Weekly Review and Outlook
| Top 5 | Current | Last | Change (Pips) | Change (%) |
|---|---|---|---|---|
| GBPJPY | 213.78 | 211.32 | +246 | +1.15% |
| GBPCHF | 2.0436 | 2.0203 | +233 | +1.14% |
| EURGBP | 0.7925 | 0.8013 | -88 | -1.11% |
| AUDJPY | 103.74 | 102.67 | +107 | +1.03% |
| EURAUD | 1.6329 | 1.6491 | -162 | -0.99% |
| Dollar | ||||
| EURUSD | 1.5847 | 1.5937 | -90 | -0.57% |
| USDJPY | 106.95 | 106.27 | +68 | +0.64% |
| GBPUSD | 1.9988 | 1.9884 | +104 | +0.52% |
| USDCHF | 1.0223 | 1.0160 | +63 | +0.62% |
| USDCAD | 1.0054 | 1.0090 | -36 | -0.36% |
| Euro | ||||
| EURUSD | 1.5847 | 1.5937 | -90 | -0.57% |
| EURGBP | 0.7925 | 0.8013 | -88 | -1.11% |
| EURCHF | 1.6202 | 1.6194 | +8 | +0.05% |
| EURJPY | 169.47 | 169.37 | +10 | +0.06% |
| EURCAD | 1.5935 | 1.6083 | -148 | -0.93% |
| Yen | ||||
| USDJPY | 106.95 | 106.27 | +68 | +0.64% |
| EURJPY | 169.47 | 169.37 | +10 | +0.06% |
| GBPJPY | 213.78 | 211.32 | +246 | +1.15% |
| AUDJPY | 103.74 | 102.67 | +107 | +1.03% |
| NZDJPY | 81.37 | 80.90 | +47 | +0.58% |
| Sterling | ||||
| GBPUSD | 1.9988 | 1.9884 | +104 | +0.52% |
| EURGBP | 0.7925 | 0.8013 | -88 | -1.11% |
| GBPCHF | 2.0436 | 2.0203 | +233 | +1.14% |
| GBPJPY | 213.78 | 211.32 | +246 | +1.15% |
| GBPCAD | 2.0102 | 2.0066 | +36 | +0.18% |
Investors' sentiments had a drastic turn last week, trigging much volatility in the financial markets. Markets were still pessimistic even after Fed and Treasury's plan to rescue Fannie Mae and Freddie Mac. But a couple of factors boosted the confidence later on in the week, including better than expected financial results in the banking sector. Citgroup, JPMorgan Chase and Wells Fargo reported better than expected quarterly results, raising the hope that the worst in credit market crisis is coming to an end. In addition, oil retreated sharply during the week, giving another boost to dollar and the stock markets. Indeed, crude oil had the biggest weekly decline in more then three years and fell 11% to below $129 a barrel
A few things to note. Firstly, while dollar recovered after making a new record low against Euro and 25 year low against Aussie, the down trend against both currencies are still intact. Secondly, though, note that strength in the greenback is much more apparent against Swissy and yen. Thirdly, note that sterling performed best in carry trade pairs as seen in GBP/JPY and GBP/CHF topping the top movers chart.
More importantly, the impact of such switch in investors sentiments were indeed most seen in the Japanese yen which had a strong rally early last week but then gave up all the gains by the equally sharp selloff afterwards. The corrective nature of GBP/JPY and USD/JPY's prior fall is taken as a signal that prior rebound in yen was just a correction. In other words, such development argues that more upside downside should be seen in the Japanese yen, at least in the near term.
Bernanke's semiannual testimony on monetary policy was one of the highlights of the week. Bernanke gave Capitol Hill an assessment of the dual threat of recession and inflation during the testimony noting that "upside risks to the inflation outlook have intensified lately". On the other hand, there is still "significant downside risks to the outlook for growth". The minutes of June 24-25 FOMC meeting were also released last week. The information in the minutes were largely redundant to those from Bernanke's testimony btu one interesting point to note was the committee member's growing discomfort on inflation as "members believed that the next change in the stance of policy could well be an increase in the funds rate,": even though "the timing and magnitude of future policy actions was quite unclear."
Revised economic projections from Fed were also published last week. 2008 Q4 real GDP forecasts was revised up from 0.3-1.2% to 1.0-1.6%. projection for unemployment was left unchanged at 5.5-5.7% The headline PCE inflation forecast for 2008 was revised up from 3.1-3.4% to 3.8-4.2%. Core PCE inflation projection for 2008 was left unchanged at 2.2-2.4%.
