Daily Market Review August 9, 2012

Daily Market Analysis

Global Market Commentary

Markets were fairly quiet yesterday with US interest rates grinding higher by 1-3bps across the treasury curve while Canadian and moreover German interest rates were lower. The German benchmark 2-year closed today’s session yielding -5bps. Crude sold off lightly and CAD shrugged it off, hovering above parity with the USD. EURUSD rebounded during the North American trading session and closed at 1.2359. JPY was flat against the USD ahead of the BoJ’s rate announcement and policy statement tomorrow morning in Japan.

Equities in the US were flat with little in the way of economic data having been released and corporate earnings season winding down (442/500 S&P 500 companies have now reported).

Today is the big day, China will begin to release its July economic data and global markets are hoping to see, that China is making a soft landing and back to its growth targets of 7.6%.

The key number will be July CPI, which the consensus of forecasters polled by Bloomberg expects to fall to 1.7%. This is a tremendous decrease from the 6.5% y/y clip at which CPI grew during July of 2011 irrespective of which side of consensus turns out to be correct. The falling CPI is just one among a number of Chinese economic data releases that are expected to come in fairly weak: nominal industrial production is expected to have grown at levels last seen in late 2009 while nominal retail sales are expected to have grown at levels below what was seen during 2009. China Consumer Price Index is at a current level of 124.80, down from 125.10 last month.

Currency Market Commentary

EUR/USD

Rumors and hopes of monetary easing from the Fed, seems to be all that traders are focused on these days. The USD continued to drop against most of its partners as speculators upped the odds for a possible push by the FOMC come September. Also this morning’s early release of Chinese data gave mixed numbers, with CPI reporting above forecast but PPI was lackluster. The EUR/USD is trading at this writing at 1.2375 and is expected to range trade today.

GBP/USD

The GBP continues to strengthen and taken advantage of the weakened greenback. Yesterday the Bank of England issued its inflation report, and revised their forecast for growth and inflation due to poor economic performance. The BoE placed the blame on short term headlines and also on the lack of resolve from the EU. The pound is trading at 1.5678

USD/JPY

The USDJPY is trading at 78.37 as the USD continues to weaken on Fed stimulus hopes. The Bank of Japan offered nothing new in policy or rates. Japanese Core Machinery orders came in under expectations, while Prime Minister Noda’s government is once again in turmoil as coalition partner may demand a No Confidence vote. Commodities Market Commentary

Metals

Gold and silver are holding on to small gains, with an overall lack of direction. As markets continue to hope for monetary stimulus, the dollar is weakened and gold is strengthened. Beside dollars from the Feds, the markets are closely watching Chinese data being released today and tomorrow, in hopes that the PBoC offers up a bit of stimulus. With little in the way of eco data due except from China and news flow fairly limited gold and silver are expected to remain between small gains and losses. Gold is presently bringing 1617.15 during the Asian session

Energy

Crude continues to gain; trading in the mid 93.00 price range, with 2 hurricanes brewing and US inventories declining the price of crude has increased over 12% since the lows of last month. Crude is expected to respond to economic and production releases from China. If the Chinese data disappoints, we can expect crude oil as well as all energy commodities to decline.

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