US involvement in Iraq increases

Market movers today

• A pretty light day today in terms of data, with the only release of interest being preliminary euro area consumer confidence (16:00 CET), expected to rise slightly again in June. It has been rising in almost a straight line since late 2012 and is now at the highest level in close to seven years.

• Bank of Japan Governor Kuroda is set to speak at 08:36 CET at the annual meeting of the National Association of Shinkin Banks and may give more clues on how the Bank of Japan sees the economy evolving this year.

• ECB’s Mersch will speak in a panel at 10:15 CET but the issue is on what fiscal capacity EMU needs. Hence, he may not say much about current monetary policy.

• According to Moody’s, the sovereign ratings of Spain and Norway could potentially be revised today. We see a decent chance of a Spanish upgrade.

• Consumer confidence and retail sales are due from Denmark, but otherwise it should be a quiet day in the Scandi markets.

Selected market news

US involvement in Iraq increases. After officially ending combat operations in Iraq three years ago, the US is again raising its profile in Iraq due to the current sectarian conflict. Last night, the US president announced the deployment of 300 military advisors to assist the Iraqi army, though the participation of US troops in military action has been firmly ruled out. Furthermore, President Obama urged the Iraqi government to seek a political solution. Meanwhile, the Baiji oil refinery, the country’s largest, was turned into a battleground yesterday, causing the price of Brent oil to shoot up to USD115/barrel. For more on commodities,

Encouraging US economic reports. Early in the US session, data showed initial jobless claims falling to 312k (313k expected, 318k prior), taking the four-week average close to cycle lows. Later, the Philly Fed manufacturing survey rose to a nine-month high of 17.8 in June (14.0 expected, 15.4 prior), adding to evidence of a pick-up in the US capital investment cycle and pointing to a decent reading on the June ISM manufacturing survey.

Risk sentiment stays intact. In the absence of major market movers, price action yesterday was relatively quiet, as market participants digested the outcome from Wednesday’s Fed meeting. While worries over the situation in Iraq persisted, risk sentiment remained intact and was also buoyed by the solid economic data. Hence, US equity indices edged higher, though gains were led by utilities and consumer staples as investors backed away from sectors perceived as more risky. Most Asian equity indices have also held steady this morning, with no particular local events of note.