Market opening expected today (01/08/2012)

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Market opening expected today (31/07/2012)

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Forex Exchange Morning Report (31/07/2012)

Markets were largely stable overnight. Adopting a wait-and-see posture ahead of the key US and EZ central bank meetings on Wednesday and Thursday, the S&P500 drifted sideways and is currently unchanged from the previous close. Weaker data had no material impact, Eurozone confidence surveys and Dallas regional manufacturing activity lower than expected. Of curiosity interest was the launch of an investigation into whether ECB-chief Draghi's simultaneous membership of the G30 group constitutes a conflict of interest, according to Der Spiegel. Commodities were mixed, the CRB index up 1.0% but oil down 0.4%, copper down 0.2%, and corn up 2.9%. US 10yr treasuries pared the previous day's losses, yields falling from 1.57% to 1.49%. Spain's 10yr yield fell 13bp but Italy's rose 7bp.

The US dollar index (DXY) was steady around 82.80. EUR initially slipped from 1.2298 to 1.2225 but recovered during the London afternoon to 1.2264. USD/JPY slipped from 78.40 to 78.12. AUD rose from 1.0455 to 1.0508 - a three month high - in London. NZD failed to follow suit, only firming to 0.8100 which was below its domestic session peak of 0.8113. AUD/NZD consequently rose from 1.2940 to 1.2990

Economic wrap

US Dallas Fed factory index drops from 6 to -13 in July. That was well below Westpac's bottom of the range -2 forecast (we had the only sub 0 forecast) and reflected respondent concern about the economy rather than their own activity levels, which were lower but still positive for production, orders, shipments and jobs.

Euroland business surveys fall sharply. The business climate index dipped from -0.95 to -1.27 in July, the same level it fell to in October 2008, after the Lehmans collapse six weeks earlier. The economic confidence index which combines consumer and business surveys fell from 89.9 to 87.9 in July, which is midway between the Sep and Oct 2008 readings - clearly these surveys are sensing something calamitous is afoot. These surveys would not reflect the last few days' change of mood of course, since the Draghi et al pledges to do whatever it takes to preserve the euro. Today Draghi was reportedly meeting with the Bundesbank chief (trying to change his anti bond buying stance) and the US Treasury Secretary (for tips on how to deal with political leaders who can't make decisions except when they make the wrong ones).

UK housing/credit/retail data weak across the board. Hometrack reported their first monthly house price decline for the year in July. The fall was just 0.1% but it left the annual pace at -0.5% yr. New mortgage approvals dropped from 51k to 44k in June - the two public holidays for the Jubilee may have been a factor but on the other hand May did not benefit from one less holiday than usual. Mortgage outstandings fell £355mn in June, their first decline in a year, and May's gain was revised down by £300mn. But consumer credit grew by £600mn in June, down on May's £800mn perhaps because of the bad weather which also afflicted April. Meanwhile M4 money supply growth slowed to -5.2% yr, its slowest on record. And back to the consumer, the CBI retail survey for July had reported sales drop from 42 to 11, with the July survey catching a lot of the recent bad weather and June boosted by the Jubilee holidays

Morning report (30/07/2012)

GDP figure from the US on Friday was better than expected, but nevertheless a minor decline from the previous quarter from 2.0% to 1.5%. Trading on Friday indicates that the market is increasingly discounting QE3. The question is whether QE3 will be launched on Wednesday. We do not think so. It appears more obvious to wait until September so that the Fed committee will have another two employment reports to use as a basis for its decision and that the announcement is made at a monetary-policy meeting with subsequent press conference (at the end of August Mr Bernanke is scheduled to speak at Jackson Hole – an event which has served as a stage for the Fed's QE in recent years).

Market sentiment: indications are that the euphoria following comments by Mr Draghi and Mr Nowotny is slowly losing steam. The rise of the EUR/USD and EUR/JPY rates has stopped while US equity futures are in negative territory. There are plenty of economic indicators this week, which makes it difficult to have confidence in technical levels. Currently, the market is in an uptrend (up for equities and risky assets) and the budding signs last week of a breach of the trend were quickly stopped by comments by Mr Nowotny and later Mr Draghi.

Forex Exchange Morning Report (27/07/2012)

Markets were boosted by comments from the ECB.Its president, Mario Draghi, said it would do whatever was needed to preserve the EUR, fuelling speculation the ESM will get a banking license or the ECB's bond buying program (SMP) will be restarted. Eurozone peripheral bond yields plunged on the news, Spain's 10yr falling 45bp to 6.93%, and Italy's 10yr falling 39bp to 6.06%. European equities closed 4.3% higher, while the S&P500 is currently up 1.5%. Commodities reacted less impressively, oil up 1.0% and copper up 0.4%. US 10yr treasury yields are 3bp higher at 1.43%. A 7yr auction saw average demand but did set a record auction low of 0.954%.

The US dollar index (DXY) fell by around 1.3% following the ECB comments. EUR rose from 1.2120 to 1.2330 and then stabilised around 1.2285 in NY. USD/JPY remained rangebound between 78.05 and 78.30. AUD was sitting around 1.0320 before the Draghi comments, surging to a NY peak of 1.0423 in response. NZD similarly rose from 0.7905 to 0.8030, outperforming the AUD following an RBNZ statement which was less dovish than expected. Long AUD/NZD positions were accordingly unwound, pushing the cross down from 1.3050 to 1.2960.

Economic wrap

US pending home sales fall 1.4% in June. Not as weak as new home sales yesterday but the downward revisions and decline in June pending sales add to the weaker tone of housing data of late after a string of mostly positive outcomes over the first half of the year. US durable goods orders rose 1.6% in June, supported by aircraft orders but ex transport orders were down 1.1% and core capital goods orders down 1.4% in June, their 3rd fall in 4 months. In quarterly annualised terms core orders were down 3.1% in Q2 vs a rise of 0.4% in Q1. Shipments of same were not weak though, the pace moderating slightly from 5.6% to 5.2% in Q2. US initial jobless claims down 35k to 353k in week ended 21/7. Claims always swing wildly in July, of no use as guide to jobs market until early-mid August, due to seasonal adjustment issues related to the weeks when auto factories are shut down for new model retooling. US Kansas City Fed index rose from 3 to 5 in June, recovering some of June's 6 pt loss.

