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.
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