Asian Market Update: Asian stocks continue winning streak, NZD/USD plummets
- Forex: The high-yielding Aussie and Kiwi currencies both came under pressure in Asia, with AUD/USD testing stops below $0.9590 and NZD/USD trading near six month lows after the RBNZ cut interest rates by 25bps. EUR/USD also looked heavy throughout the session, with European Commissioner Almunia telling the press that he is concerned about the EUR being overvalued. GBP/USD spent most of the session in a 15pip range, with the U.K. Telegraph running a story referencing a report "from a key Treasury advisor" saying that the neutral level of rates is now below 5% in the U.K. The report therefore argues that the BoE will leave rates on hold for longer than previously expected, but the market has so far shown little reaction. Tokyo Marine is rumored to be making a $4.4B bid for Philadelphia Consolidates, supporting USD/JPY. But option related selling is seen ahead of 108.00, and is expected to limit the pairs upside over the coming hours. In the medium term, USD/JPY looks firm, and the immediate target for USD/JPY is 108.50 (a break above could target 110, according to chartists)
- The Reserve Bank of New Zealand cut interest rates by 25bps to 8.00%, sending the NZD/USD to a six month low. The NZD is on a slippery slope, with several market observers calling for a September rate cut. "Economic activity is likely to remain weak over the remainder of 2008," said RBNZ governor Bollard. "Provided that the outlook for inflation continues to improve and there is no excessive exchange-rate depreciation, we would expect to lower rates further," he said.
- The Bank of Japan's Mizuno, considered to be the most hawkish member at the central bank's board, said that interest rates should be kept on hold for now. "There is a positive aspect to deciding at policy-setting meetings to stand pat for the time being, in order to achieve a goal of monetary policy: that is, to contribute to sustainable growth through price stability," he said. "The fog that covers the nation's economy is unlikely to dissipate for a while," Mizuno said.
- An unexpected drop in exports shrinks Japan's trade surplus: (JP JUNE MERCHANDISE TRADE BALANCE: ¥138.6B V ¥500B expected, ¥362.2B prior; ADJUSTED: ¥135.4B V ¥342.7B expected, 642.3B prior) Japanese exports to the U.S. declined -15.4% y/y in June, while exports to the E.U. declined -11.2% y/y. Overall exports declined by -1.7% y/y, worse than market estimates at +3.8% y/y. Driven by rising oil and raw material prices, imports rose by a lofty 16.2% y/y, in line with market expectation. Analysts said the weak trade data would not change the Bank of Japan's assessment of the economy and monetary policy as it has sharply cut its growth forecast recently.
- Equities: At 23:58 EDT Japan's Nikkei is +1.05%, the S&P/ASX200 is +0.56%, South Korea's KOSPI is +1.81%, Hong Kong's Hang Seng index +0.29%, and the Shanghai composite index is +0.77%. The S&P500 futures contract lost -0.11% since the U.S. close, last trading at 1,281.00. The Nikkei continues its winning streak, with a rising USD/JPY and falling oil prices boosting sentiment. Similar to yesterday's session, banks and exporters led the rally, but the benchmark index remains capped by 13,500. In Australia, the S&P/ASX200 failed to move above 5,150, with declining resource companies offsetting gains among financials and retailers. Tech companies, automakers and certain steel companies supported South Korea's KOSPI index, while airlines, banks and oil refiners provided upside in Shanghai. The Hang Seng index failed to make progress, with some investors taking profits after the recent gains.
- Commodities: Nymex crude oil lost -0.13% between 18:00 EDT and 23:53 EDT, last trading at $124.28/bbl. Crude prices fell sharply during the U.S. session, as the market continues to remove the premium associated with Dolly. Inventories data was mixed as crude stocks were lower than expected, while gasoline inventories were higher than expected. The Wall Street Journal speculates that the collapse this week of SemGroup LP, a little known private oil-marketing firm, may have played a role in crude oil's 14% drop over the past 10 days. Changes in its hedging strategies coincided with big moves in oil recently, the WSJ points out. One theory making the rounds in the market is that as SemGroup's long positions snowballed, so did the oil rally. Spot gold managed to erase losses in the early Asian morning, and is currently trading near levels seen at the New York close.