Euroland M3 money supply growth edges up to 3.2% yr in Jun. But lending to the private non-bank sector slowed further to –0.2% yr in June.

German consumer confidence edged up from 5.8 to 5.9 in the Aug GfK survey conducted in early July.

Draghi and the ECB to the rescue? Speaking in London the ECB chief Mario Draghi said the ECB was 'ready to do whatever it takes' to save the euro... 'believe me, it will be enough'. The ECB would be acting within its mandate if high sovereign bond yields impaired the monetary policy transmission mechanism, he said. At face value, coming a day after pro QE/ESM bank Nowotny's comments, this could be an early hint that the ECB might use its balance sheet to restore calm to sovereign bond markets. It may or may not be significant that German Chancellor Merkel went on holiday today and Draghi was not in the eurozone at the time he made the comments. But it was only 2 months ago that Draghi said almost the opposite... From May 16: While the bank's 'strong preference' is that Greece stays in the euro area, 'the ECB will continue to comply with the mandate of keeping price stability over the medium term in line with treaty provisions and preserving the integrity of our balance sheet.' Since the euro's founding treaty does not envisage a member state leaving the monetary union, 'this is not a matter for the Governing Council to decide,' Draghi said. So the stakes are higher now that it is not just Greece in the firing line, it seems.

Market opening expected today (26/07/2012)

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Forex Exchange Morning Report (26/07/2012)

Markets rebounded last night on expectations of central bank stimulus. There was residual effect from the WSJ Hilsenrath's opinion yesterday that the Fed is moving closer to action, and a fresh catalyst from ECB Council member Nowotny who said the ESM rescue fund should be granted a banking license (indirectly allowing the ECB to fund European countries). A downgrade of Italy by minor agency Egan Jones from B+ to CCC+ had little impact. The S&P500 is currently up 0.3% as is the CRB commodities index (oil +1.0%, copper +1.1%). The US 10yr treasury yield ranged between its record low of 1.38% and 1.43%, little changed at 1.40%. A 5yr auction saw only average demand but still made a record auction low of 0.58%. Spain's 10yr made a fresh decade high yield of 7.75% before reversing to 7.38%.

The US dollar index (DXY) fell by around 0.7% during the London morning. EUR rose from 1.2055 to 1.2171 before consolidating in NY. GBP underperformed following its GDP disappointment. USD/JPY held a tight 78.08-78.30 range, an advisory firm's report the BOJ will defend the 77.00 level restraining yen bulls. AUD rose from 1.0220 to 1.0337, outperforming all the majors yesterday following a less-weak CPI print than feared. NZD followed the AUD from 0.7823 to 0.7917. AUD/NZD held a tight, elevated range of 1.3055-1.3080.

Economic wrap

US new home sales down 8.4% in June. Although sales fell sharply, extensive back revisions still leave in place a moderate uptrend since Q3 2011, when sales were running an annualised pace of 298k. June's sales pace was 350k and in Q2 it averaged 363k. That compares to a peak sales pace of almost 1400k in mid 2005.

German Ifo business climate index down from 105.2 to 103.2. This was at the weaker end of consensus with both expectations and current conditions making new cycle lows. The expectations index over the past 6 months looks similar in steepness of decline to that which occurred in the first half of 2008, when the German economy previously slipped into recession.

ESM to have a banking licence? Not a new idea, but a potential way to boost the rescue fund's firepower, because as a bank it could borrow from the ECB, getting around the issues the ECB itself has buying the bonds of troubled sovereigns. But it was Austrian CB chief Nowotny who acknowledged there were arguments in favour of the idea, and he is of course on the ECB Council. Recall that back in January he would not exclude the possibility of quantitative easing by the ECB should deflationary risks emerge.

UK GDP contracts 0.7% in Q2. This is the third quarter of decline in a row, the fifth quarter of the last seven to have a negative sign, and the steepest decline since the depths of the recession in early 2009. The limited breakdown showed a 1.4% fall in manufacturing, a 5.2% slump in construction and a modest 0.1% fall for services. The annual pace of contraction steepened from -0.2% yr to -0.8% yr. Q2's -0.7% does include an estimate for the Diamond Jubilee effect based on previous similar events in the 70s and 90s. The statistician notes there is uncertainty about the number but “the underlying performance of the economy was probably somewhat better then the headline would suggest” (the Jubilee involved an extra public holiday). The rain in April and June will also have dampened the data but no estimate of that impact was provided, like was given in Jan 2011 when Q4 2010 activity was impacted by snow (by around 0.4-0.5 ppts).

UK CBI industrial trends survey. The quarterly confidence indicator fell from 22 in April to -6 in July, while the monthly survey showed total orders contracting at a slower pace in July than in June (-6 vs -11).

Market opening expected today (25/07/2012)

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Forex Exchange Morning Report (25/07/2012)

Risk aversion continued overnight. EU officials said Greece is unlikely to meet its debt obligations and further restructuring is likely, according to Reuters which quoted one official as saying Greece is hugely off track'. This update, on the heels of earlier news Moody's had downgraded the outlooks for AAA Germany, Netherlands and Luxembourg, kept markets on a defensive footing. US data disappointments (PMI, Richmond Fed manufacturing) also contributed. The S&P500 is currently down 1.4%. Yesterday's decent China PMI report constrained commodities' losses, the CRB index down 0.8%, oil +0.1%, and copper -0.6%. The US 10yr treasury yield made a fresh record low at 1.39% in NY following a London squeeze to 1.46%. A 2yr auction went at a record low 0.22%. Spain's 10yr yield rose 12bp to a fresh decade high of 7.64%, while Italy's rose 26bp, Greece up 46bp.

The US dollar index (DXY) made a fresh two year high. EUR fell from 1.2130 to 1.2043 - a two year low. USD/JPY was quiet, contained between 78.10 and 78.30. AUD peaked at 1.0316 around midday London and then sank with the EU comments to 1.0215. NZD similarly peaked at 0.7923 and sank to 0.7840. AUD/NZD again tested major resistance at 1.3030 without success.

