Talking Points
AUD PMI slips a bit to 50.2
CHF CPI in line puts to rest any spec of 50bp spike
UK Services PMI materially lower
EZ Retail Sales better than expected
US House Price Index
The yen picked up where it left off yesterday producing a second consecutive day of gains in Asian and early European trade as Mondays the blowout Capex numbers continued to reverberate through the currency markets. Yesterday Japan reported an 18.4% increase in second quarter Capital Spending far better than the 14.5% estimate and higher than prior quarters reading of 13.4%. The news instantly revived speculation that BOJ may be forced to raise rates higher before the year end in order to contain the robust investment growth in the Japanese corporate sector. At the first hint of possible tightening many of the short term accounts covered their recent yen shorts for fear that interest rate differentials between the yen and the other major currencies will begin to compress.
The Japanese calendar remains relatively quiet for the rest of the week with LEI and Machine Tools orders as the only releases of note,. However, as always we will keep our eyes peeled on the Eco-Watcher survey due out Friday. The man-in-the-street survey is always our best gauge of the true state of economic conditions in Japan and if it should climb back above the 50 boom/bust level, the BOJ may find the necessary support to become more aggressive in their monetary posture.
Meanwhile news from the Euro-zone was quietly supportive with PMI Services slipping a bit to 57.1 from 57.5 expected but EZ Retail Sales surprising to the upside registering a gain of 0.6% vs. -0.3% consensus. The retail spending news was especially positive in light of the fact the German Retail sales last week disappointed, contracting sharply. Overall, this data bodes well for future Q3 EZ results as it suggests that consumers in the 12 member region may be finally ready to contribute to economic growth. A stronger euro and better job prospects are infusing Europeans with greater confidence that is being reflected at the cash register. The EUR/USD itself saw little response to the data as the pair was more affected by continued sales in the EUR/JPY cross rather than its own order flows.
