The EUR put on a huge spurt higher midway through today’s Asian session as headlines emerged from EU’s Van Rompuy that the Euro-zone had reaffirmed its commitment to use its bailout funds (EFSF and ESM) flexibly and efficiently. Countries that were complying with European Union budget policies would be able to access the bloc’s temporary EFSF and permanent ESM rescue funds to support their government bonds on financial markets. The ECB will act as agent for the rescue funds and, once in place, the ESM will be able to recapitalize banks directly. In addition, ESM loans to Spanish banks will not have seniority suggesting a level playing field for all. Meanwhile Italy’s Monti added that the decision lays the groundwork towards mutual Eurobonds.
The news saw EURUSD surge over 1 percent to a 1.2625 high and had a knock-on effect for risk across the board. The question is how long till markets decide it is just another case of kicking the can down the road. Meantime, the EUR remained bid on dips for the rest of the Asian session.
On the data front, Japan’s jobless rate improved to 4.4 percent from 4.6 percent (4.5 percent expected) and the inflation rate eased off to 0.2 percent y/y in May from 0.4 percent in April. Industrial production was a mild disappointment in May, falling a larger-than-expected 3.1% from April, the steepest decline since that March 2011 earthquake and tsunami. Slower global demand for automobiles contributed most to the weaker data.
Downplayed expectations of the EU summit had been enough to knock the EUR off its complacent perch overnight. Rumours that Germany may be relaxing its stance were swiftly denied and another German spokesman commented that nothing detailed would come out of the summit had forced a lower EUR across the board. EURUSD slid through the short-term support level at 1.2440 to stall just above 1.24. German unemployment numbers disappointed but UK final GDP for Q1 was unchanged at -0.3 percent q/q.
On the data front, the US GDP revision was also unchanged at +1.9 percent q/q while initial jobless claims were in line with forecasts at 386k. The weekly Bloomberg consumer comfort index showed a slight improvement to -36.1 from -37.9 while the Kansas City Fed index came in at +3 from +9 last time.
Data Highlights
US Q1 GDP Revision out at +1.9% q/q, unchanged from previous estimate
US Initial Jobless Claims out at 386k vs. 385k expected and revised 392k prior
US Continuing Claims out at 3296k vs. 3280k expected and revised 3311k prior
US Bloomberg Consumer Comfort Index out at -36.1 vs. -37.9 prior
US Jun. Kansas City Fed Manufacturing Index out at +3 vs. +4 expected and +9 prior
NZ May Building Permits out at -7.1% m/m vs. +3.0% expected and revised -7.6% prior
UK Jun. GfK Consumer Confidence out at -29, as expected and unchanged from prior
JP Jun. Markit/JMMA Manufacturing PMI out at 49.9 vs. 50.7 prior
JP May Jobless Rate out at 4.4% vs. 4.5% expected and 4.6% prior
JP may Overall Household Spending out at +4.0% y/y vs. 2.5% expected and 2.6% prior
JP May National CPI out at +0.2% y/y, as expected vs. +0.4% prior
JP May Industrial Production out at -3.1% m/m, +6.2% y/y vs. -2.8%/+6.7% expected and -0.2%/+12.9% prior resp.
AU May Private Sector Credit out at +0.5% m/m, +4.0% y/y vs. 0.4%/3.9% expected and 0.4%/3.8% prior resp.
Upcoming Economic Calendar Highlights
(All Times GMT)
JP Construction Orders (0500)
JP Housing Starts (0500)
GE Retail Sales (0600)
Swiss KOF Leading Indicator (0700)
Sweden Household Lending (0730)
EU Euro-zone M3 Money Supply (0800)
Norway Retail Sales (0800)
UK Index of Services (0830)
EU Euro-zone CPI (0900)
UK BOE Financial Stability Report (0930)
US Fed’s Rosengren to speak (1100)
US Fed’s Dudley to speak (1230)
CA GDP -April (1230)
CA Industrial Product/Raw Material Prices (1230)
US Personal Income/Spending (1230)
US Fed’s Bullard to speak (1305)
US Chicago PMI (1345)
US Final Michigan Confidence (1355)
Andrew Robinson,
SAXO BANK