Markets sentiments were rocked by the escalated sanctions against Russia. Major European indices are generally in red while US futures point to retreat from yesterday’s record high. Aiming to crippled Russia’s economy and financial system, the US, after “close consultation with the EU”, announced to impose restrictions on the Russian state-controlled oil giant OAO Rosneft and other big companies. US President Obama said the sanctions were “significant” and “targeted” to have maximum impact on Russia. EU said it would pause lending for new public sector projects in Russia by the European Investment Bank. EU leaders would also consider sanctions on “individuals or entities who actively provide material or financial support to the Russian decision-makers responsible for the annexation of Crimea or the destabilization of eastern Ukraine.” As a result of risk aversion, the Japanese yen is the strongest currency today while dollar stays the strongest one for the week.
In Eurozone, more ECB officials talked about asset purchases. Governing council member Hansson said that it’s “worth preparing” and “worth having more tools”. However, he thought that quantitative easing is not needed right now. And ABS purchase is “more of a medium-term plan somewhere down the road”. Meanwhile, he suggested that based on the central bank’s forecast, the stimulus announced back in June was “pretty substantial” and “appropriate” already. And the “idea of doing something more” was not ECB’s baseline assumption. ECB governing council member Nowotny said yesterday he’s unsure whether ABS purchases “would fly”. He believed the “new normal” situation would stay with Eurozone for quite some time. And that included low economic growth, low inflation, lower bank profitability, lower asset quality and less short term funding. Earlier this week, ECB president Draghi told the newly formed European parliament that quantitative easing “falls squarely” in the central bank’s mandate. Released from Eurozone, PI was finalized at 0.5% yoy in June was CPI core was at 0.8% yoy.
Released from US, initial claims dropped to 302k in the week ended July 12, versus expectation of 310k. The four week moving average dropped to 309k, lowest since June 2007. Continuing claims dropped by 79k to 2.51m in the week ended July 5, also lowest since June 2007. However, housing starts dropped -9.3% to 893k annualized rate versus expectation of 1.02m. Building permits dropped -4.2% to 963k versus expectation of 1.04m. Markets showed little attention to the data.
Yesterday, Fed chair Yellen hinted to the House Financial Services Committee that Fed is on track to start hiking interest rates in late 2015. And, Fed policymakers projected the federal fund rate to reach 1.00% by the end of next year. Nonetheless, she also emphasized “it would be a grave mistake for Fed to commit to conduct monetary policy according to a mathematical rule”. And, “it is utterly necessary for us to provide more monetary-policy accommodation than those simple rules would have suggested.”
Fed’s Beige Book economic period showed that all 12 districts reported expanding economic activity during the period from mid-May through June. All districts reported growth in consumer spending and manufacturing. In particular, manufacturing was robust in Midwest and West districts. Banking an financial services improved slightly but non-financial services had steady or improving growth. Residential real estate was mixed, nonetheless, while commercial construction generally strengthened. Labor market continued to improve with all districts reporting slight to moderate employment growth. Wage pressure were modest in most districts.
Daily Pivots: (S1) 101.49; (P) 101.62; (R1) 101.80; More…
Intraday bias in USD/JPY remains neutral for the moment. Now it looks like fall from 102.79 would extend lower. Below 101.39 minor support will turn bias to the downside for 101.06 and below. However, overall development suggests that the consolidation pattern from 100.75 is still in progress. And we don’t see strong enough momentum to push through 100.65/82 key support zone yet. Hence, we’d anticipate a strong rebound from there in that case. Meanwhile, above 101.79 will turn bias back to the upside for 102.26 resistance first.
In the bigger picture, medium term up trend from 75.56 is in form of a five way impulsive move with rise from 96.56 as the fifth leg. There is no confirmation of reversal yet but a medium term top should be near, if not formed. Decisive break of 100.61 support will argue that USD/JPY has already topped out in medium term at 105.41 and should bring deeper fall back to 38.2% retracement o 75.56 to 105.41 at 94.00. In case of another rise, we’ll focus on reversal as it approaches 50% retracement of 147.68 to 75.56 at 111.62.
Conference Board Leading Index May
NAB Business Confidence Q2
Eurozone CPI M/M Jun
Eurozone CPI Y/Y Jun F
Eurozone CPI – Core Y/Y Jun F
International Securities Transactions (CAD) May
Initial Jobless Claims (JUL 12)
Building Permits Jun
Housing Starts Jun
Philly Fed Survey Jul
Natural Gas Storage