Economic wrap

US Richmond Fed factory index plunges from -3 to -17, its lowest reading since April 2009 when the economy was still in recession. Shipments and orders were especially weak at -23 and -25 respectively; jobs were down 7 pts but held positive at 1. This index is clearly more in line with the recent weak readings on the Philly Fed index than the NY Fed index which bounced in July. US house prices rose 0.8% in May according to the FHFA, the fourth gain since prices last fell in January.

Moody's questions ratings of the European AAAs. Angela Merkel insisted Germany will remain a safe haven within Europe and the risks Moody's cited when cutting the AAA sovereign's rating outlook from stable to negative were 'nothing new'. Yes, but those risks are crystallising. The Netherlands and Luxembourg also had their outlooks lowered, leaving just Finland as AAA with stable outlook.

Greek PM Samaras fears a 7% contraction in the Greek economy this year and no growth before 2014. The troika of IMF, ECB and EU officials arrived in Athens to determine whether fresh 'political decisions' will be needed by Greece's euro partners (could those be about easier budget deficit reduction targets ... another debt restructure... or something more abrupt?).

Spain not seeking a bailout and not getting one according to various Spanish and EU officials but 'in such difficult times as we are in, one has to be ready to act at any moment'. One wonders if the ECB might be considering that advice with respect to expanding its bond purchase program. Spanish 10yr bonds were trading at above 7.5% for much of today, with the Italian paper at 6.5%.

Euroland composite PMI steady at 46.4 in July, again weaker than any reading prior to September 2008. The French services PMI for July edged back above 50 but the factory PMI fell further and the services and factory PMIs in Germany are both falling.

UK mortgage approvals fell from almost 30k in May to 26k in June. The Jubilee public holidays and wet weather dampened the market according to the BBA but May had great weather and an extra business day and its figure was almost the lowest in three years, so those June distortions may be masking an underlying slowdown in the market

Market opening expected today (2407/2012)

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Forex Exchange Morning Report (24/07/2012)

The negative momentum from Friday's sessionpersisted during the London session. Another Spanish region confirmed it needed rescuing, and there are five others expected to follow. A Der Spiegel report that the IMF may cut further lending to Greece gained traction throughout the day. The S&P500 is currently 1.1% lower following a 0.7% rebound in NY. Spanish equities only fell 1.1% thanks to the reinstatement of a short selling ban (Italy also), but Greek equities fell 7.1%. Commodities fell sharply, the CRB index down 1.9%, oil -3.4%, copper -2.1%, and overbought wheat -3.2%. US 10yr treasury yields gapped to a fresh record low at 1.40% before recovering to 1.44%. Eurozone peripheral bonds all suffered losses, the Greek 10yr yield up 199bp, Spain's up 30bp to a decade high of 7.57%, and Italy up 26bp to 6.43%.

The US dollar index (DXY) gapped to a fresh two year high. EUR conversely made a fresh two year low of 1.2067 before rebound from midday London to 1.2145. USD/ JPY bounced from early London's 0.7794 to 0.7846. AUD followed the global theme, extending domestic session losses from 1.0320 to 1.0244 before rebounding in NY to 1.0285. AUD/NZD continued its month-long rally to reach 1.3030 where major resistance can be expected

Economic wrap

US Chicago Fed national activity index rose from -0.48 to -0.15 in June. This 'survey of surveys' indicates that the overall tone of June economic activity data was not as weak as it was back in May.

Euroland consumer confidence drops from -19.8 to -21.6 in July, its steepest fall since last year and its lowest level since the recession of 2008-2009.

Spanish 10 yr bond yields hit 7.5%, equities down 10% in two days. On top of Friday's developments, another five Spanish regional administrations may be seeking bailouts from the national government, further undermining investor confidence in the sovereign. Meanwhile government officials continue to urge the European Central Bank to use its firepower to support the bond market, to no avail so far. The ECB's SMP has not been active for some months now but when used late last year Spanish (and Italian) bond yields fell back from around 7% to the 5-6% range. Later in the session Spain (and Italy) reinstated short selling bans and intraday losses of up to 5% were pared back to 1%. But the earlier price action was indicative of increasing doubts about sovereign solvency, European leadership, policy-maker courage and indeed the framework of the euro itself. Separately, the Greek PM Samaras described the situation in Greece as equivalent to the great depression in the US in the early 1930s. Greece wants an extra 2 years to meet her budget commitments and more bailout assistance (maybe €40-60bn on top of the €240bn already committed); the IMF was reportedly considering holding back on its next bailout tranche, which would see Greece insolvent by August and in default by September, were no other benefactor to step up to the plate. However the IMF issued a denial of sorts, saying it was working with Greek authorities to bring the budget program back on track.

Market opening expected today (23/07/2012)

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Forex Exchange Morning Report (23/07/2012)

Eurozone issues resurfaced after a multi-week hiatus. A Bloomberg report on a EUR 12bn funding gap in Spain to cover regional governments may have sparked the 28bp selloff in Spanish 10yr government bonds which reached 7.28% - matching the decade high set on 18 June. Spain's stockmarket fell 5.8%. Some regions have declared funding difficulties, Valencia requesting a EUR 2bn bailout and Catalonia considering one according to El Pais. Contributing to the mood, minor rating agency Egan Jones cut Spain's sovereign rating from CCC+ to CC+, and the ECB declared Greek debt as ineligible for collateral in it operations. The S&P500 closed down 1.0%, while commodities were moderately lower (CRB index -0.1%, oil -0.9%, copper -2.4%, although foods continue to rally). US 10yr treasury yields fell from 1.50% to 1.45% - just above the 1.44% record low.

The US dollar index (DXY) rose by around 0.8% on the risk averse mood. EUR fell from 1.2280 to 1.2144 – a two year low - by the NY open and drifted sideways until the close. USD/JPY ground slightly lower from 78.60 to 78.45. AUD fell from 1.0425 to 1.0363 before partly recovering during the NY afternoon to close at 1.0378. It opened this morning at 1.0360. NZD similarly fell from 0.8055 to 0.7980, and opened this morning at 0.7990. AUD/NZD rose from 1.2965 to 1.2995 where it met strong resistance.

