Updated Sep 2, 2010 5:00:00 PM
Risk continued to advance as U.S. stock markets extended yesterday’s gains, however the dollar traded relatively flat. This morning saw initial jobless claims decrease to 472K from the prior week’s 478K which was slightly better than the expectations of a 475K print. 2Q final nonfarm productivity softened to -1.8% from the prior -0.9% and July factor orders were released at +0.1% from the prior -0.6%. Pending home sales for July surprised to the upside with a rise of +5.2% from the previous month’s -2.8% (cons. -1.0%). On balance, the mix of economic data was viewed as a positive for risk. The reaction was somewhat muted however as investors await tomorrows employment report. The ECB announced that it will keep its interest rates at 1.00%. This came as no surprise to the market. Following the announcement, ECB President Trichet commented at a press conference on that the bank is committed to lend banks unlimited cash at the benchmark rate until at least October 12. The ECB raised growth forecasts for 2010 seeing GDP at 1.4%-1.8% vs. the previous 0.7%-1.3% and inflation forecasts were raised slightly to between 1.5-1.7% vs. the previous 1.4-1.6%. Growth and inflation forecasts were raised for 2011 as well. EUR/USD initially strengthened, but ran into resistance around its 21-day sma around 1.2845/50. U.S. equities finished higher with the DJIA gaining by about +0.49% and the S&P climbing around +0.91% on the positive economic data. Commodities traded higher as well on the firmer risk sentiment with oil advancing by +1.52%. Gold crept closer to record highs with gains of about +0.57% and silver rose by roughly +1.58%. U.S. 10-yr Treasury yields advanced to about 2.62% as investors moved out of the safe haven bonds into riskier assets. On the calendar for the Asia/Pacific session is the AiG Performance
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Updated Sep 2, 2010 8:00:00 AM
Markets consolidated after yesterday’s surge in risk with the dollar trading softer ahead of key events. While the ECB’s rate announcement is not likely to have a profound impact as the bank is widely expected keep rates at their current level of 1%, the press conference to follow may stir the markets. We will be looking for ECB President Trichet to address the bank’s decision on lending facilities as well as provide an updated economic forecast. The U.S. labor situation is back in focus as investors seemingly disregarded yesterday’s negative ADP employment number amid a wave of better than expected data. The ADP print of -10K from the prior 37K was the first negative reading since January of this year. It is also of note that weekly initial jobless claims remain at elevated levels with the 4-week moving average at the highest level of the year around 486K. Foreshadowing by the disappointing ADP print and heightened level of weekly claims may not be a good sign for Friday’s job report. Elsewhere, the Riksbank hiked interest rates as expected by 25bps to 0.75% maintaining a hawkish outlook leading the market to believe additional tightening is ahead this year. The krona strengthened as USD/SEK slipped from session highs around 7.3235 to make lows near 7.2500. Swiss GDP for the second quarter grew faster than expected at +0.9% while the market was expecting +0.8%. The prior reading of +0.4% was revised higher to +1.0%. The franc appreciated following the announcement as EUR/CHF fell below 1.2950 from session highs around 1.3040 and has since recovered to around 1.2980. USD/CHF dropped from about 1.0185 to just above 1.0100 on Swiss franc strength. Asian equities extended yesterday’s gains and the Nikkei 225 closed back above the key 9,000 mark with a gain of roughly +1.52%.
