Market Comment
USD rebounded from early losses yesterday as Ben Bernanke, chairman of the Federal Reserve, said the central bank might keep an emergency lending facility for US banks open beyond the end of the year. The comments helped support the dollar, which had been under pressure earlier as a sharp drop in global equities sparked a fresh wave of risk aversion in the currency markets. As mentioned yesterday, a report suggesting US government state-sponsored mortgage lenders Fannie Mae and Freddie Mac would have to raise more capital was the trigger for the latest bout of nervousness. USD was also aided by a two day sharp decline in the price of oil which, yesterday slid more than $5 - the biggest one day decline since Jan 1991 when the 1st Gulf war started. By midday in New York, the dollar rose 0.4% to $1.5663 against the euro. Euro also fell 0.2% to Y168.15 against the yen and eased 0.1% to £0.7954. USD advanced elsewhere, rising 0.2% to Y107.30 against the yen, climbing 0.3% to CHF1.0297 and gained 0.3% $1.9694 against the pound. The dollar fared even better against the Australian and New Zealand dollar, rising 0.5 % to $0.9511 and 0.6% to $0.7490, respectively. Business confidence surveys in Australia and New Zealand have come in below forecasts, heightening concerns over the economies. Today, the Bank of England starts it's two day meeting with an interest rate decision being released on Thursday. This morning, German trade balance and current account figures for May came in lower than expected today with exports feeling the impact of the stronger euro. Trade balance came in at Eur14.4b against a f/c of Eur17.3bn, while the current account figure came in at Eur7.5bn against a Eur12.5bn f/c, with April being revised to Eur15.5bn from Eur14.5bn. Imports saw a rise of 0.7%, lower than the forecasts of 1.0%, while the Export number saw a worrying -3.2%, forecast 0.5%, as continued euro strength saps external demand and points to worries ahead.
Market Focus
ZAR : With no domestic data out today and MTN extending its talks with Reliance to July 21st without providing further insight into the deal's direction, we believe the rand will take its cue from offshore developments. $Zar has broken the key 7.70 neckline support this morning as local banks sold aggressively first up. There is some buying interest from importers & investment banks on the first dip to the 7.67 area. There is support below at 7.64 & below that next major technical support at 7.55. First resistance is yesterdays high at 7.8230. This morning, we believe a dip of 7.67 is a good level to buy, looking to test back to 7.75.
$TRY: TRY rallied yesterday to 1.2230 lvls as risk appetite was boosted as Oil sharply declined & along with supportive Bernanke comments, about possible extension of the discount window & Fed support for financ institutions, equities gained with DJIA up 1.36%, S+P up 1.71% & Nasdaq up 2.28%. Today support at 1.2210 & 1.2150 & 1.2100, on the topside Resistance is 1.2280 intraday then 1.2350 & 1.2420.
EUR$ Whilst yesterday the dollar rose against the euro, this morning EUR/USD has rallied on the back of the story that Iran has test fired long range missiles, the further destabilisation of the situation in the Middle East sending the Dollar swiftly lower. For Eur/Usd 1..5650-1.5750 parameters have continued, so today we will be looking to buy dips at 1.5640 and take a profit at 1.5760;
GBP$ The pound continued to maintain its 1.97-plus status earlier this morning but has recently dipped below as UK Nationwide Consumer Confidence data released showed a fall to the lowest level in 4 years at 63 vs 69 last and the Bank of England MPC start their two-day meeting this morning. Today we will be looking to buy dips at 1.9650 and take profit at 1.9790;
$JPY: The dollar advanced against Yen in New York yesterday rising 0.2% to Y107.30 against the yen and has continued to rise this morning. Asia Pacific shares bounced back on Wednesday from their lowest levels for 21 months hit yesterday, as oil prices plunged by more than $6 a barrel overnight and orders for Japanese machinery jumped sharply, especially for equipment to make steel and computer chips. Asia’s rally continued a rise on Wall Street overnight, where the S&P 500 index gained 1.7 per cent – its biggest one-day rise for more than a month. As the Yen has continued to weaken this morning agst the usd we will be selling rallies at 107.75 and taking profit at 106.90;
G7 Interest Rates: Bernanke said that the bank lending may continue into next year and US stocks reversed some of Monday's losses also helped by a fall in the oil price to $136. Oil is off $10 this week and we could see further liquidation of longs (watch for further news on Iran though). Asian stocks followed the US gains and Europe call higher on the open. Fixed income opening lower (higher rates) in the three majors. This looks like profit taking ahead of speakers and data today.
The 2-10s in USD Swaps has moved back to 119bps after making a high of 128bps on Monday evening. We have seen a lot of re-entering with targets around 150bps. The Fed's Lacker spoke of tackling rising inflation even in the face of falling employment. This may be paving the way for an ECB style hike by the Fed to bring back inflation expectations rather than waiting for slower growth to have the same effect. ABC Consumer Confidence posted another small rise. Treasury at 3.89.
Trichet speaking early this morning - expects inflation to moderate in 2009, but could remain above 2% for some time and that downside risks remain. He noted the ECB still remained concerned over wage increases and rate increases are intended to anchor prices. UK Nationwide Consumer Confidence fell to the lowest level in 4 years at 63 vs 69 last. MPC start their two-day meeting today.
TODAY'S ECONOMIC RELEASES
TIME (GMT) COUNTRY INDICATOR FORECAST LAST
00:30 AUS Consumer Sentiment -6.7% A -5.6%
01:30 AUS Housing Fin Val M/M -6.1% A -3.0%
01:30 AUS Housing Finance Number -7.9% A -4.2% R
06:00 GER Trade Balance SA EUR 14.4B A 18.8B R
06:00 GER Current A/C Bal SA EUR 7.5B A 15.5B R
06:00 UK Redrow's Trading Update N/A N/A
06:00 UK Bovis Homes Group's Trading Update N/A N/A
06:45 FRA Trade Balance SA EUR -3.5B -3.7B
07:00 EMU ECB's Trichet Spks N/A N/A
07:30 DEN Trade Balance SA DKK 2.5B 3.3B
07:30 SWE Ind Prod NSA Y/Y 0.70% 0.20%
07:30 SWE Ind Orders NSA Y/Y -6.80% 10.10%
07:30 SWE Industrial Prod SA M/M 0.20% -0.30%
07:30 SWE Ind Orders SA M/M 1.00% -6.80%
08:30 UK Global Trade Bal GBP -7.4B -7.6B
08:30 UK Trade Bal ex-EU GBP -4.1B -4.2B
09:00 EMU Final GDP SA Q/Q 0.80% 0.30%
09:00 EMU Final GDP Y/Y 2.20% 2.10%
09:00 GER Schatz Auction 7.0B N/A
09:30 POR 10Y Bond Auction 1.0B N/A
09:30 UK BRC Shop Prices Y/Y 1.74% 1.80%
10:00 GER Bund Linker Auction 2.0B N/A
11:00 US MBA Mortgage App N/A 3.60%
12:15 CAN Housing Starts 000s 227 221.3
14:35 US EIA Wkly Crude Stocks -2.1M -2000K
23:50 JPN Trade Bal IMF JPY 700B 634.7B
23:50 JPN Domestic CGPI Y/Y 5.30% 4.70%
23:50 JPN Domestic CGPI M/M 0.60% 1.10%
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