Economic wrap

Canadian CPI accelerates to 1.5% yr in June from 1.2% in May, and the BoC core rate rises 0.2 ppts to the 2.0% target. Some energy prices, especially natural gas and gasoline, were constraining factors, while electricity and auto prices picked up.

German producer prices decelerate to 1.6% yr in June, their lowest since mid 2010 and the pace they were running in nearly 2009 when the global economy was slumping.

UK budget deficit was £14.4bn in June up from £13.9bn a year earlier. This was wider than expected and increases the prospect that the full year deficit target of £120bn will be exceeded.

Spanish 10 yr bond yields hit 7.2%, equities down 5%. This followed confirmation by the Eurogroup finance ministers: Spain will receive up to €100bn to recapitalise the banks, with the EFSF setting aside €30bn initially and the final amount being determined once the audit of the banks is completed, probably in September. When up and running, the ESM will provide the balance of the funds. The loans, of up to 15yrs tenure, will be made to the FROB which is an agent of the Spanish govt, which will retain the full liability for the assistance. One takeaway from this is that we can disregard what EU leaders claim to have agreed at their next summit; to find out what the truth is, just look at Ms Merkel's face. Meanwhile, Spain has found €15bn to bailout regional administrations like Catalonia and Valencia that have lost access to markets but claims it won't impact published debt raising plans. Investors don't like it; they are losing faith in Spain's ability to finance herself and can no longer trust what the political leaders across Europe say

Market opening expected today (20/07/2012)

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Forex Exchange Morning Report (20/07/2012)

The positive tone persisted despite a clean sweep of US data disappointments. Continuing expectations Fed Chairman Bernanke may soon hint at QE3 appear to be supporting asset prices. US jobless claims, Philadelphia regional manufacturing, homes sales and leading indicators were all sub-consensus, causing a 0.7% decline in the S&P500. A recovery later has it up 0.3% currently. Helping the bounce may have been the German parliament's approval of Spain's EUR100bn banking sector bailout, although that result was largely expected by analysts. Less supportive was the German Finance Minister's reiteration that Spanish bank aid must be channelled through the Spanish government, thereby impacting its fiscal position. Commodities extended a month-long rally, the CRB index gapping 2.0% higher (oil +2.4%, copper 1.8%, wheat +3.1% and now overbought). US 10yr treasury yields are 2bp higher at 1.51%.

The US dollar index (DXY) consolidated around the week's low. EUR fluctuated between 1.2230 and 1.2325, settling around the middle in NY. USD/JPY extended July's decline to 78.43. AUD extended the week's rally from 1.0390 to 1.0444 before consolidating in NY around 1.0420. NZD similarly pushed higher to 0.8055 and settled around 0.8030. AUD/NZD ground higher towards the previous day's peak of 1.2990.

Economic wrap

US Philadelphia Fed factory survey rose 3.7 pts to –12.9 in July. The June-July slump below zero more or less mirrors the mid-year collapse in the regional business activity assessment that took place in Aug-Sep last year, which subsequently reversed. The big issue is how enduring will the loss of momentum be this time? The July detail showed less negative readings for orders (–6.9) and shipments (–8.6) but jobs fell from +1.2 to –8.4.

US existing home sales fell 5.4% in June to their slowest sales pace for the year so far, at 4.37mn annualised. Pending home sales (contracts not yet completed) were up 6.3% in May compared to the end of 2011, whereas closings (today's data) are down slightly. That could mean more contracts are falling through before completion, or it could be a reflection of the 5.5% fall in pending home sales in April, which reversed in May. So the jury is still out on this one - a temporary dip in an emerging uptrend, or evidence that the housing stabilisation/recovery story might be losing altitude? US initial jobless claims rise 34k to 386k in week ended 14/7. Seasonal summer auto plant shutdowns were cited again for the sharp rise in claims, which are best ignored in July: the recent rise tells you nothing about the state of the labour market, but quite a bit about how difficult it is to seasonally adjust weekly data.

European developments: The Spanish government successfully auctioned 2, 5, and 7 year debt, but yields made new euro era records at 5.20%, 6.46% and 6.70% respectively, and 10 yr bonds yields rose back above 7% after the auction. Meanwhile the German parliament appeared set to back the Spanish bank recapitalisation on the basis of assurance from Fin-Min Schaeuble that the Spanish sovereign would remain liable for the bailout loans, rather than the banks themselves (which had been the commitment announced by EU leaders including a grumpy Merkel just a few weeks ago).

UK retail sales rose 0.1% in June after surging 1.5% in May. Weather and changed public holiday arrangements for the Diamond Jubilee have explained much of the volatility in retailing this year, although the annual pace of sales volume growth remains positive at 1.6% yr. Falling food and petrol sales offset a 1.2% rise in other retailing.

Market opening expected today (19/07/2012)

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Forex Exchange Morning Report (19/07/2012)

Sentiment improved modestly. During a day when there was little data of note, lingering expectations the Fed would eventually do more to stimulate the economy helped push the S&P500 to a fresh 2 ½ month high (up 0.5% on the day so far). Goldman Sachs, for example, yesterday forecast QE3 would occur after the November elections in the US. The Beige Book of regional US economic conditions had no market impact, reporting modest-to-moderate growth (less downbeat than Bernanke's assessment the previous day).The IMF's latest report on the Eurozone urged the ECB to cut rates further and consider QE. Commodities are firmer, the CRB index +1.2%, oil +1.1%, copper +0.6%, but gold -0.5%. US 10yr treasury yields remained defensive, slipping from 1.50% to 1.47% and back to 1.49% near the close. Among Eurozone yields, Spain underperformed (10yr yield up 14bp).

