Today’s Asian session started favourably, with equity markets opening higher and risk currencies holding onto gains made last night, particularly versus the US dollar. However, with no fresh news or data to influence there was a lack of conviction to push risk higher.
There was some market comment, though not widely discussed, that the city of Changsa (capital city of Hunan province) will announce a headline investment package of about RMB829 bln, some 1.8 percent of China’s 2011 nominal GDP. The rumoured announcement comes shortly after China’s State Council had approved a “strategic plan to promote the central region’s economy”. Investment is planned in infrastructure projects, both large-scale and medium-sized, (airport, mass transit etc.) and will probably be spread out over a number of years. It is likely that other regions will make similar announcements in coming months.
The news also comes just as the IMF’s China representative commented that China might refrain from stepping up its monetary stimulus or increase spending, as measures already in place are expected to be sufficient to support growth. He also saw the possibility of additional rate cuts in China if inflation, which has been trending downward recently, remains under control.
Earlier in the session the RBNZ left rates unchanged at 2.5 percent, as had been widely expected, with governor Bollard providing no strong hints on the timing of the next move. Indeed, he commented that the performance of the NZ economy was in line with last month’s monetary policy statement and the assessment of the economy remained the same – a definite non-event in the eyes of the market.
We saw a bounce for the EUR overnight as ECB’s Nowotny suggested there were arguments for allowing ESM to have a banking license. In addition a German IFO economist commented that he saw no need for lower EUR rates (this after the German IFO surveys declined for the third month in a row) and Spanish bond yields eased back from their recent highs. An article in the WSJ also suggested the Fed was becoming increasingly worried about the US economy and heightened QE expectations saw the US dollar weaken across the board. GBP underperformed following a woeful Q2 GDP print of -0.7 percent q/q.
North American data releases saw Canada house prices rising 1.2 percent m/m, 5.4 percent y/y while US new home sales appeared to contradict the growing theory that the housing market is stabilizing/recovering. Sales were down 8.4 percent m/m compared to a revised +6.7 percent the previous month. Wall Street was mixed with the DJIA rallying 0.47 percent, but the S&P and Nasdaq both declining, -0.03 percent and -0.31 percent respectively.
Data Highlights
CA Jun. Teranet/National Bank House Price Index out at +1.2% m/m, +5.4% y/y vs. 1.1%/5.8% prior resp.
US Jun. New Home Sales out at -8.4% m/m vs. +0.7% expected and revised +6.7% prior
NZ RBNC leaves Official Cash Rate unchanged at 2.5%
Upcoming Economic Calendar Highlights
(All Times GMT)
SI Industrial Production (0500)
GE GfK Consumer Confidence (0600)
GE Import Price Index (0600)
Sweden Consumer/Manufacturing Confidence (0715)
Sweden Household Lending (0730)
Sweden PPI (0730)
Sweden Trade Balance (0730)
Sweden Unemployment Rate (0730)
EU Euro-zone M3 Money Supply (0800)
EU ECB’s Draghi to speak (0915)
US Durable Goods Orders (1230)
US Initial Jobless Claims (1230)
US Bloomberg Consumer Comfort Index (1345)
US Pending Home Sales (1400)
US Kansas City Fed Manufacturing Activity (1500)
Andrew Robinson,
SAXO BANK