FX Daily, July 25: Big Week Begins Slowly

Swiss Franc

FX Rates

What promises to be a busy week has begun off slowly.  The US dollar has been largely confined to its pre-weekend ranges against most of the major currencies.

Equity markets are mostly firmer following the new record highs on Wall Street.  The MSCI Asia Pacific Index eked out a small gain (0.1%), with losses in Japan, Taiwan, and Singapore offsetting gains elsewhere.  European markets are stronger, with the Dow Jones Stoxx 600 up nearly 0.7% after having slipped lower in the previous two sessions.  The only industry sector that is lower is energy, and Brent is trading 0.5% lower though holding above $45 a barrel.

Benchmark 10-year yields are mostly 1-2 bp firmer.  The JGB was the exception; the 10-year yield eased 1.5 bp to minus 25 bp. Gilts are underperforming but appear to be simply unwinding some of the response to the weak flash PMI released at the end of last week.

Japan

There have been three economic reports to note.  The first was Japan’s June trade surplus of JPY692.8 bln, which was nearly half again as large as the median expectation.  It follows a small deficit in May.  Japan’s trade has very pronounced seasonality.  Since 1999, there has been only one June that the trade balance did not improve over May (2008).

Germany

The second economic report was the German IFO survey.  It did not show the same degree of deterioration as last week’s ZEW survey.  The overall business climate was assessed at 108.3, down from 108.7 in June but now as poor as the 107.5 median estimate.  The current assessment actually ticked up to 114.7 from a revised 114.6 (from 114.5).   The expectations component deteriorate the most but still not as much as expected.  The 102.2 reading compares with 103.1 in June and expectations of a decline to 101.6.

United Kingdom

The third report was the UK CBI survey.  Total orders fell but not as much as expected (-4 from -2 and median forecast -6).  Selling prices rose to 5 from 1.  Bloomberg did not have a survey result.  Business optimism, however, tanked and this is what stopped sterling’s recovery.  CBI Business optimism fell to -47 from -5.  The median expectation was for a decline to  -15.   The survey was conducted between June 27 and July 23.

United States

The North American economic calendar is light, with only the Dallas Fed’s July manufacturing survey on tap.  The Democratic Party convention begins with Wikileaks timed to embarrass and sow dissension grabbing attention.  The FOMC two-day meeting begins tomorrow, and no change in policy is expected.  Economists and investors are more inclined to see a hike in December than September, with November meeting ruled out due to its proximity to the national election.