The US dollar index (DXY) saw little net change overnight. EUR fell from 1.2290 to 1.2217 in London and rebounded to 1.2278 in NY. USD/JPY slipped from 79.10 to 78.77, markets continuing to focus on the narrowing interest rate spread. AUD tracked sideways until early NY when it surged with US equities from 1.0292 to 1.0365. NZD drifted lower until that surge helped it from 0.7925 to 0.8006. AUD/NZD continued to extend higher, reaching 1.2990 before settling back at 1.2950

Economic wrap

US housing starts rise 6.9% in Jun but permits fall 3.7%. Multiples added to starts by rising 12.8% and detracted from permits by falling 10.9%. Single family starts rose for the fourth month running by 4.7% and single family permits rose 0.6%, their third rise in a row. More evidence here that the housing market may have bottomed out albeit at a very low level of activity.

Fed chair Bernanke repeated his policy testimony in the House today. Treasury Secretary Geithner acknowledged the economy is “definitely slower” but denied it was heading back into recession.

Bank of England MPC voted 7:2 in favour of this month's £50bn asset purchase plan extension. The two dissenters thought the special measures announced at the Mansion House (cheap funding for banks to lend to households and businesses) would be sufficient for the time being. The minutes also showed some discussion about whether these measures might make a further bank rate cut (from 0.5% currently) feasible.

UK employment rose 181k in three months to May after a 53k rise in Dec-Feb. This jobs growth occurred when GDP was contracting. Mar and May weather was unseasonally warm (though April was horrible). That may explain some of this jobs strength. And there are other distortions this year such as changed public holiday arrangements and the Olympics but it is not clear how much they would be impacting these data already. Effectively the question is - what is the better guide to the economy: weak GDP and business surveys OR solid jobs growth? The report also showed the jobless rate edging down from 8.2% to 8.1% in May (the peak was 8.4% in Jan). Benefit claimant count unemployment rose 6k in June after a 7k May gain

Market opening expected today (18/07/2012)

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Forex Exchange Morning Report (18/07/2012)

USD

The dollar strengthened on Tuesday following Fed Chairman Ben Bernanke's testimony to the Senate, in which he restated his 'stimulus-if-required' stance to monetary policy as well as underscoring the need for 'fiscal balance' from lawmakers. This upset expectations for more stimulus and led to a rise in the dollar. On the data front, CPI in June remained at 1.7% yoy when it had been expected to moderate to 1.6% whilst CPI Ex Food & Energy showed a basis point fall in line with expectations. Industrial Production in June rose by 0.4% which was just above the 0.3% expected. Demand for U.S securities showed a rise with Net Long-Term TIC Flows in May beating expectations to rise to $55.0bn compared to $41.3bn expected and $27.2bn previous. Total Net TIC flows showed a $101.7bn surplus compared to the -$8.2bn previously.

EUR

The euro fell after Bernanke's testimony to Senate in which he reiterated a 'wait-and-see' stance upsetting expectations that he would announce further QE. The euro fell rapidly despite strengthening in the first half of the day when yields on Spanish short-term bills fell at auction. The yield on the 12-month fell from just over 5% to 3.92% previous and to 4.24% vs 5.11% on the 18-month bill. Longer-dated debt however didn't fare as well as the yield on the 10-year Spanish bond rose to 6.79% - up 5.7bps whilst the Italian 10-year rose to 6.01% up 1.8pbs. On the data front, the ZEW Sentiment survey fell, but not as deeply as expected. The German version of the ZEW in July fell to -19.6 when it had been expected to fall to -20.0 and was -16.9 previously. The Euro-zone version showed an even more dramatic fall in Economic Sentiment to -22.3 versus -20.1 previously. The German Current Situation survey fell to 21.1 versus 30.0 expected and 33.2 previous.

GBP

The pound fell after the release of softer-than-expected inflationary data on Tuesday increased the possibility the BOE might use more stimulus to boost growth. Overall the stats indicated a fall in inflation with CPI dropping to 2.4% in June yoy versus 2.8% expected and 2.8% previous. Core CPI fell to 2.1% versus an expected rise of 4pbs. Mom CPI fell by -0.4% compared to -0.1% expected and -0.1% previous. RPI fell to 2.8% versus 3.0% expected and 3.1% previous. Sterling fell against the dollar after the Chairman of the Fed Ben Bernanke made a speech to the Senate in which he maintained his wait-and-see stance despite a more doveish tone having been expected. The absence of any hints of more QE led to a rise in the dollar. The pound was stronger versus the euro, however, and briefly hit a three and a half year high following comments from the Italian PM Mario Monti about the dire economic problems in Sicily.

JPY

The yen traded mixed at the time of writing on Tuesday, rising against the riskier currencies like the euro and the pound but falling to the dollar which strengthened after expectations of more easing were dealt a blow by Fed Chairman Bernanke who failed to hint at more QE in his testimony to Senate, an outcome which surprised many investors expecting the opposite. There was no economic data for the yen but there was commentary from the Finance Minister Jen Azumi who threatened to weaken the yen if speculators continued to push it higher. It is possible the currency may moderate at its current position as a result of the threat, however, the currency remains vulnerable to safe-haven flows as a result of investor fears over contagion from the crisis hit euro-zone and there does not seem to be any sign that the problems in that region are close to a solution yet, which leaves the outlook for the yen still quite bullish overall.

Market will open today (17/07/2012)

USDINR- Will open down 


EURINR- Will open up


GBPINR- Will open up


JPYINR- Will open down

Forex Exchange Morning Report(17/07/2012)

Sentiment was initially hurt by European news and US data but rebounded late NY. The WSJ revealed a hardline shift in stance by the ECB where it advocated investor losses on impaired Spanish bank bonds at the 9 July Eurogroup meeting (ultimately rejected by politicians), and the German court is unlikely to decide on the ESM until 12 September. US retail sales disappointed but business inventory and NY regional manufacturing reports softened the blow, and indeed, the former was seen as supportive of QE3. Later on, expectations of Bernanke, extending to chatter in the blogosphere that the Fed could consider BOE-style targeted lending or eventually cut rates to below zero, helped sentiment. The S&P500 recovered by around 0.5% to be currently unchanged. The CRB commodities index is up 0.7% (oil +1.1%, copper and gold unchanged). US 10yr treasury yields fell from 1.48% to 1.44% (matching the record low) before rebounding to 1.47% late NY.

