There was not much in the way of weekend headlines to disturb the Asian open today, so currencies were orderly and close to New York’s Friday closing levels.
Players were left to digest Fed chairman Bernanke’s letter to congressmen reported on the wires late Friday where he defended the Fed’s stimulus policies, saying that Operation Twist is working its way through the economic system and there is “scope for further action” by the Fed to ease financial conditions and strengthen the recovery. Attention is now firmly fixed on Friday’s Jackson Hole economic symposium and the will he/won’t he debate likely raging all week.
There was minor disappointment that China did not announce any additional easing measures over the weekend with last week’s weak flash manufacturing PMI from HSBC increasing the expectancy/urgency of such a move. While equity markets opened higher after Wall Street’s positive finish, the lack of a China move knocked sentiment back a touch. The only weekend reports from China noted Premier Wen’s comments that the country would expedite a “targeted effort” to stabilize exports growth in order to meet current targets for the economy and social developments. He also noted that Q3 data would determine whether China will meet its trade growth target of 10 percent for this year.
Latest IMM data shows that speculative net EUR short positions were scaled back further to last Tuesday, falling to their lowest level since the beginning of May. When you consider that since Tuesday the EUR rallied a further 1 percent versus the US dollar then we can expect these shorts to be pared back even further at the next data point.
The EUR’s 4-day run-up ran into difficulties on Friday with some profit-taking ahead of a UK long weekend forcing some retracement. EU periphery talk added pressure with rumours of a delay to any proposed ECB bond buying plan until after the Constitution Court decision on bailouts. Meanwhile, Germany suggested Greece cannot expect more cash with finance minister Schaeuble seeing a temporary Greek exit as a likely/possible scenario, though Merkel repeated that she did not want the country to leave the EUR. There was also a sense of disappointment after all the mini-summit meetings during the week yielded nothing of substance.
On the data front, headline US durable goods orders were much stronger than expected at +4.2 percent m/m (courtesy of a 54 percent surge in demand for civilian aircraft) but once defense and aircraft spending were taken out of the equation the number was a more depressing -3.4 percent, the largest drop in 8 months. Wall Street recouped some of the earlier losses in the week but still finished lower over the five day period.
Data Highlights
US Jul. Durable Goods Orders out at +4.2% m/m vs. 2.5% expected and 1.6% prior
US Jul. Capital Goods Orders Non-defense Ex-aircraft out at -3.4% m/m vs. -0.2% expected and revised -2.7% prior
UK Aug. Hometrack Housing Survey out at -0.1% m/m, -0.5% y/y, unchanged from prior
China Jul. Industrial Profits YTD out at -2.7% y/y vs. -2.2% prior
Upcoming Economic Calendar Highlights
(All Times GMT)
GE Import Price Index (0600)
JP machine Tool Orders (0600)
Sweden Household Lending (0730)
Sweden PPI (0730)
Sweden Retail Sales (0730)
GE IFO Surveys (0800)
US Fed’s Evans to speak (1000)
US Dallas Fed Manufacturing Activity (1430)
US Fed’s Pianalto to speak (1615)
Andrew Robinson,
SAXO BANK