There was relative calm in the currency markets during the Asian session following the volatile gyrations seen overnight post-Bernanke. With most order books likely wiped clean by the price action, Asia kept currency pairs tight-ranged though with a mildly positive bias for the risk currencies.
The AUD gained a marginal benefit from a firmer leading index in May. Westpac’s headline leading index rose 0.8 percent in the month, faster than the 0.5 percent recorded in April, but most of the improvement came from a large jump in building approvals in the month and as such risks being a one-month distortion.
The pace of decline in property prices in China appears to be slowing as latest data from the National Bureau of Statistics showed a more balanced report of prices across the 70 cities surveyed. The majority of cities reported either unchanged or lower prices compared to a month ago but the number of cities reporting higher prices is on the increase compared to May. However, compared to a year earlier, more than 80 percent of the 70 cities surveyed recorded lower prices in all categories of residential apartments. While the anti-speculative measures introduced two years ago appear to be working, Premier Wen has recently reported that they will not be lifted in the near future and the sector remains shut out of the recent round of policy easing.
Overall, currency markets seemed a bit disappointed initially with Federal Reserve Chairman Ben Bernanke’s testimony last night. Weak retail sales data had seen heightened quantitative easing (QE) expectations but Bernanke merely acknowledged that the US economy had weakened and reiterated that the Fed is ready to take further action if things don’t improve. However, there was no indication of what the action would be, or when it would take place and he did warn of the “fiscal cliff” that the US was fast approaching. The USD rallied across the board in a kneejerk reaction with EURUSD hitting two-day lows before rebounding strongly as the market found itself wrong-footed.
In other news, the Bank of Canada left rates unchanged but maintained its tightening bias while Riksbank minutes were a tad more hawkish than had been expected. On the data front, US CPI was mostly in line with expectations while industrial production was a tad better as was the NAHB housing market index. Wall St liked the fact that QE may still be alive and a couple of better earnings reports left the DJIA 0.62 percent higher, S&P +0.74 percent and the Nasdaq +0.45 percent.
Data Highlights
CA May Manufacturing Sales out at -0.4% m/m vs. +0.6% expected and revised -1.1% prior
US Jun. CPI out at flat m/m, +1.7% y/y vs. flat/1.6% expected and -0.3%/+1.7% prior resp.
US Jun. Core CPI out at +0.2% m/m, +2.2% y/y, both as expected vs. 0.2%/2.3% prior resp.
CA Bank of Canada leaves rates unchanged at 1.0%, maintains tightening bias
US May Net Long-term TIC Flows out at +$55.0b vs. +$41.3b expected and revised +$27.2b prior
US Jun. Industrial Production out at +0.4%m/m vs. 0.3% expected and revised -0.2% prior
US Jun. Capacity Utilisation out at 78.9% vs. 78.2% expected and revised 78.7% prior
AU Westpac Leading Index out at +0.8% m/m vs. 0.5% prior
Upcoming Economic Calendar Highlights
(All Times GMT)
JP Machine Tool Orders (0600)
UK BOE Minutes (0830)
UK Claimant Count Rate (0830)
UK ILO Unemployment Rate (0830)
EU Construction Output (0900)
Swiss ZEW Survey (0900)
US MBA Mortgage Applications (1100)
US Housing Starts (1230)
US Building Permits (1230)
US Bernanke’s testimony before US House (1400)
CA BOC Monetary Policy Report (1430)
US Fed’s Beige Book (1800)
Andrew Robinson,
SAXO BANK