The US dollar index (DXY) fell 0.7% in NY. EUR fell to 1.2176 during the London morning but then bounced to 1.2290. USD/JPY fell from 79.10 to 78.70 on QE3 hopes following the retail sales report but stabilised in NY to 78.85. AUD made a midday London low of 1.0202 and then rose to 1.0260. NZD similarly fell to 0.7937 before rallying to 0.7988. AUD/NZD remained rangebound, between 1.2830 and 1.2860.

Economic wrap

US retail sales fall 0.5% in June, even weaker than Westpac's well below consensus –0.2% forecast. The detail included a 0.6% fall in auto sales and a 1.8% fall in gasoline which would be due to lower prices. Core retail sales excluding those two components fell 0.2%, their third monthly decline; the last time we saw core retail sales down three months running was in the dark days of Q4 2008. Furniture, electronics, building materials, health and personal care, sporting goods, department stores and restaurants all recorded June declines. In all cases the falls were either large enough to more than wipe out the prior month's gain or followed declines in May. With back revisions (especially steep in April) the quarterly annualised sales pace in Q2 was –0.2% for the core, down from 6.6% in Q1 and the first fall since Q2 2009. That represents only part of the broader private consumption component of GDP, but is consistent with our forecast that consumption growth slows from over 2% annualised in Q4 and Q1 to just 0.9% in Q2.

US NY Fed factory index rises from 2.3 to 7.4 in July, reversing part of the 15 pt drop it recorded in June, and contrasting with the neighbouring Philly and Richmond Fed factory indices which both dipped below 0 back in June. The NY detail showed orders down 4 pts to –2.7 (first negative for the year) but shipments and jobs both jumped around 6 pts to 10.3 and 18.5 respectively. US business inventories rose 0.3% in May, with a retail stocks surge of 1.0% offsetting a (previously reported) fall in factory stocks and modest 0.3% gain at wholesalers.

Euroland core inflation steady at 1.6% yr in June, indeed it has been steady at 1.5-1.6% since September last year. The headline rate was unrevised from the flash estimate of 2.4% yr. Meanwhile the trade surplus rose from €4.5bn to €6.3bn in May as exports edged up 0.3% (after falling 1.4% in April) but imports continued to decline, down 0.9% on top of April's 1.5% fall.

UK house prices fell 1.7% in July but were up 2.3% yr, according to Rightmove's survey of asking prices (note that most indices of selling prices are flat or slightly lower in annual terms).

IMF leaves global growth forecast unchanged at 3.5% yr in 2012 but next year's forecast was cut from April's 4.1% to 3.9%. Those forecasts compare to our 2.8% and 3.8% for this year and next. The IMF did lower the forward growth trajectory reflecting the moderating US recovery and the impact of European weakness on emerging economies but Q1 data for Germany and Japan were stronger than they had assumed leaving the full year 2012 forecast pace unchanged after rounding. Also their numbers assume (optimistically) that appropriate policies are put in place to prevent risks such as aggressive fiscal tightening in the US and ongoing/deepening sovereign debt market tensions from crystallising.

Forex Exchange Morning Report(16/07/2012)

Markets closed the week on an optimistic note, shrugging off Friday's weaker China data and Italy downgrade. Possible catalysts were JP Morgan's Q2 earnings (a positive surprise, even after its US$5.8b trading loss), significant buying of EUR by Austrian banks, an advisory firm's report expecting the ECB to cut the deposit rate to below zero and engage in quantitative easing, higher than expected US PPI and Fed centrist Lockhart's dovish comments (although that has been his bias recently). US consumer confidence disappointed but was ignored. The S&P500 closed 1.7% higher. The CRB commodities index closed 1.3% higher (oil +1.3%, copper +2.6%, gold +1.1%). US 10yr treasury yields rose from 1.46% to 1.52% during the London session and closed at 1.49%. Eurozone peripherals were only modestly changed apart from Italy which gained 15bp.

The US dollar index (DXY) fell sharply around midday London. That was mainly due to a sharp rise in EUR, from 1.2163 to 1.2257, although it was directionless during the NY session. USD/JPY was directionless throughout, stuck between 79.07 and 79.33. AUD followed equities and the EUR higher, from 1.0148 to 1.0230. NZD rose from 0.7904 to 0.7966. Both AUD and NZD speculative futures positioning increased last week, according to the latest CFTC report. AUD/NZD rose from 1.2825 to 1.2870

Economic wrap

US PPI rises 0.1% in June. Possibly due to survey timing, the PPI output did not capture last month's decline in energy prices to anywhere near the extent we expected. Crude energy prices fell 5.1%, but finished energy prices were down just 0.9% (and gasoline up 1.9% after falling 12% in the previous three months). That was offset by food up 0.5% (due to higher meat prices, and next month's data may see drought impact on fresh fruit and veg) and the core rate as expected up 0.2%. Within the core, car prices fell 0.2% but ever volatile light truck prices jumped 1.4%. The headline PPI annual rate was unchanged at 0.7% yr, its lowest since the 2008-2009 recession, and the core rate slowed to 2.6% yr from the cycle high of 3.1% in January this year.

US consumer sentiment fell to 72.0 in the preliminary July University of Michigan report, exactly in line with our low end of the range forecast. That is the most pessimistic reading for the year so far, and reflected a 3 pt drop in the outlook index which offset a 1.7 pt rise in current conditions. One year ahead inflation expectations also fell, down 0.3 pt to 2.8%, the lowest since late 2010.

Forex Exchange Morning Report (13/07/2012)

The fragility of the global economy was underscored by the need for further central bank cuts yesterday (Korea, Brazil), as well as underwhelming US corporate earnings for Q2. That sentiment carried over into the London session, pushing the S&P500 1.3% lower, although a NY rebound has it currently at -0.3%. There was little fresh news of note, save perhaps for the sharp drop in US jobless claims which markets largely ignored at the time. Commodities are slightly weaker, the CRB index down 0.2%, oil +0.5%, and copper -0.6%. Wheat extended a drought-inspired rally, up 3.1% for a total of 39% since mid-June. US 10yr treasury yields are 5bp lower at 1.47%, just 3bp shy of the record low.