On the data front, it was an extremely busy week in the US. Inflation data released reaffirmed Bernanke's comment that inflation risks has 'intensified'. Headline CPI surged by 1.1% mom in Jun, stronger rise since 1982, pushing yoy rate sharply higher from 4.2% to 5%, highest since 1991 and way above expectation of 4.5%. Core CPI was also up from 2.3% yoy to 2.4% yoy. Real earnings, on the other hand, dropped -0.9% in Jun, the biggest monthly decline since 1984. Headline PPI surged much more than expected from 7.2% yoy to 9.2% yoy versus consensus of 8.5% while core PPI was unchanged at 3.0% versus expectation of 3.2%.
Housing data provided some good news the the markets. Housing starts jumped sharply by 9.1% to 1.066M while building permits jumped 11.6% to 1.091m. Though, the National Association of Home Builders (NAHB) housing market index showed homebuilders confidence dropped to a new record low of 16 in Jul.
Retail sales was a disappointment with headline sale growing a mere 0.1% comparing to expectation of 0.5% in Jun. Ex-auto sales rose 0.8% mom, also missed expectation of 1.0%. Manufacturing data were mixed. Empire state manufacturing index is considerably better than expectation and improved to -4.9 in Jul even though it's still negative. Philly Fed index improved less than expected to -16.3 in Jul. Industrial production climbed 0.5% mom in Jun with capacity utilization up to 79.9%. Jobless claims climbed to 366k but was below expectation of 380k. TIC capita flow which dropped from 115b to 67b in May.
From Eurozone, German ZEW economic sentiments deteriorated much more than expected from -52.4 to lowest readings in 16 years at -63.9 in Jul versus expectation of a modest fall to -55. Current situation gauge also dropped sharply by -20.6 points from 37.6 to 17. Eurozone ZEW economic sentiment also dropped sharply from -52.7 to -63.7 with current situation indicator turned negative from 7.9 to -3.3. Surging energy and food driven inflation and high interests rates are dragging down the Eurozone economy. ZEW respondents expect inflation to persist, and that short-term and long-term interest rates will rise.
Eurozone HICP in Jun confirmed to be 0.4% mom, 4.0% yoy. German PPI climbed to 26 year high of 6.7% yoy in Jun. Eurozone industrial production dropped -1.9% mom, -0.6% yoy. Eurozone trade balance showed wider than expected deficit of -4.6b in Jun.
UK headline CPI surged from 3.3% yoy to 3.8% yoy in Jun, even stronger than expectation of 3.6%, far above BoE's target of 2-3%. Core CPI was up from 1.5% yoy to 1.6%. RPI was also uncomfortably high at 4.6% yoy with RPI-X at 4.8% yoy. PPI beat expectation again. Jun output prices accelerated to 10.0% yoy, highest reading in 22 years. Input price surged to 30.3% yoy. Core PPI accelerated to 6.4% yoy but was below expectation of 6.5%.
BRC retail sales dropped -0.4% in Jun. RICS house price balance showed 88% of respondents saw housing market declined in June. Claimant count in Jun jumped 15.5k, above expectation of 10k. Unemployment rate was mildly down from 5.3% to 5.2% in May.
BoJ left rates unchanged at 0.5% as widely expected on unanimous 7-0 vote. In an unexpected move, BoJ released the monthly statement together with the announcement. BoJ acknowledged that economic growth is slowing, trimming GDP forecasts from 1.5% to 1.2% yoy. Domestic CGPI forecasts was up sharply from 2.5% yoy to 4.8% yoy while CPI excluding food was also up from 1.1% yoy to 1.8% yoy. The Bank of Japan also noted global financial markets remain unstable and downside risks to the U.S. economy and the world economy remain.
BoJ minutes released revealed that members are divided on the future course of monetary policy. Some members are still alerted about inflationary pressures. On the other hand, some members emphasized that the focus on slowing economic growth.
Swissy ZEW index fell more than expected to -76.9 in Jul.
BoC left rates unchanged at 3.00% as widely expected. The monetary policy report released was a bit more upbeat than expected with the bank noting that "although economic growth in Canada in the first quarter of 2008 was weaker than expected, final domestic demand -- supported by strong terms of trade -- continued to expand at a solid pace." Data from Canada saw wholesale sales jumped 1.6% mom in May, beating expectation of 0.5%. Leading indicator, on the other hand, was flat in Jun, below expectation of 0.1% rise.
RBA released minutes of Jul policy meeting. Even though inflation remains high, RBA decided to left rates unchanged at 7.25% based on signs that domestic economy is cooling. The minutes basically affirmed RBA's believe that prior rate hikes are going to deal with inflation adequately even though risks of inflation expectations are still on the upside.
New Zealand retail sales released overnight dropped -1.2% mom in May, below expectation of -0.1%. Q2 CPI climbed from 3.8% to 4.0% yoy in Q2 but did little to alter the expectation that RBNZ may cut rates later this year on slowing economy.
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