Markets Flat Ahead of Jackson Hole Event Risk; German IFO Misses Consensus Estimates
Most of the market chatter is focusing on Friday’s Jackson Hole conference with Ben Bernanke and before the event risk, market volatility has slowed with safe haven assets moving moderately higher. We are seeing a lot of position squaring and this is likely to continue until the Bernanke speech. The major question is whether or not we will see any mention of additional QE stimulus as the market has slowly started to price this in as a possibility. Some of the early position-squaring can be seen in the Gold price, which has come off from its recent highs and many stock indices have reversed some losses as investors take some short positions off the table.
Overnight, Asian equities saw some of this lift, while the USD/JPY moved higher to 76.80-77.10 and the EUR/USD is steadying at 1.4390-1.4420. Macro data today will be seen with the US weekly jobless claims and the Swedish consumer confidence and unemployment figures.
Analysts have been revising GDP forecasts lower and the market estimates for European 2012 growth figures have dropped to +1.0% on a yearly basis (from +2.0%). The arguments for this are based on slowing momentum in manufacturing and the effects of a tighter monetary policy.
The German IFO survey came in lower than expected at 108.7 (111.0 was the market estimate). The current assessment component came in at 118.1 which was slightly lower as well. This data will lead to lower GDP expectations for Germany, as recent market turmoil spills over into even the healthier economies in the Eurozone. June industrial new orders in the Eurozone dropped 0.7% on a monthly basis but did show a rise of 11.1% for the yearly figure. This, however, was still lower than estimates, which called for 0.4% and 11.9%, respectively.
In Japan, the intervention rhetoric continues and this time the Ministry of Finance said that a new fund would be established (valued at roughly $100 billion Dollars) to encourage Japanese firms to make investments in foreign companies. The Japan Bank for International Cooperation will manage the fund and the aim is for Japanese companies to diversify in to assets that are not denominated in Yen, which would put some downward pressure on the currency.
In New Zealand, the second quarter retail trade report showed that the volume sales increased 0.9% on a quarterly basis (+1.1% yearly), which is down slightly from the 1.1% increase that was seen in the previous quarter. As long as trade figures remain stable and the recent market turmoil calms down, interest rate forecasts are likely to shift back to a tightening bias or the RBNZ, with a rate increase possible by the end of this year.
The NZD/USD is flattening out in a tight range, with resistance on the 30 minute charts moving down to the double top at 0.8310. Short term charts are now showing lower lows so this is the key resistance level to watch for determining bias for the rest of this week. Support now comes in at 0.8260 and a break here will accelerate moves to the downside.