The US dollar index (DXY) extended a 14-month rally to 83.8 – a two-year high. EUR conversely made a fresh two-year low of 1.2167 around midday London and then settled around 1.2200. USD/JPY was almost lifeless, stuck between 79.18 and 79.39. AUD underperformed following its disappointing labour report, extending the domestic session decline from 1.0160 to 1.0101 before recovering in NY with equities to 1.0150. NZD fell to 0.7862 and recovered to 0.7915. AUD/NZD, which fell from 1.2900 to 1.2840 following the labour data, slipped further to 1.2820 before consolidating

Economic wrap

US initial jobless claims fall 26k to 350k last week. Westpac's bottom of consensus 355k initial claims forecast attempted to capture reports from Ford some months back that summer auto plant shutdowns would be shorter this year than normal. The seasonal adjustment of this weekly data usually produces some big swings in claims around shutdown time in July, and our view that these would initially be to the downside was correct. The BLS later noted the shutdown issue and suggested claims would gradually correct higher in coming weeks. This number almost certainly does not refl ect any underlying improvement in the job market.

US import prices plunged 2.7% in June as petroleum prices dived 10.5% and ex petroleum prices were down 0.3%. Export prices fell 1.7% led by food, agriculture and industrial supplies.

Canadian new house prices rose 0.3% in May, a little above the recent trend pace though the annual rate of increase edged lower to 2.4% yr.

Euroland industrial production rose 0.6% in May, partially reversing the 1.1% April fall, but the annual pace of decline continued to steepen to –2.8% yr, weaker than in the two quarters of recession prior to the global trade collapse in Q4 2008.

UK public finances unsustainable says Office of Fiscal Responsibility in its annual Fiscal Sustainability Report. The aging population would put upward pressure on spending under current policy settings which would see net public debt rise to 90% of GDP by 2062, up from 40% of GDP prior to the recent financial crisis

Forex Exchange Morning Report (12/07/2012)

The Fed's minutes disappointed markets. After a fairly uneventful London session for major equities, currencies and interest rates, the FOMC minutes revealed no strong consensus regarding the threshold for further easing. A 'few' members believed more stimulus would be necessary but 'several others' felt any further accommodation was dependant on the economy weakening. The S&P500 fell immediately after the minutes were released and is currently down 0.3%. Commodities fared much better (CRB index +0.7%, oil +2.3%, copper +0.9%, gold +0.4%), helped by the Chinese Premier's comments indicating further easing ahead. US 10yr treasury yields were rangebound between 1.49% and 1.51%, apart from a brief dip to 1.45% following a 10yr auction awarded at a record low 1.46%. Eurozone peripheral bond yields fell.

The US dollar index (DXY) ground higher in London, surging to a 22-month high following the FOMC minutes. EUR conversely was on the back foot throughout, falling from 1.2297 to 1.2213 – a fresh two-year low –the German court's stalling of the ESM bailout process weighing on sentiment towards the currency. USD/JPY rose sharply from 79.14 to 79.76 on rumours ahead of the BOJ meeting today. AUD made an intraday peak of 1.0281 during the London morning and then fell to 1.0219, the FOMC result worth around -50 pips. NZD peaked at 0.7999 and fell to 0.7945. AUD/NZD ground higher from 1.2840 to 1.2860.

Economic wrap

US trade deficit narrowed by nearly $2bn to $48.7bn in May as imports fell 0.7%, a further correction from March's 5.2% surge. Exports rose a marginal 0.2% after falling 0.9% in April. Adjusting for prices the real goods deficit so far in Q2 is more than 2% higher than in Q1 pointing to a renewed drag on GDP growth from net exports in the Q2 figures due 27/7. Note that report will include annual GDP revisions based on more accurate source data such as tax records which last year saw the growth profile up to March 2011 revised lower. Our preliminary forecast for Q2 GDP growth is 1.2%, which would be the second weakest of the three year recovery after Q1 2011's 0.4% annualised. US wholesale inventories rose 0.3% in May, constrained by a lower value of petroleum stocks due to falling prices. US FOMC minutes to the June 19-20 meeting due out this evening.

Spain announces new austerity measures, despite delaying by a further year to 2014 the 3% of GDP budget deficit reduction target. The 4th austerity package of the 7 month old administration included VAT hikes and lower unemployment benefits, breaking pre-election pledges not to implement such policy changes, but considered necessary to slash 3.3 ppts off the deficit over the next two years from this year's 6.3% of GDP shortfall. Spain has an even lower tax to GDP ratio than Greece so there is an argument in favour of using taxation to meet the deficit target but VAT hikes not accompanied by income tax cuts will risk even lower consumption, especially given the govt is also reducing unemployment assistance. Put simply, they are taking money away from the poor and increasing the tax (except the lowest 4% rate) on things they buy. It might satisfy the officials in Brussels but it won't enhance the growth prospects for the economy which is now likely to be in recession beyond 2013. Expect these numbers to be revisited time and again, as has been the case with Greece. They are unachievable without external assistance, which PM Rajoy explicitly wishes would come in the form of ECB action to hold down the sovereign's borrowing costs.

Forex Exchange Morning Report (11/07/2012)

The news flow was negative for markets overall,reversing yesterday's minor rallies following the Eurogroup's minor progress (it agreed to pay Spain EUR30bn by month-end for its banking sector bailout). Germany's court said it could take months to decide on whether to block the ESM bailout process, and Italy's PM said it may need to access aid at some point. The latter comment appears at odds with Italy's cancellation of its bond auction (higher tax revenues cited) last night, the recent surge in yields possibly a factor. The S&P500 is currently 1.0% lower. Commodities underperformed (CRB index -1.4%, oil -2.3%, copper -1.3%, and gold -1.3%), probably due to China's weak import data yesterday. US 10yr treasury yields fell from midday London from 1.53% to 1.50% - a fresh six-week low and close to the 1.44% record. Fed non-voter Bullard seemed unmoved by recent weak data, saying low market yields have taken some of the pressure off the FOMC to ease.

