Markets Are Showing Signs Of Stabilization - 15.8.2011

Asian stocks were mostly higher today, following sharp losses in the previous weeks in global equity markets sparked by the S&P’s downgrade of the credit rating of the United States. Nikkei Average Index gained almost 1.2% by the end of the Asian trading session, while safe-heaven gold is declining for a third day as concern that the global economy is stalling eased, boosting global equities, higher-yielding assets and reducing demand for refuge. US Dollar The dollar fell somewhat in Asian trading hours against the euro and Australian dollar, but strengthened against the Swiss franc. The greenback may remain under pressure in case market optimism cuts demand for relatively safe US Treasuries. On Friday economic data from the USA was mixed. On the one hand retail sales climbed in July most in four months, by 0.5%, showing higher consumers’ activity in the third quarter. On the other hand the University of Michigan preliminary August index of consumer sentiment fell to 54.9, the lowest level since 1980, from 63.7 a month earlier, while economists predicted a drop to 62. This week is also expected to show some important reports. The cost of living in the US probably eased in July, according to preliminary estimations, in compliance with the Federal Reserve’s forecast that inflation will stabilize. Consumer price index is projected to decrease from 3.6% to 3.3% in annual figures, while the core indicator, which excludes volatile food and energy, probably climbed in July by only 0.2%, the smallest gain in three months. The official data will be released on Thursday. Tomorrow investors will be closely watching the housing market data release, the sector which remains one of the weakest in the economy. The Commerce Department may report that housing starts declined by 4.6% to 600000 units in July, while the number of building permits, which reflects future activity is also expected to drop. Euro The euro strengthened against the US dollar this morning and continues rising against the franc. However the pair EUR/USD still remains inside the range 1.4050-1.4400 after reports showed on Friday that France’s GDP stalled in the second quarter. Tomorrow German second quarter preliminary GDP data is also expected to show relatively weaker figures. According to estimations, the European largest economy’s GDP may decrease to 3.2% from 5.2% annual pace. However the euro may find support tomorrow on speculation that tomorrow’s meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel in Paris will spur action to contain the region’s debt crisis, Bloomberg informed. Pair EUR/USD rose in Asian trading hours today from 1.4264 to 1.4317. Japanese Yen Japanese yen is still traded near its record highs against the dollar and the pair USD/JPY remains below the level 77.00. Japan reported today that the country’s GDP shrank less than economists estimated in the second quarter, showing weak signs of recovery. The annualized pace rose from -3.6% in the previous quarter to -1.3% in the three months ended June 30, while markets expected to see a 2.5% contraction. The government also lowered last week its growth forecast, saying that GDP would probably achieve a 0.5% annual growth pace in the first quarter of 2012, in comparison with its January forecast for a 1.5% expansion. Finance Minister Yoshihiko Noda repeated once again his warnings about a possible intervention to stem the yen’s gains that pose a risk to exporters. Noda said that “still, there are more negative sides at this time, when Japan is trying to recover from the disaster.” Swiss Franc The Swiss franc weakened even more against the dollar and the euro and became last week the worst performer among the majors. Pair USD/CHF rocketed in four days from 0.7180 to 0.7995, while pair EUR/CHF rose from 1.0254 on last Thursday to 1.1458 in Asian trading hours today, gaining more than 1200 basic points in three days. Bloomberg informed today citing one of European newspapers that the Swiss National Bank may set a target for the currency in “coming days,” as the government and the central bank are in “intense” talks over a possible franc target to stem extreme currency’s gains. Australian Dollar Australian dollar strengthened against the US counterpart today after Australian Treasurer Wayne Swan said the country can “ride out” the turbulence in global markets because of its strong outlook and the continued growth of China, the country’s biggest trading partner. “Australia has very low public debt, low unemployment, a massive pipeline of investment and we expect to bring the budget back to surplus next financial year,” Swan said in a statement yesterday. Comparing with growth prospects in Europe and the USA, “our prospects remain much stronger” he said. China’s GDP meanwhile is expected to accelerate to a 9.3% annual pace in 2011, compared with average estimations of 1.8% and 2% in the USA and Europe. The Reserve Bank of Australia is scheduled to release tomorrow the minutes of the previous meeting when the central bank’s target rate was left unchanged at 4.75% and they could probably shed some more light on the bank’s expectations. Pair AUD/USD rose this morning from 1.0362 to 1.0441.