Today's Key Points

Daily Forex Fundamentals | Written by Danske Bank | Jul 22 08 07:27 GMT |

Danske Daily Today's Key Points US stock markets lose steam in late trading, sending both bond yields and USD lower. With no major releases today, financial markets will continue to take their lead from the stock mar-ket. Disappointing earnings from American Express and Apple released after market close will weigh on markets today. I n Scandinavia, focus will mainly be on earning reports too, with Ericsson, Nordea and Svenska Han-delsbanken releasing earnings this morning. Markets Overnight US stock markets lost steam yesterday evening after initially getting a boost from better-than-expected Q2 earnings from Bank of America. S&P 500 and Nasdaq closed slightly down -; by 0.1%. Disappointing earnings from Apple and American Express will weigh on global stock markets today. In Asia, stock market sentiment this morning is slightly negative. In Japan, the Nikkei is up 2.0%, mostly due to catching up, as the Japanese market was closed yesterday. Hang Seng is slightly down -; by 0.1%. The bond market continues to take its lead mainly from the stock market. With the stock market running out of steam, 10Y and 2Y yields have declined by 5bp and 10bp to 4.05% and 2.60%, respectively, since European close. In the FX market, USD has weakened on the back of the more cautious stock market sentiment. This morning EUR/USD is trading at 1.5926 and USD/JPY is trading at 106.43. EUR/JPY is trading largely unchanged at 169.44. There have been no major movements in the Scandinavian currencies. EUR/NOK is trading largely unchanged this morning at 8.0524, and EUR/SEK is also largely unchanged at 9.4471. For commodities, the overall picture is stabilisation. Crude oil prices have declined slightly as fears of thun-derstorms closing down Gulf of Mexico crude oil production have abated somewhat. The Nymex August crude oil future is trading at USD 130.59 this morning. Global Daily Focus today will again be on Q2 earnings announcements. Among Financials, the reports from Wachovia (13:00), Washington Mutual (after market close) and Countrywide (unscheduled) will be key events. Outside Financials, Catarpillar (13:30) and Yahoo! (unscheduled) are also due to deliver Q2 reports today. In Scandina-via, Ericsson (7:30), Nordea (08:00) and Svenska Handelsbanken (unscheduled) are reporting today. Aside from Q2 reports, Treasury Secretary Paulson and Regional Fed President Richard Plosser (hawk, voter) are scheduled to speak on the US economy at 14:10 and 14:30, respectively. We look for a notoriously hawk-ish speech from Plosser. The only economic data of interest today from the major economies is US monthly OFHEO house prices and the Richmond Fed manufacturing index, released at 16:00. However, these figures do not usually move the market, and therefore bond markets will probably continue to follow the lead of equity markets and the unwind-ing of long positions. Hence, if yesterday is anything to go by, the risk for bond yields should be skewed to the upside again today. However, the earnings reports will be the decisive factor. Earnings reports are being reflected in FX markets at the moment. Yesterday, EUR/USD dropped more than 20 pips on the better-than-expected Bank of America result, and even traded 20 pips lower in the following couple of hours. Then the US session began and everything returned to normal. Today's Wachovia report could cause a similar movement, although the direction is less clear -; investors are therefore advised to sit tight at 13.00 CET. Aside from movements around earnings reports, EUR/USD has no clear direction at present. The technical outlook is still for higher levels, but there is a lack of fundamental triggers. Tomorrow's Fed Beige Book (20.00 CET) could be such a trigger, which most probably will be a downbeat reading with the potential to send the greenback lower. CAD investors can perhaps get a kick out of today's retail sales numbers. These are normally quite hard to predict (also major divergence between forecasts), but can actually send CAD stronger against USD. Eco-nomic and financial conditions in Canada are not as gloomy as elsewhere, and a widening of the rate spread to the US might be on the cards. This could send USD/CAD well below parity. While it could take some time, we have become increasingly certain that the BoC will hike before the Fed. Scandi Daily No major economic indicators released today. In Sweden, focus will be on the release of earnings from Erics-son, Nordea and Svenska Handelsbanken. Danske Bank http://www.danskebank.com/danskeresearch Disclaimer This publication has been prepared by Danske Markets for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. 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