Sentiment remained positive with no significant news to drive markets, although AUD and NZD underperformed. Fed Chairman Bernanke spoke about education and largely avoided monetary policy, while Fed dove Rosengren and hawk Fisher reaffirmed their respectively extreme positions. Eurogroup president Juncker said a Greek exit is undesirable but manageable, while an EU source reportedly said Spain won't request further aid if there are more fiscal strings attached. ECB council member Hanson affirmed its conditional plan to intervene in bond markets. Italy's posted a fourth consecutive GDP contraction. European equities closed 1.7% higher and the S&P500 is currently up 0.6%. The CRB commodities index is up 0.7%, Brent crude oil up 2.1% and copper up 1.3%. US 10yr treasury yields are 6bp higher at 1.63%. A 3yr auction was weak, awarded at 0.5bp above market yield.
The US dollar index (DXY) was unchanged overnight. EUR rose from 1.2376 to 1.2442 during the London morning but reversed to 1.2402 during the afternoon. USD/JPY rose from 78.24 to 78.74. AUD made a fresh five-month high of 1.0604 early London but then slumped to 1.0550. NZD also probed the recent high but failed at 0.8221 and slumped to 0.8149 in the underperformance of the day. AUD/NZD accordingly rose from 1.2880 to 1.2945, a firmly on-hold RBA perhaps causing a paring of speculative short positions
Economic wrap
Fedspeak. Boston Fed President Rosengren said the central bank should pursue an “open-ended” quantitative easing program of “substantial magnitude”, with policy guidance based on desired economic outcomes and the focus of purchases shifted to mortgage backed securities.
Canadian Ivey PMI jumps from 49.0 to 62.8 in Jul, continuing the recent pattern of up and down swings of 10 points or more, making it difficult to interpret the underlying economic and business conditions respondents are experiencing. In June, building permits fell 2.5% as a 4.2% rise in the residential component was more than offset by a 12% drop in non-residential permits.
German factory orders fell 1.7% in June, and are now running –7.8% yr, the annual pace of decline seen just prior to the collapse in global trade in late 2008. Orders from elsewhere in Europe were down almost 20% yr, although other foreign and domestic orders were also in decline, by 2% yr and 5% yr respectively. Germany is no longer the engine room of Europe, which we expect GDP data next week to confirm.
Italian GDP contracted 0.7% in Q2, down for the fourth quarter running, for a –2.5% yr annual pace of decline.
UK industrial production fell 2.5% in June, not as weak as expected given that the weather was very poor and the Queen's Jubilee meant that there were two extra public holidays in the month, and one fewer in May. Indeed the statistician noted that 0.07ppts will be added to the second estimate of Q2 GDP. The first estimate was initially reported at -0.7%. A separate report from the BRC showed 0.1% yr growth in July retail sales, supported by an Olympics boost to food and drink sales late in the month, although big ticket item sales were “struggling”.
