Day's Data Lifts Night Trading

With limited economic data hitting the wires early this week, market participants have latched on to whatever information they can get their hands on. Seemingly working off a “glass is half full” as opposed to a “glass is half empty” notion, safe haven asset classes have taken a backseat as a broad pick up in risk demand has been the trading theme of late. Following last Friday’s European stress test outcome, yesterday’s release of June U.S. New Home Sales data was cheered by market participants due to a headline surge of 23.6% from the previous month (330K vs. an expected 311K and a previous figure of 300K). While at first glance the numbers look quite impressive, investors have apparently disregarded the fact that New Home Sales data has been revised lower every month since March, indicative that after the dust settles, June’s reading might not be all that sensational. Despite the potential for disappointment, traders have soaked up the headline appraisal and, as a result, high yielding outlets are exceedingly sought after over the short term.

Eurozone Action!

Coupled with the action found on the economic calendar, overnight equity markets in Europe followed yesterday’s boost to domestic stocks, particularly after FedEx raised its full-year earnings guidance after the bell. As the most recent hefty American corporation to increase its earning forecast, the street is viewing these enhancements as evidence that concerns surrounding the fate of the global recovery are beginning to wane. While today’s release of the U.S. Consumer Confidence Report at 10am EST will be the next test domestically, the aggressive financial efforts of overseas officials were supported by the better-than-expected reading of Germany’s August Gfk Consumer Confidence Survey. Tied to the boost in consumer sentiment, the Eurozone M3 money supply accelerated to +0.2% y/y (median -0.1%), with May revised up to -0.1% (from -0.2%). Posting the first positive growth rate since October of last year, economic data in the Euro-area of late has been adequate enough to give the ECB the assurance needed to continue to reel-in its extraordinary policy measures. Evidence that a sense of relief has blanketed the area was seen last week, when the ECB purchased a meagre 176 million EUR worth of bonds—the lowest amount acquired by the central bank since the plan commenced in May. Highlighted by Greece, the market as a whole seems to have accepted the austerity measures put in place by European banking officials.

EUR, GBP Hit Short-Term Highs

While a number of aforementioned factors have played an integral role over the short term in endorsing the risk trade, American dollars have felt the brunt of the load and are being sold off at heightened levels. EURUSD has printed fresh two-month highs as the most liquid currency pair has made a solid push over the psychological 1.30 figure. Similar to EUR price action, GBPUSD has flown to its strongest levels since mid-February. Along with a view of general dollar weakness, the pound has soared off the back of July’s UK Retail Sales numbers, which have resulted in the strongest rise in over three years. Commodity currencies, including the AUD, NZD, and CAD have all picked up ground against the USD— interestingly enough, due to the fact that gold is currently in the red close to 1%. By the way, keep a keen eye on the Dow today. The widely-watched average has never had four straight sessions to close off at triple digit gains…could today be the day?

Jamie Heighway, Market Analyst
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