Daily Report: Markets Stabilized as Portugal Bailout Banco Espirito Santo

Markets stabilized in Asia today as Portugal announced EUR 4.9b bailout of Banco Espirito Santo SA. The Bank of Portugal’s Resolution Fund will transfer the assets of Banco Espirito Santo to a new company called Novo Banco and the treasury loan will eventually be repaid by sale of the new company. The bad assets would be left with the shareholders and junior bond holders of Banco Espirito Santo. The Finance Ministry emphasized in the statement that it’s not the “taxpayers” who would “shoulder the losses”. The Japanese yen is mildly lower in Asian session today as stocks rebounded on the news. Meanwhile, European majors are staying in tight range.

Aussie is mildly higher today as retail sales showed 0.6% mom in June versus expectation of 0.3% mom. That’s more than recovered May’s loss of -0.3% mom. Nonetheless, the Australian dollar stays week ahead of tomorrow’s RBA rate decision which should deliver little new information. The central bank would pledge that “the most prudent course is likely to be a period of stability in interest rates”. Note also that the Quarterly Monetary Policy Statement to be released on Friday should give some revisions to the economic outlook. Elsewhere, Japan monetary base rose 42.7% yoy in July. Swiss will release SVME PMI today. Eurozone will release Sentix investor confidence and PPI. UK will release PMI construction.

Looking ahead, we have a heavy calendar this week with RBA, ECB, BOE and BOJ holding monetary meetings while a number of important economic data due. ECB meeting due Thursday is expected to stand on the sideline in August as policymakers would take time to gauge the impacts of the rate cut in June. Preside Draghi might address the issue related to the impacts of sanctions against Russia on the Eurozone, as well as the banking crisis in Portugal’s banking sector. The BOE would also leave the Bank Rate at 0.5% and asset purchases at 375B pound on Thursday. The quarterly Inflation Report released later this month should give more indications on the monetary outlook of the central bank.

Here are some highlights of the week:

  • Tuesday: RBA rate decision, Australia trade balance; Eurozone services PMI, retail sales; UK services PMI; US ISM services, factory orders.
  • Wednesday: New Zealand employment; Swiss CPI; UK industrial and manufacturing productions; Canada trade balance; US trade balance
  • Thursday: Australia employment; BoE rate decision; ECB rate decisions; Canada building permits, Ivey PMI; US jobless claims
  • Friday: China trade balance; BoJ rate decision; Swiss unemployment; German trade balance; UK trade balance; Canada employment; US productivity

Daily Pivots: (S1) 137.51; (P) 137.76; (R1) 137.96; More…

With 137.24 minor support intact, further rise is still expected in EUR/JPY. A short term bottom was formed at 136.36 a rebound from there should target 139.27 resistance first. Break will confirm completion of the choppy fall from 143.78 and will turn near term outlook bullish. On the downside, below 137.24 minor support will turn bias back to the downside for 135.50 key support level.

In the bigger picture, loss of upside momentum was seen in bearish divergence condition in weekly MACD. However, EUR/JPY is so far holding above 135.50 key support. Thus, there is no confirmation of trend reversal yet. Break of 145.68 will extend the up trend from 94.11 towards 76.4% retracement of 169.96 to 94.11 at 152.59 before topping. Meanwhile, break of 135.50 will confirm reversal and target 124.95 support.

EUR/JPY 4 Hours Chart

EUR/JPY Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
23:50
JPY
Monetary Base Y/Y Jul
42.70%
41.20%
42.60%

1:30
AUD
Retail Sales M/M Jun
0.60%
0.30%
-0.50%

7:30
CHF
SVME PMI Jul

56.2
54

8:30
EUR
Eurozone Sentix Investor Confidence Aug

9.1
10.1

8:30
GBP
Construction PMI Jul

62.1
62.6

9:00
EUR
Eurozone PPI M/M Jun

0.00%
-0.10%

9:00
EUR
Eurozone PPI Y/Y Jun

-1.00%
-1.00%

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