European Market Update: European Sentiment Shows Signs of Decay
·*** ECONOMIC DATA ***
·FR July Business Confidence Indicator: 98 v 100e || Prior revised from 102 to 101
·FR July Production Outlook Indicator: -34 v -17e
·FR July Own-Company Production: 2 v 4e || Prior revised from 7 to 6
·FR July Preliminary Manufacturing PMI: 47.3 v 49.0e
·FR July Preliminary Services PMI: 47.0 v 49.7e
·SP Q2 Unemployment Rate: 10.44% v 9.95%e
·IT July Business Confidence: 83.5 v 86.5e || Prior revised from 87.1 to 86.7
·SW June PPI: M/M 0.5% v 0.4%e || Y/Y 3.0% v 2.9%e
·SW June Unemployment Rate: 8.1% v 7.3%e
·GE July Advanced Manufacturing PMI: 50.9 v 52.0e
·GE July Advanced Services PMI: 53.3 v 51.5e
·GE IFO Business Climate: 97.5 v 100.1e || Prior revised from 101.3 to 101.2
·GE IFO Current Assessment: 105.7 v 106.5e
·GE IFO Expectations: 90.0 v 93.2e || Prior revised from 94.7 to 94.6
·EU July Advanced Manufacturing PMI: 47.5 v 48.7e
·EU July Advanced Services PMI 48.3 v 48.8e
·EU July Advanced Composite PMI: 47.8 v 49.0e
·EU May Current Account nsa: -€21.4B v -€6.0Be || Prior revised from -€9.2B to -€7.4B
·EU May Current Account: -€7.3B v €1.5B prior || Prior revised to €1.5B from -€300M
·UK June Retail Sales: M/M -3.9% v -2.6%e || Prior revised from 3.5% to 3.6% |||| Y/Y 2.2% v 4.4%e || Prior revised form 8.1% to 7.9%
·*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
·In sector rotation overnight Morgan Stanley raised the European banking sector to Neutral from Cautious overnight, and cut the Media & Internet sector to In-Line from Attractive. In equity news Credit Suisse [CSGN.SZ] reported their Q2 Net at CHF1.22B, above consensus estimates of CHF615Me. Core revenue rose to CHF7.83B from CHF3.02B a year ago, while net new assets were CHF17.4B. The CFO said that he expects market conditions to remain volatile, but noted that the company is well positioned to deal with such an environment. Shares opened higher by over 5%. TeliaSonera [TLSN.SW] reported Q2 revenue of SEK25.3B, in line with the SEK25.2B consensus. Net Profit was SEK4.13B, shy of the SEK4.36B consensus estimate, while EBITDA was in line with estimates at SEK8.0B. The company maintained its FY08 outlook, noting that overall market trends remained unchanged in Q2. Shares opened higher by over 2.5%. Pernod Ricard [RI.FR] reported Q4 revenue of €1.5B, in line with the €1.52B consensus. The company guided full-year organic revenue growth of 8.7%, up slightly from its previously guidance of 8.6%. Shares opened higher by over 5%. BG Group [BG.UK] reported Q2 net income of £807M, in line with the £800M consensus. Revenue rose to £3.21B from £2.16B a year ago, while operating profit rose to £1.43B from £747M a year ago. Shares opened lower by over 2.5%. Rolls-Royce [RR.UK] reported 1H net income of £309M, above estimates of £287M, and revenue of £4.05B, above estimates of £3.92B. The company's order book rose by 17% y/y to £53.5B. Shares opened higher by around 2.5%. Renault [RNO.FR] reported 1H revenue of €20.94B, in line with the €20.84B consensus, and net income of €1.47B, above estimates of €1.28B. The company reduced its 2009 sales forecast to 3M cars from the previous forecast of 3.3M cars, and noted that further economic deterioration would make meeting margin goals difficult. Shares opened higher by over 6% but declined shortly thereafter.
