Sentiment was buoyed by hopes for Spain. An influential advisory report claiming Spain was willing to accept fiscal reforms in exchange for heavy ECB intervention in its bond markets was cited as a major catalyst for the rally in equities and currencies last night. German Chancellor Merkel added that the ECB's vow to do whatever was necessary to defend the Eurozone was consistent with the views of European leaders. European equities closed 1.1% higher and the S&P500 is currently up 0.8%. The CRB commodities index is up 0.2%, with oil +0.6%, copper +1.0%, and gold 0.8%. US 10yr treasury yields were volatile, falling from 1.86% to 1.78% in London and then fully rebounding after the NY open. US data was mildly disappointing but had little market impact. The Spanish 10yr yield fell 12 bp to 6.52% - a one month low.
The US dollar index (DXY) fell by 0.7% overnight. EUR rose throughout the evening from 1.2256 to 1.2373. USD/JPY maintained Asian session gains in a 79.10-79.40 range, recent strength perhaps due to higher US interest rates. AUD turned upwards near the Sydney close at 1.0475 and continued to 1.0526, most of the gain coming after the advisory report on Spain. NZD similarly rose from 0.8055 to 0.8119. AUD/NZD fell from 1.3005 to 1.2960, the past few days' price action suggestive of a major reversal lower towards 1.2600.
Economic wrap
US Philadelphia Fed factory survey up 5.8pts to –7.1 in Aug, its fourth straight month of contraction. Orders, shipments and jobs all remained firmly in contractionary territory. So, NY, Philly, Richmond and Dallas Fed factory surveys are all slumping mid year as they did last year - the question now is do they recover sharply like in late 2011 or is the upside from here more subdued this time around?
US housing starts down 1.1% in July. A 12.4% jump in multiples offset a 6.5% fall in single family starts, the first decline in that sector in five months, and wiping out half of the 12% rise in single starts between March-June. Housing permits rose 6.8% with single family permits up 4.5%, their fourth straight gain. With permits (singles) running a 513k annualised pace in July vs starts on 502k, starts might recover somewhat later in Q3.
US initial jobless claims rose 2k to 366k in the week ended 11/8, suggesting that claims are stabilising back around their Feb-Mar lows just above 360k per week, after annual auto plant shutdown distortions in the July data. On this measure, the job market has improved somewhat relative to April-June when claims reached 390k+ per week.
Euroland core CPI edges up to 1.7% yr in July, its highest since 2009, but headline rate unrevised at 2.4% yr.
UK retail sales rose 0.3% in July, and June's 0.1% gain was revised up to 0.8%. July's annual sales volume growth rate of 2.8% yr is the third highest since 2008, surpassed only by temporary spikes in growth due to VAT changes or unusual weather disruption. The detail showed clothing and household goods sales fall, while other storetypes posted gains, but ex fuel there was no growth in the month. Changed public holiday arrangements in June, unseasonal weather swings and the Olympics are all factors that make this report difficult to interpret. It is clear, however, that heavy price discounting in clothing last month and fuel this month was behind the sharp monthly swings in those sectors. The retail deflator rose just 0.2% yr, its lowest since 2009, also a function of discounting
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