Wednesday Global Markets Briefing: Must Know News for Traders

SUMMARY

Bias to safety assets like JPY, USD
Risk assets (stocks, commodities, commodity related currencies and higher yielding currencies down or flat
US GDP Friday is the likely big news of the week as earnings picture is now clarifying [poor results beating worse estimates, slower rate of decline may (?) imply recovery on the way] and economic news resumes key role for latest market direction.
NB: Most global stock indexes near or at 2009 highs despite a very mixed earnings and overall economic picture, are thus vulnerable to pullback. Since commodities and currencies follow stocks, these are likely to follow stocks down.



STOCKS

Unlike Monday, US stocks were unable to fight off selling on Tuesday and spent the day mostly down on profit taking fueled by poor consumer sentiment data and lack of enough positive news to counteract it.
Global Indexes for Tuesday: Asia mixed (N225 -0.17%, HS +0.70%, ST +1.17%), Europe: (FTSE: -1.25%, DAX -1.46%, CAC 40 +-1.23%) US: ( S&P- 0.26% NSDQ +0.26 % Dow - 0.13 ) Wed: Asia up (N225 +0.34%, HS -1.63%, ST -0.19%),



FOREX

General: risk currencies flat/down, JPY up, markets seeking further news for direction US earnings influence fading, economic calendar news to resume importance, especially US GDP Friday should be climax of the week.

· The EUR/USD Down as stocks, risk appetite fall. We continue to see the euro struggling in the immediate future and see greater likelihood of correction towards 1.300 than towards further upside.
· USD: Dollar steady vs. euro after recovering from 8-wk low the previous day as weaker U.S. consumer confidence spurred safe-haven demand for the greenback and prompted investors to trim their accumulated long positions in the European currency. Financial markets overall prone to profit-taking after recent run-up and they could be more sensitive to weaker data The dollar strengthened against most of the majors, with the exception of the yen, as economic data was mixed and equities finished flat to modestly negative.
· EUR: Down against safer currencies, especially the JPY. Despite some recent deflationary data we suspect Euro zone inflation is mainly a base effect from energy prices and view deflation as an unlikely possibility and see headline inflation returning closer to target levels by the end of 2010, we continue to see the euro struggling in the immediate future as press reports suggest trouble ahead for European commercial real estate and consumer loans. We maintain our 3m EURUSD Vice President Papademos said it would be easy to withdraw liquidity from the market when the time comes and that the ECB will outline an exit plan well in advance. But he also said that there is no reason to plan for an immediate withdrawal at the current juncture German CPI is due and consensus is for another drop in the m/m and y/y readings ahead of the Euro zone July inflation estimate as our economists expect the Euro zone deflationary trend to worsen in July. We are looking for German CPI - EU Harmonized at -0.60% y/y. Despite the recent improvement in German consumer confidence, we continue to see the euro struggling in the immediate future as investors remain wary of fundamental problems in the Euro zone. EUR could more likely to test as low as 1.30 in the coming months
· CAD: down/flat, moving w/ crude, stocks.
· JPY: The yen strengthened against the dollar and the other major currencies as investors pared back risk-seeking amid a weak day in European and US equities. USDJPY traded as low as 94.05 before moving back up to 94.51 at the time of writing. Retail trade data is due and consensus is for -2.5% y/y compared to -2.7% previously. We continue to see USDJPY staying range bound though yen crosses will largely be determined by swings in risk appetite.
· CHF: generally slightly up.
· GBP: The BoE will likely be watching the upcoming mortgage approval and mortgage lending data as they consider whether or not to increase their asset purchase program at the next meeting. We are looking for a modest pickup in both metrics to 44.1k and GBP 0.5bn, respectively. We continue to view market expectations for the UK economic recovery as overdone, as confirmed by last week's much weaker than expected Q2 GDP release, and also expect further BoE action. As a result our bias is short the GBP versus USD and EUR.
· NZD: down/flat building consents much worse, business confidence way up
· AUD: down/flat Talk that rates had bottomed out and the next move would be up got a boost after Reserve Bank of Australia (RBA) Governor Glenn Stevens said in an upbeat speech on Tuesday the risks to the economy were now more balanced and he would not wait for unemployment to peak before tightening monetary policy. His comments saw markets swing in to factor in rate hikes as early as December. The latest data from the Commodity Futures Trading Commission showed speculators raised their long positions on the Aussie in the week ending July 21, while nearly doubling their bets against the U.S. dollar.



