to lend banks unlimited cash at the benchmark rate until at least October 12. The ECB raised growth forecasts for 2010 seeing GDP at 1.4%-1.8% vs. the previous 0.7%-1.3% and inflation forecasts were raised slightly to between 1.5-1.7% vs. the previous 1.4-1.6%. Growth and inflation forecasts were raised for 2011 as well. EUR/USD initially strengthened, but ran into resistance around its 21-day sma around 1.2845/50.
U.S. equities finished higher with the DJIA gaining by about +0.49% and the S&P climbing around +0.91% on the positive economic data. Commodities traded higher as well on the firmer risk sentiment with oil advancing by +1.52%. Gold crept closer to record highs with gains of about +0.57% and silver rose by roughly +1.58%. U.S. 10-yr Treasury yields advanced to about 2.62% as investors moved out of the safe haven bonds into riskier assets.
On the calendar for the Asia/Pacific session is the AiG Performance of Service Index for August, Japan’s 2Q capital spending numbers, and China’s August non-manufacturing PMI.
