Searching For Guidance
While the euro has managed to regain its composure, the tone remains heavy amid generally thin conditions. Chancellor Merkel’s reported comment that “we haven’t yet shaped the European project in a way that we can be sure that everything will work” weighed on sentiment, which was certainly not helped by former ECB member Juergen Stark’s assertion that weaker states should leave the Eurozone. As expected, Fed Chairman Bernanke’s appearance in front of the House Financial Services Committee did not produce any fresh incentives, as the prepared testimony was virtually identical to that delivered to the Senate Banking Committee on Tuesday, while the Q&A session did not uncover anything to suggest further easing is on tap as early as August 1. Again, we believe the Fed will stay in wait-and-see mode for now amid the high degree of uncertainty in the global equation. The June decision to extend the Twist programme through year end will buy time for the Fed, putting the onus on the upcoming Jackson Hole conference on August 31 ahead of the September 12-13 FOMC meeting – which will include the Summary of Economic Projections and a press conference by Bernanke. Today’s US data had little impact, though the rise in housing starts to 760k in June from 711k in May comfortably beat expectations. The 3.7% m/m drop in June building permits should not obscure the fact that single-family permits rose another 0.6% m/m.. At 493k in June and 486k in Q2, single-family permits were up from 465k, on average, in Q1, 450k in Q4 and 425k in Q3. This steady uptrend portends continued improvement in housing starts. Meanwhile, the Canadian dollar sported a firmer profile, with the Bank of Canada’s Monetary Policy Report and Governor Carney’s remarks underlining the hawkish bias which should attract more diversification flows that likely featured in the record net foreign buying of Canadian securities chalked up in May. AUDUSD also moved higher, feeding off the gains in the equity markets and the modestly softer US dollar posture. Next up on the data calendar is Australian business confidence.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank