Soft Week of Data Outside US
13/07/09 20:47
There is very little non-US data this week, but
earnings season is heating up and financial services
companies will also begin reporting Q2 results. The
consensus is far from clear on corporate performance
and companies' medium-term outlooks and their views
on the macro environment will be as important as the
results themselves. More important is how the market
reacts to the manipulative verbiage that comes off
the big oak desks of our nations leading
corporations. Phrases like, "not as bad as expected,"
in attempts to support their dismal state of affairs
can cause errant volatility in holiday season thin
markets.
Commenting on the takeup of the recent massive ECB liquidity operations, and the large quantity of cash that is deposited at the ECB each night instead of being loaned to the real economy, ECB President Trichet said that it may take time for the extra liquidity to be transformed into credit. In such case, the banks need to feel secure enough to lend, which is independent of ECB initiatives, although their intentions are appreciated.
Commenting on the takeup of the recent massive ECB liquidity operations, and the large quantity of cash that is deposited at the ECB each night instead of being loaned to the real economy, ECB President Trichet said that it may take time for the extra liquidity to be transformed into credit. In such case, the banks need to feel secure enough to lend, which is independent of ECB initiatives, although their intentions are appreciated.
The BoE conducts its latest reverse auction today, for the smaller size of £2.25bn. In order to spread out the remaining purchases evenly over the month, the Bank has been forced to reduce weekly purchases from £6.5bn to 4.5bn (see chart 2). Gilt purchases will continue until July 29th, leaving a one-week gap before the next policy meeting on 6th August.
On Wednesday, the minutes from the latest FOMC meeting are due to be published.
Any expectations-beating Q2 results this week could prompt some temporary dollar weakness, but we continue to expect the dollar to recover some lost ground over the summer months as risk appetite continues to show signs of exhaustion.
Japan PM Aso may struggle to keep his job after the ruling LDP was defeated at the Tokyo assembly election on the weekend. The result raises political uncertainty and likely put upward pressure on USDJPY in Asian trade this morning. Kyodo news is reporting that that PM Aso will dissolve lower house on Tuesday, aiming for an election on Aug 30, with campaign starting on July 27.
DPJ's Finance spokesman Nakagawa is quoted on Bloomberg arguing that Japan should diversify FX reserves.
The BoJ will meet this week to decide on rates and the market is not looking for any major changes to policy.
More details have emerged of purchases undertaken by the ECB as part of the covered bond purchasing program. Only EUR 66 mln of outright purchases have so far settled since the EUR 60bn program began last week. No details were annnounced about which bonds were bought.
ECB President Trichet meanwhile welcomed the June's negative inflation number saying it was reflective of a fall in oil prices and would therefore support household incomes.
He also noted that forcefully addressing the problem of toxic assets is a precondition for reviving the flow of credit to the real economy.
CAD: Credit conditions data due
The BoC Senior Loan Officer Survey is due later today. Recent surveys have shown large majorities of respondents reporting that credit has become both harder to access and more expensive.
The rising trend in the jobless data on Friday should not be a surprise as officials have been cautioning on higher unemployment for 2009. We think USDCAD will remain supported as investor sentiment remains shaky.