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Updated Sep 2, 2010 1:21:00 AM
The US Dollar weakened slightly today in Asia against the yen, but conversely firmed slightly against the majors in what was a quiet trade session. Upbeat US manufacturing data helped to propel equities higher which carried over to the Asian session where stocks were mostly in the green for the day. Despite firmer equities, risk softened a bit after the morning saw a boring display of tight ranges in most currencies. USD/JPY fell to lows just shy of the 84.00 big figure as traders remained cognizant of the potential of the BoJ intervening in the currency markets. With a battle for the Japanese Democratic Party leadership around the corner, investors feel that a drastic move could be in the cards for current leader Naoto Kan in order to help solidify his position. Challenger Ichiro Ozawa has made it clear that he is not afraid to pull the trigger on yen intervention if needed. The EUR/USD was basically stagnant in a 30 pip range despite the EUR/JPY sinking 60 pips to 107.50. Down Under, the Australian dollar took a hit when trade balance disappointed at 1.89B as opposed to the forecast of 3.11B. The AUD/USD pair dipped to 0.9055 after an early morning start at four week highs near 0.9115. Although we are done with top tier data out of Asia for the week, all eyes are on Friday’s Non Farm Payroll data out of the US. This upcoming data could keep the markets relatively quiet in Asia tomorrow to end the week.
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Updated Sep 1, 2010 5:00:00 PM
Risk sentiment surged on positive economic data as well as beginning of month asset allocation. The positive news stream continued from last night’s release of China’s August manufacturing PMI which surprised to the upside printing 51.7 vs. expected 51.5. The risk rally continued as we received uplifting news from down under on much stronger than anticipated 2Q Australian GDP numbers (+1.2% vs. +0.9% expected). The economic data out of the U.S. showed a disappointing ADP employment change for August dropping to -10K from the prior 37K (cons. 15K). This was the first negative ADP reading since January of this year. The market reaction to the labor data was relatively muted and it was the August ISM manufacturing data which was released at 56.3 well above the anticipated 52.7 and stronger than the prior 55.5. Construction spending came in weaker than forecasted (-1.0% vs. expected -0.5%) but was shrugged off as the market focused on the strong ISM numbers. With so much talk this week about the focus on U.S. employment data it comes as a bit of a surprise that the market seemed to disregard the negative ADP print. Risk on was in full effect and the usual safe havens, the U.S. dollar, the Japanese yen, and the Swiss franc declined as investors sought riskier assets. EUR/CHF rocketed from near all time lows around 1.2850 to roughly 1.3040 before settling to current levels around 1.3000. EUR/USD surged from under 1.2700 to highs just above 1.2850 before finding supply to bring it to 1.2800 currently. USD/JPY traded near 15-year lows early in the session making lows around 83.65/70 and climbed to 84.65/70. Yen-crosses traded higher across the board on a softer yen. U.S. equities rallied sharply with the DJIA advancing by about +2.54% and the S&P 500 gaining about +2.95%. The
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Updated Sep 1, 2010 8:00:00 AM
Risk appetite was given a boost by uplifting data from down under. Australia surprised the markets by reporting that its economy grew at the fastest pace in three years. GDP advanced to +1.2% in 2Q from the prior +0.5% beating analysts forecast for +0.9% growth. The rise was largely attributed to China’s demand for iron ore as exports climbed 5.6% to contribute 1.1 percentage points to GDP. Another key factor was an increase in household spending by 1.6% which added 0.9 percentage points to the figure. China added to the improving sentiment as August manufacturing PMI printed higher than the anticipated 51.5 rising to 51.7 from the prior 51.2. The commodity centric economy of Australia is closely tied to growth in China as China demands raw materials provided by its nearby trade partner. The positive economic data also lends support to further rate hikes from the RBA. AUD/USD surged from session lows around 89.10 to highs of near 0.9060. Asian stock markets rallied across the board overnight on the improving risk sentiment with the Nikkei 225 gaining roughly +1.17%. European bourses are currently following higher. The increase in risk appetite sent the U.S. dollar lower with EUR/USD currently trading just above 1.2800 having rallied from session lows around 1.2665. The dollar is also being sold against the yen as USD/JPY approaches its 15-year lows and is currently trading a tad under 84.00. GBP/USD, which took quite a plunge yesterday on fiscal concerns and dipped following this morning’s weak August manufacturing PMI (54.3 vs. expected 57.0 and prior 56.9) has rebounded from lows around 1.5335 to current levels around 1.5400 on a softer greenback. On the data front for the NY session is the August ADP employment change due at 0815EDT, August ISM manufacturing and July construction spending at
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