Market opening expected today (23/07/2012)

USDINR- Will open flat or up

EURINR- Will open down

GBPINR- Will open down

JPYINR- Will open up

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)

USDINR- will open up

EURINR- will open up

GBPINR- will open up

JPYINR-will open up

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.