Markets Today: ECB opens up the liquidity spigot for Greece

Not big moves on the currency front overnight, though the USD was somewhat stronger as the ECB announced that it had turned on the liquidity spigot for Greece again and what data there was for the US was added a little more incremental evidence the economy is making further progress.

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Not big moves on the currency front overnight, though the USD was somewhat stronger as the ECB announced that it had turned on the liquidity spigot for Greece again and what data there was for the US was added a little more incremental evidence the economy is making further progress.  The Euro remained on the defensive with ECB President Draghi hammering home his unwavering commitment to ultra-easy monetary policy with a fresh vow to use every tool available to respond to any “unwarranted tightening” in monetary conditions.  (In other words, avoiding EUR appreciation, praying no doubt for Fed rate lift-off, as the RBA will be too.)

The Bloomberg spot dollar index is up by 0.37%, making gains against most of its major currency counterparts, excepting the Aussie, that’s tested back above 0.74.  Along with the AUD, Sterling retained its recent support, Mark Carney doing nothing to stem that, saying that a decision on rates will be “in sharper relief” by year end.  In the second (Senate) leg of her Congressional testimony, Fed Chair Yellen said she favours tightening in a “prudent and gradual manner” in her careful/cautious but deliberate style.  Markets will be paying close attention to tonight’s US CPI, housing starts and consumer sentiment.  Canada’s CPI is also due on the heels of recent C$ weakness.

As far other currencies, the NZD once again weakened as the market ramped up odds of a follow up cash rate cut at next week’s RBNZ meeting to over 100%, the market is tinkering with the outside possibility of a 50bps cut rather than 25 bps.  (Our BNZ colleagues regard a 50 bps cut as more likely than no cut.)  It was the follow up of a softer Kiwi CPI yesterday in the wake of that mid-week further plunge in world dairy auction prices that kept the flightless bird on the back foot.  The NZD/USD has been easing toward 0.65, with the AUD/NZD up to the mid 1.13s after pushing through the figure yesterday afternoon.  Chinese spot iron ore prices have been relatively steady in recent days, the Qingdao 62% fines price adding $0.11 yesterday to $50.66.

The WSJ did an interview with RBA Board member John Edwards yesterday, Edwards acknowledging that Australia’s unemployment rate had been lower than expected and that the global outlook had improved a bit, Greece concluding its bailout negotiations and that the decline in China’s economy may have slowed on the most recent numbers. He welcomed the move lower in the $A toward its post float average, acknowledging the lower currency was beginning to produce some benefits for the economy.

Coming up today/tonight

Quiet for data releases this morning, with NZ Job Ads the first local release at 8am then NZ’s consumer confidence (11am).

There are some meaty data points tonight.  The main focus is the US CPI for June, the market looking for any credible sign of accelerating inflation, expecting a slight increase in core CPI from 0.1% to 0.2%.  US Housing starts and permits for June are also due along with the preliminary UoM Consumer Sentiment survey for July, the market looking for a flat result.  With the Bank of Canada having cut rates on Wednesday, the market is very sensitive to any weakness in Canada’s economy and tonight’s CPI will surely be on the watch list.  .  The core CPI for June rose a sturdy 0.4% in May and partial pull-back of a 0.1% decline is tipped for June.  Then over the weekend, China releases its June report on property prices, scrutinised for signs of stabilisation of prices, recent reports suggesting prices may be beginning to stabilise in the larger cities.

Overnight

The AUD held its ground against a stronger $US: Eurostoxx 600 +1.3%, Dax +1.5%, CAC +1.5%, FTSE +0.6%.  Dow +70 points to 18,120, +0.4%, S&P 500 +0.4%, Nasdaq +0.8%, VIX 12.11 -8.5%.  Mumbai +0.5%, Nikkei 225 +1.3% and ASX 200 +0.6%; ASX SPI futures this morning +0.2%.  US bond yields: 2s at 0.66% (3), 10s at 2.35% (-0).  WTI oil at $51.02 (-0.8%), Brent at $57.51 (+0.8%), Malaysian Tapis (yesterday) $59.88 (+0.0%).  Gold at $1143.50/oz (-0.3%). Base metals: LME copper +0.5%, nickel +1.4%, aluminium -0.1%. Iron ore $50.7/t +0.2% Chinese steel rebar futures +0.5%. Soft commodities spot futures: wheat -0.6%, sugar -1.5%, cotton +0.6%, coffee -0.7%.  Euro Dec 14 CO2 emissions at €7.67/t (-1.3%). The AUD/USD’s range overnight 0.7367-0.7438; indicative range today 0.7380-0.7430; the AUD/USD is 0.7406 now

EC CPI (Jun F) 0.0%/0.2%; core 0.8% (Prelim: 0.0%/0.2%; Core 0.8%); ECB left rates unchanged, its main refinancing rate at 0.05%; it increased its ELA liquidity facility to Greece by €0.9bn

US Jobless claims (w/e Jul 11) 281K K (L: 297K; E: 285K); Philly Fed Survey (Jul) 5.7 (L: 15.2;  E: 12); NAHB Housing market index (Jul) 60, unchanged from an upwardly revised 60 (L: 59; E: 59)

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