·The printing presses were relatively dry overnight as the newspapers void of anything interesting and exciting. The Financial Times noted overnight that a Goldman (GS) fund has raised $10B to invest in leveraged buy-out loans. Handelsblatt wrote overnight that Volkswagen [VOW.GE] sees Porsche [POR3.GE] as a takeover defense.
·In energy news overnight the Venezuelan Oil Minister said overnight that he sees no need for OPEC to change output despite the price drop in oil. According to an article in the Wall Street Journal, the collapse this week of SemGroup LP, a little known private oil-marketing firm, may have played a role in crude oil's 14% drop over the past 10 days. Semgroup filed for Chapter 11 bankruptcy protection Tuesday, citing amongst other financial woes a loss of at least $2.4 billion in crude-oil futures. Changes in its hedging strategies coincided with big moves in oil recently, the WSJ points out. One theory making the rounds in the market is that as SemGroup's long positions snowballed, so did the oil rally.
·In the currencies the USD maintained a firmer tone during Europe as softer Euro-Zone data began to confirm that the economic upswing has come to an end. Although European officials insist that no recession is looming, the Euro, GBP and CHF currencies had trouble finding their footing. The GBP/USD retraced gains achieved during Wednesday's trading session as it fell 100+ pips to 1.9870 on weak retail sales data. The EUR/USD tested 1.5640 following weak IFO data.
·In new supply overnight the DMO sold £1.05B in 1.25% 2027 index linked gilts with a real yield of 1.163% and a bid-to-cover of 1.2x. The cover compares to the 1.1x seen at the previous acution.
·On the speaker front the IFO' Abberger said that he sees no danger of a recession in Germany, but noted that the economy is cooling considerably. Abberger said that 2008 consumer spending is likely to remain weak, adding that the ECB should remain on hold with interest rate policy. The IFO's Nerb said that the German economic upswing is coming to an end, adding that oil prices continue to weigh on the German economy. Nerb said that the recent oil price decline may have a positive effect on future IFO results. Nerb also noted that the Euro has impacted the index, and recommended that the ECB to keep the rates unchanged. According to La Repubblica the EU's Almunia expressed concerns about the Euro being overvalued and EU inflationary pressures.
·*** NOTES ***
·While the European pre-market was jam packed with earnings from some of Europe's most notable companies economic data was the guiding hand in today's session. Weaker than expected PMI readings, coupled with weaker than expected IFO data in Germany, poor French business confidence, and soft retail sales in the UK provided a somewhat grim outlook for the state of European economic and consumer sentiment. PMI readings in France and the Euro-Zone fell below the key mark of 50 for the third consecutive month, historically indicating a contractionary phase. French business confidence was at its lowest level since May of 2005 as the result of high energy prices, and the strong Euro. According to the IFO economists the weak IFO data was largely the result of high oil prices. The economists speculated that the recent decline in energy prices could have a positive effect on future IFO data, but despite this the economists seemed to project a slightly less optimistic outlook for the German economy. Finally, UK retail sales declined to their lowest m/m level on record as inflationary pressures and slower economic growth hinder consumer sentiment. Waning confidence in the outlook for European sentiment was undeniably the prevalant theme in today's European session.
·Looking ahead there are a number of notables expected in the US this morning including Amerisourcebergen (ABC), Autonation (AN), Ashland (ASH), Franklin Resources (BEN), Bunge Limited (BG), Bristol-Myers (BMY), Celgene (CELG), Daimler (DAI), Dow Chemical (DOW), Ford (F), Kimberly Clark (KMB), L-3 Communications Holdings (LLL), Eli Lilly (LLY), Southwest Air (LUV), Level 3 Communications (LVLT), Medco Health Solutions (MHS), 3M (MMM), National City (NCC), Potash (POT), Rohm & Haas (ROH), Union Pacific (UNP), and Xerox (XRX).
·“ I went into this restaurant that serves you breakfast at any time, so I ordered French toast during the Renaissance” - Steven Wright