No fireworks again today as the market eyed whether the German constitutional court would thrown the entire ESM ratification process into chaos. US FOMC minutes are up tomorrow.
EURUSD tried to creep higher in the early going, but the market was happy to push it back lower after the pair poked at yesterday’s highs above 1.2320 as there were no particularly Euro-supportive developments in sight. The EU decided to officially approve a one year extension of Spain’s plan to bring down its deficit as a further sign of solidarity and some immediate aid would be headed Spain’s way by the end of the month, on the order of EUR 30 billion. Sovereign spreads did come in a bit on the day, with the Spanish 10-year falling some 25 bps as of this writing. Interestingly, this occurred even as Bunds were generally well bid on the day. A ruling “on whether to allow or suspend ratification” (of the ESM, which the German parliament ratified on June 29) could come by the end of today, according to the Financial Times. The court must also decide whether the ESM falls into the court’s remit in the first place. It looks like the market is not particularly worried at the moment, but the implications would be swift and possibly brutal if we see a surprise on the court’s decision.
Risk appetite was generally healthy today in the European session, with equities pushing higher and AUDUSD having a go well above 1.0200 again after an overnight low closer to 1.0160, perhaps due to the very pronounced slowdown in China’s import growth, which was the explanation for the much larger than expected trade surplus. AUDUSD is still contending with the 200-day moving average currently around 1.0270 after it briefly pushed above 1.0300 last week.
Odds and ends
A Bloomberg article offers a good perspective on the Canadian economy, as rules regarding limits on mortgages announced late last month went into effect yesterday. These efforts are very likely to cool off numbers like the Canadian housing starts (note another strong reading in today’s release of Jun. data) as well as possibly the economy in general. Stay tuned.
NOK had a confusing day. Early in the day, the Norwegian labour minister forced the labour unions into arbitration rather workers allowing them to go on general strike, averting a complete shutdown in Norwegian oil production. But later in the day, a very low CPI print suggests that the Norwegian central bank may be eyeing the strong NOK with considerable disdain. This might be a theme soon if risk appetite remains healthy: the “G-10 smalls” facing uncomfortable appreciation.
Chart: USDJPY
Going absolutely nowhere of late, but interesting to see the pair probing at the 200-day moving average after the recent rally failed to blossom. Downside looks more likely if bonds continue to rally and risk appetite fades again, while strong than expected hints of QE in the pipeline and a boost to risk could get the rally back on track. How long can the pair stay in no-man’s land?
Looking ahead
Tomorrow’s FOMC minutes seem to be the next event risk for this market. With last week’s BoE and ECB moves in the bag, this market is likely pricing in a good dose of further QE down the road, so it won’t take much for these minutes to disappoint.
Economic Data Highlights
China Jun. Trade Balance out at +$31.7B vs. +$24.0B expected and $+18.7B in May
Sweden May Industrial Production out at +3.5% MoM and -2.3% YoY vs. +0.4%/-6.9% expected, respectively and vs. -6.4% YoY in Apr.
Sweden May Industrial Orders out at +4.5% MoM and -3.3% YoY vs. -8.0% YoY expected and -9.0% YoY in Apr.
Japan Jun. Consumer Confidence out at 40.4 vs. 40.7 expected and 40.7 in May
Norway Jun. CPI out at -0.5% MoM and +0.5% YoY vs. -0.1%/+0.8% expected, respectively and vs. +0.5% YoY in May
Norway Jun. CPI underlying out at -0.3% MoM and +1.2% YoY vs. +0.1%/+1.6% expected, respectively and vs.
UK May Manufacturing Production out at +1.2% MoM and -1.7% YoY vs. -0.1%/-1.9% expected, respectively and vs. -1.5% YoY in Apr.
UK May Visible Trade Balance out at -£8363M vs. -£9100M expected and -£9709M in Apr.
Canada Jun. Housing Starts out at 222.7k vs. 205k expected and 217.4k in May
Upcoming Economic Calendar Highlights (all times GMT)
UK Jun. NIESR GDP Estimate (1400)
US Weekly API Crude Oil and Product Inventories (2030)
Australia RBA’s Lowe to Speak (2300)
Japan Jun. Domestic CGPI (2350)
Australia Jul. Westpac Consumer Confidence (0030)
Australia May Home Loans (0130)
John J Hardy,
SAXO BANK