By: Hillel Fuld
The US dollar concluded last week on a lower note, with the released data pretty much in line with expectations, while Wall St closed its fifth straight close only slightly different than its open. Earlier, the GBP had been positively affected when Q2 GDP numbers were marginally revised upward (-0.7% q/q versus -0.8%) but the increase came to an end and the GBP was quickly back to its original state.
Over the weekend, developments in Japan occupied all the headlines with The Democratic Party of Japan (DPJ) winning a landslide victory in the election over the existing party of 50 years. The DPJ won 308 seats out of 480 and was generally in line with poll results. We saw some JPY strength across the boards during the Asian morning, unclear whether as a result of the elections or more adjustments of the end of the month, but the USDJPY slid through 93.0 with ease and hit a 7-week low. The Nikkei started off strong, coming away with gains of over 2%, but a short 81 minutes later these gains were all erased, and then some, as China shares went into melt-down, falling over 5% by mid-morning to hit a 3-month low. This assisted the JPY in gaining an even bigger advantage over the other majors.
Asia saw a large amount of Japanese data this morning but these were generally overpowered by the elections. Industrial production in July was better than expected at +1.9% m/m but marked a slowdown from June’s +2.3%. Looking ahead, the assessments for September and October are for a rebound to +2.4% and +3.2% m/m respectively while the overall assessment is that a “move to recovery” is maintained.
In Australia, headline data for new home sales and private sector credit were not quite as strong as estimated. While new home sales showed an increase of 0.1% m/m, slower than the previous month’s +0.5%, it was accepted as mostly driven by the affects of stimulus packages. Comments from the Housing Industry Association (HIA), who publish the data, suggested that, while there was evidence of a recovery in “trade-up” activity beyond first-time buyer interest there was not much evidence of a broad recovery in the demand of private new homes. In quasi-related data, private sector credit numbers from the RBA for July were in line with expectations at +0.2% m/m. Housing sector credit rose 0.6% from June and was up 7.3% compared to a year earlier.
Elsewhere, Canadian finance minister Flaherty went on record saying he was pleased with the recent stability of the CAD. The Bank of Canada officials had been quite clear in recent weeks expressing their concern that a strong rise in the value of the CAD would eventually damage the country’s economic recovery. Speaking in Vancouver, he stated that it is still too early for Canada and other countries to remove the stimulus packages they have implemented, warning that it would be a mistake to assume sustainable growth was entrenched in the world’s economies.
It’s a UK holiday today so there is a good chance European markets will be quieter than usual. However, with it being the end of the month, there is a chance reduced liquidity will force some excessive moves. Analysis still suggests there will be a desire/requirement go long with dollars into the respective fixing times. On the data front, Euro-zone CPI is the only data of note for Europe while North America will see Canadian GDP for June and Q2 and Chicago PMI, NAPM-Milwaukee and Dallas Fed activity for Aug for the US.