COMMODITIES

CRUDE down from around $68 to 66.74 GOLD down hard about 2% from $956 to $937 on EUR/USD DROP


OTHER HEADLINES OF NOTE

Treasuries had a decent day, but saw gains cut in the wake of a record $42 billion auction of 2-year Notes. The high yield for the auction was a reasonable 1.08% and the bid-to-cover was a solid 2.75, but at 33% the indirect bidding [is from big foreign central banks, sovereign funds] was lower than we would have liked to see. The 2-year Note fell two ticks, but the benchmark 10-year Note added nine ticks. That left the pair trading with a spread just above 260 basis points.

JPMorgan Says Brazilian Real to Gain on Trade Surplus, Investment Inflows Brazil’s real may strengthen to 1.8 per dollar by year-end as faster economic growth lures foreign investment and higher demand for commodities boosts the country’s exports, according to JPMorgan Chase & Co.

Orders for U.S. Durable Goods Probably Dropped in June on Auto Shutdowns Orders for U.S. durable goods probably fell in June for the first time in three months, reflecting auto-plant shutdowns, economists said before a report today.

Pound Little Changed Against Dollar at $1.6422; Little Changed Versus Euro The pound traded little changed against the dollar and the euro.

Morgan Stanley Tells Investors to Sell Dollar Versus Euro, Norwegian Krone Investors should sell the dollar against the euro, Norwegian krone and Canadian currency as the global outlook improves, Morgan Stanley said.
Euro's Advance Against Dollar May Persist, Helaba Says: Technical Analysis The euro’s gains against the dollar may persist, Helaba Landesbank Hessen-Thueringen said, citing technical indicators.

KEY ECONOMIC CALENDAR EVENTS

[figures from left to right: actual (if shown)—forecasted—prior]

TUESDAY

6:00am GBP CBI Realized Sales - lower consumer spending -15 -12 -17
9:00am USD S&P/CS Composite-20 HPI y/y +, less decline -17.1 -17.8% -18.1%
10:00am USD CB Consumer Confidence disappoints: -46.6 49.1 49.3
12:35pm USD FOMC Member Yellen Speaks
6:00pm USD Fed Chairman Bernanke Speaks
6:45pm NZD Building Consents m/m Disappoints -9.5 -4.8% 3.5%
7:50pm JPY Retail Sales y/y Disappoints -3.0% -2.5% -2.7%
Tentative AUD HIA New Home Sales m/m Disappoints 0.5% 5.7%
11:00pm NZD NBNZ Business Confidence Surprises 18.7 5.5



WEDNESDAY

Treasuries are back in focus Wednesday with a $39 billion auction of 5-year Notes (1:00 PM ET).
8:30am USD Core Durable Goods Orders m/m -0.1% 1.1%
10:30am USD Crude Oil Inventories -1.8M
2:00pm USD Beige Book
5:00pm NZD Official Cash Rate 2.50% 2.50%
5:00pm NZD RBNZ Rate Statement
6:00pm USD Fed Chairman Bernanke Speaks
7:50pm JPY Prelim Industrial Production m/m 2.5% 5.7%
9:30pm AUD Building Approvals m/m 8.0% -12.5%


CONCLUSIONS

MEANING

Short Term: Profit taking in stocks leads risk assets lower. With the US Q2 earnings picture clear [bad results beating worse estimates], daily economic calendar and geopolitical news resumes its importance. Markets await news for further direction. With stocks at or near 2009 highs despite any additional justification than was present when they last hit these levels in June, we suspect the likelihood is for some pullback but within trading ranges established over the past two months. US GDP this Friday is the likely next big news to move markets and set near term mood.

WHY

Markets are seeking direction from news. Unlikely to hit anything soon to justify a move beyond the trading channels established over the past two months.


DISCLOSURE & DISCLAIMER: Opinions expressed do not necessarily represent those of AVA FX. The author may have positions in above mentioned instruments.