FX Update: US Q2 GDP falls short of forecasts but risk appetite seems to survive into August

US Q2 GDP falls short of forecasts but risk appetite seems to survive into August

China PMI data marginally lower; a precursor for the rest of the world?

Market Comments:
 

The well-telegraphed month-end fixing demand saw AUD and EUR pushing higher again during the European session, and all eyes were on EUR to see if it could break the 1.31 mark. European data releases were mixed, with German retail sales heavily below forecast but containing hefty upward revisions to the previous month’s number while Euro-zone inflation and unemployment numbers were both as expected. In the end, EUR stalled just short of 1.31 as position trimming ahead of the US Q2 GDP numbers took hold.

As for the US data, Q2 GDP was below forecast, coming in at +2.4% q/q versus 2.6% expected and sent equity markets initially lower and pushing EUR below the 1.30 mark briefly. The release also contained revisions to previous years’ data with growth rates between 2007 and 2009 all revised lower between 0.2% and 0.4%. The July Chicago PMI was a very strong 62.3 versus 56.0 expected and 59.1 last and seems at odds with other data and the Fed’s Beige Book, while the final Michigan sentiment number was higher at 67.8 from 67.0. These two numbers helped Wall St recover into the close with the S&P +0.01% (notably finishing the month above the 1,100 mark) completing its best monthly gains in a year. The USD failed to regain the 82.0 level on the index as the softer data sent the 2-year US yields to record lows, ensuring USDJPY remained capped on the day.

In weekend news, China’s PMI data for July showed further deterioration, sliding to 51.2 from 52.1 previously and below forecasts of 51.4, though note still above the 50 threshold of expansion/contraction. The HSBC equivalent, released early this morning, was not quite as rosy, falling below the 50 threshold for the first time this year to hit 49.4 having peaked at 57.4 in January. Latest polls for the Australian election (August 21) are showing the two main parties tied at 50:50 with Labour’s lead sliding from 52:48 previously.

It was a slow start to the week in Asia with a bank holiday in Sydney hitting liquidity and activity. The imposition of new margin requirements for retail traders in Japan had little impact in trading though some expressed hopes/concerns that margin calls might force liquidation of some JPY crosses.
Heading into Europe and it is the PMI data-fest at the start of the month that fills the calendar with releases from Sweden, Norway, Switzerland Germany, Euro-zone and UK. Swiss retail sales is the only other indicator of note scheduled. The US session is also dominated by the manufacturing ISM and construction spending releases while Fed chief Bernanke speaks later in the session on the US economy.

Welcome to August.

Economic Data Highlights

• US Q2 GDP out at +2.4% q/q vs. 2.6% expected and revised 3.7% prior
• US Q2 Personal Consumption out at 1.6% vs. 2.4% expected and revised 1.9% prior
• US Jul. Chicago PMI out at 62.3 vs. 56.0 expected as 59.1 prior
• US Jul. Final Michigan Confidence out at 67.8 vs. 67.0 expected and 66.5 prior
• US Jul. NAPM-Milwaukee out at 66.0 vs. 57.0 expected and 59.0 prior
• China Jul. PMI Manufacturing out at 51.2 vs. 51.4 expected and 52.1 prior
• AU Jul. Performance of Manufacturing Index out at 54.4 vs. 52.9 prior
• AU Jul. TD Securities Inflation out at 0.1% m/m, 2.8% y/y vs. 0.3%/3.6% prior resp.
• AU Jun. HIA New Home Sales out at -5.1% m/m vs. -6.4% prior
• China Jul. HSBC Manufacturing PMI out at 49.4 vs. 50.4 prior
• NZ Jul. ANZ Commodity Prices out at -0.8% m/m vs. revised -1.6% prior

Upcoming Economic Calendar Highlights
(All Times GMT)

• Sweden Swedbank PMI Survey (0630)
• Norway PMI (0700)
• Swiss Retail Sales (0715)
• Swiss SVME – PMI (0730)
• GE PMI Manufacturing (0755)
• EU PMI Manufacturing (0800)
• UK PMI Manufacturing (0830)
• HK Retail Sales (0830)
• US ISM Manufacturing (1400)
• US ISM Prices Paid (1400)
• US Construction Spending (1400)
• US Fed’s Bernanke to speak on US Economy (1415)