The US dollar index (DXY) probed slightly higher. EUR underperformed, falling since the London morning from 1.2333 to 1.2235 – a two-year low. USD/JPY rose from 79.20 to 79.50. AUD peaked during the London morning at 1.0245 and fell to 1.0180 with US equities. NZD peaked at 0.7988 and fell to 0.7930. AUD/NZD fi rmed slightly from 1.2810 to 1.2840.

Economic wrap

US NFIB small business optimism down 3 pts to 91.4 in June, its lowest reading for the year so far and the steepest one month drop since mid 2010. As with other business surveys, the NFIB is failing to maintain early year strength for the third year running. The detail included a 3 pt drop in the intention to hire index, its lowest since March.

US IBD-TIPP economic confi dence recovered 0.3 pts in July after its June fall of 1.8pts. This fi rst read on how Americans feel in early July was the second lowest reading for the year after June. The economic outlook and personal fi nances components both fell by 1.0 pts or more, but confi dence in Federal policies rose 3.2 pts, off setting those declines.

Canadian housing starts rose 2.4% in June with a 4% bounce in volatile multiples off setting a 0.3% fall in single family starts, their third fall in four months.

UK industrial production rose 1.0% in May. The May gain benefi ted from a downward revision to utility output from 14% to 9% in April and a further 2.4% rise in May; factory output bounced 1.2% after falling 0.8% in April, perhaps due to what would be a temporary boost from the delayed bank holiday (pushed into June for the Jubilee). Factory output is still down 1.7% compared to a year ago. Meanwhile exports bounced 7.8% in May, recovering three quarters of their 9.6% April slump and contributing to a £1.3bn narrower trade defi cit of £8.3bn.

UK house price and retail surveys. The BRC reported same store sales growth edged up from 1.3% yr to 1.4% yr in June, its fastest annual growth pace for the year so far, although Jubilee holiday-related spending would have been a factor. The RICS reported a net balance of 22% of surveyors assessing lower house prices in June, the most pessimistic since October last year

Forex Exchange Morning Report (10/07/2012)

Sentiment remained weak following yesterday’s disappointing Chinese and Japanese data, and higher Spanish bond yields. Spain’s 10yr government bond yield closed up 11bp at 7.06% - a one-month high and regarded as unsustainable for the economy. Otherwise, there was little fresh news for markets to digest. Fed dove Williams characteristically advocated fresh mortgage-backed security purchases as an eff ective tool to address risks to the US economy. The S&P500 is currently down 0.4%, although commodities are fi rmer (CRB index +2.0%, oil +1.4%, copper +0.8%, and gold +0.3%), possibly on expectations China may ease further. US 10yr treasury yields are 4bp lower at 1.51%, closing in on the record low of 1.44%.

Most currencies are little changed from a day ago. The US dollar index (DXY) dribbled slightly lower last night. EUR ground slightly higher from 1.2272 to 1.2324. USD/JPY slipped from 79.77 to 79.51. AUD made an intraday low of 1.0155 during the London morning and ground higher thereafter, currently at 1.0205. NZD similarly ground from 0.7929 to 0.7972. AUD/NZD remained inside a 1.2790-1.2820 range

Economic wrap

Canadian quarterly surveys. The Q2 business outlook survey future sales index fell from 35 to 15 in Q2, reversing half of the Q1 gain - becoming a common theme in business surveys across north America. The BoC senior loan offi cer survey moved from –16.9 to –10.8, indicating slightly less easy credit conditions than in Q1.

Euroland Sentix investor confi dence slips from –28.9 to –29.6 in Jul. This was weaker than all forecasts except Westpac’s –32 and indeed closer to ours than the consensus of –26.6. The survey was taken last Friday and Saturday, when the German stock market fell 2%, the Spanish bank recapitalisation plan looked like adding to Spanish sovereign debt after all, and when US payrolls were soft. In related news, the BdF business sentiment indicator slipped further from 92 to 91, its lowest since the recession ended three years ago and still around the level it was running in the early quarters of recession in 2008. This is the sort of weak data needed (plus lots more) to eventually prompt the ECB to fi re up the SMP (bond purchase program) again. On that point, ECB chief Draghi reiterated that the ECB Council will “do everything to maintain price stability - from both sides... [and ECB staff ] are searching for actions that could attenuate the current crisis”.

German exports rise 3.9% in May, reversing April’s 1.7% fall and their fastest rise since March last year. Germany, it seems, can still surprise with the occasional robust activity statistic.

New Greek government wins confi dence vote. The three party coalition now administers a deeply recessed economy without access to fi nancial markets, reliant on external bailouts that come with stringent conditions. The administration will seek leniency with regard to meeting those conditions going forward.

Calls performance for July month

Date	Tips	Script	Target/SL	Profit/Loss in paisa
02-07-2012	Sell USDINR at 56.01 to 56.05, Target 56.90 and 56.85, Sl 56.15	USD INR	Both Targets achieved	15	Avg
03-07-2012	Sell USDINR at 55.55 to 60, target 55.45 and 35, SL 55.71	USD INR	Both Targets achieved	17	Avg
03-07-2012	Buy USDINR at 55.10 to 13, Target 55.20 and 25, Sl 55	USD INR	Exit at 55.02	-8
04-07-2012	Sell USDINR at 54.70 to 75, Target 54.58 and 52, Sl 54.91	USD INR	Both Targets achieved	15	Avg
04-07-2012	Sell USDINR at 54.81 to 85, Target 54.60 and 52, SL 55.08	USD INR	Profit booking given	13	Avg
05-07-2012	Buy USDINR at 55.05 to 55.10, Target 55.20, 25 and 30, Sl 55.85	USD INR	All Targets achieved	16	Avg
09-07-2012	Sell USDINR at 56.18 to 22, Target 56.10 and 56.05, Sl 56.32	USD INR	Both Targets achieved	12	Avg
	From 02/07/2012 to 09/07/2012		Total Profit	80	Paise