Looking for a trend in improving US manufacturing surveys with today's Philly Fed after strong Empire survey.
MAJOR HEADLINES - PREVIOUS SESSION
- New Zealand Jun. Business PMI out at 46.2 vs. 43.1 in May
- New Zealand Q2 Consumer Prices rose +0.6% QoQ vs. +0.5% expected
- China Q2 GDP rose 7.9% vs. 7.8% expected and 6.1% in Q1
- China Jun. Producer Price Index fell -7.8% vs. -7.4% expected and -7.2% in May
- China Jun. Consumer Price Index fell -1.7% vs. -1.3% expected and -1.4% in May
- China Jun. Retail Sales rose 15.0% vs. 15.3% expected and 15.2% in May
- China Jun. Industrial Production rose 10.7% YoY vs. 9.5% expected and 8.9% in May
- Switzerland Jul. ZEW out at 0.0 vs. 9.7 in Jun.
- US Weekly Initial Jobless Claims out at 522k (SA) vs. 553k expected and 569k last week
- US Weekly Continuing Claims out at 6273k vs. 6850k expected and record 6915k last week
- US May Net Long-term TIC flows out at -19.8B vs. +16.5B expected and 11.5B in Apr.
- US May Total Net TIC Flows out at-66.6B vs. -11.2B expected and -38B in Apr.
THEMES TO WATCH - UPCOMING SESSION
- US Jul. Philadelphia Fed (1400)
- US Jul. NAHB Housing Market Index (1700)
- Australia Q2 Import Price Index (0130)
Market Comments:
China "manufactured" some impressive numbers in Q2, numbers that we take with a supertanker of salt. We will not bother to comment much on the actual growth figure due to the lack of transparency on the true state of the Chinese economy and we are reading wildly divergent reports on the state of affairs there. The important thing to observe is how long the stimulus manages to boost final demand in the Chinese economy and whether it actually eventually serves to aggravate the potential for economic weakness in the long run if consumers become too indebted. The Shanghai composite may be a reasonable barometer for risk appetite and predictor of economic weakness. For now, that average remains a one way street to the sky, it seems. In any case, the Chinese growth and other numbers were not earthshaking market movers overnight.
The bigger news was CIT's statement that it didn't feel that a bailout was likely. CIT apparently falls in the category of "small enough to let fail", even if it would still represent one of the largest bankruptcies in US history. This sent risk trades in a brief and sharp swoon overnight, before they recovered a bit later on the JPM "earnings" news. Also bolstering risk appetite again ahead of the US equity open was the Jobless Claims data, which showed a 667k non-seasonally adjusted number (vs. NSA of 581k last week) changed to a 522k seasonally adjusted headline. Voila - a stroke of the statisticians keyboard and you vaporize the activity of a net 145,000 people filing for claims after losing their jobs. Yes, there is a tendency for a large spike in claims in early July that then quickly fades, but we won't know the true level of jobless claims until we get into the fall firing period. Last fall/winter, Jobless claim rates as high as 900+k were revised down to sub-600k levels for seasonal adjustments and the seasonally adjusted numbers actually peaked when the SA numbers . It's all a circus really. As well, we must consider the fact that claimants - to be counted in these statistics must be "Actively seeking work". As we have read and discussed elsewhere, the quotient of discouraged workers is growing rapidly. The continuing claims number dropped by so much that is must also be due to some statistical adjustment - we'll have to look for an explanation. In general, analysts are saying that the large drop in both SA numbers is a distortion caused by all of the auto industry layoffs - an effect which will likely fade in coming weeks.
As we are writing this, bonds have picked up a strong bid - very out of whack with the supposed good economic data and the hysterical equity market rally of late. We're seeing the JPY fighting back a bit in response. There is something profoundly fishy about the intermarket action and we again underline that the latest moves - also in FX - smack of desperation or a squeeze on lack of sufficient participation rather than something we should be hanging our hats on. Some have pointed out that the VIX rose even as stocks also rose - not a healthy sign as a higher VIX is usually associated with fear. Is the equity market action simply a nasty short squeeze?
NZD has recovered much of the territory it lost after Fitch changed their debt rating outlook to negative in the Asian session despite some stronger numbers emerging from the NZ economy. Still, NZDUSD looks interesting for a short if it falls back below about 0.6385, though the really big area of support comes in at 0.6200. Today sees the Philly Fed - the second of the three major regional manufacturing surveys in the US. Observers are looking for a small pullback from last month's very high -2.2 reading (relative to lows in the previous months around -40). As with the Empire number, a -0- reading is the boundary that divides expansion versus contraction.
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