Early this morning we saw the U.S. debt plan cross the first hurdle of the vote in the House of Representatives and we now await the Senate vote later. There was only muted reaction to the announcement.

Japan’s finance minister ups his “monitoring” rhetoric but so far no action
We have also heard Japanese finance minister Noda on the wires saying he is in touch with various authorities on FX and reiterated his view that moves were one-sided and the JPY was overvalued. Again, muted response from the markets to these regular, ineffective comments but it had to be noted that Asia was on heightened alert for intervention today following the article in Nikkei newspaper in the U.S. session yesterday (see below). It was also noted that short-term JPY interest rate markets are bracing for a hefty (possible) inflow of liquidity, so it might pay to be cautious.

We also had the RBA meeting which resulted in a no change verdict but the accompanying statement outlined that, whilst inflation does still remain a concern, the central bank felt it prudent to wait on adjusting policy due to the uncertain outlook for global financial markets. AUD suffered a tad as the market was expecting a slightly more hawkish comment.

In addition, Australia’s house price index continued to slide in the second quarter (though not as much as feared and slower than Q1’s drop) falling 0.1% q/q. Building approvals were also disappointingly weak, falling a further 3.5% m/m in June following a revised 6.3% slump in May. Europe kicks off with Swiss retail sales and PMI (delayed due to holiday yesterday) along with Eurozone PPI data. On the U.S. front we have personal income/spending and the PCE deflator numbers.

The apparent euphoria surrounding the U.S. debt ceiling deal did not last long overnight as the stream of PMI data from across the globe provided a huge disappointment and sent markets back into risk aversion mode. Following on from the softer readings in Australia and China, German and U.K. figures also slid (the U.K. is back in recessionary territory for the first time in almost two years) and this took the shine off both the EUR and GBP. USDJPY slid down to levels that prompted the last round of Bank of Japan intervention and chatter of the central bank checking rates in the U.S. session combined with a story in Nikkei newspaper about the BOJ/MOF prepping for a new round of intervention (with U.S. backing) and possibly more easing measures prompted a smart about-turn. Some regard the Nikkei as a “reliable source” for BOJ thinking and often seen as a “mouthpiece” for the authorities’ intentions. Meanwhile, the CHF reigned supreme, rallying to record highs versus the EUR and USD.

On the data front, July’s US ISM manufacturing data slid a hefty 4.4 points to 50.9, its lowest since the summer of 2009, with the new orders sub-index sliding into negative and the employment component seeing the largest drop. Wall St had a mixed day but the weight of soft data and the looming Congress debt vote saw the S&P falling for the sixth straight day, losing 0.41% and the Nasdaq following suit with 0.43% losses. Signs of a slowing global economy hit oil prices with crude back down to $96 p/barrel which took its toll on the commodity-bloc currencies.

Another string to the “risk-off” bow came from a press release on the People’s Bank of China’s website yesterday which made it clear that it will not loosen policy in the near-term because “inflation expectations remain strong while the foundation for price stability is not solid and therefore any policy loosening could trigger a rebound in inflation and inflation expectations”. It also listed the policy tools available: “interest rate, exchange rate, open market operation, required reserve ratio (RRR), and macro prudential management” with some analysts noting the specific order in which the tools were listed.

Economic Data Highlights

• US Jun. Construction Spending out at +0.2% m/m, vs. 0.1% expected and revised 0.3% prior
• US Jul. ISM Manufacturing out at 50.9 vs. 54.5 expected and 55.3 prior
• US Jul. ISM Prices Paid out at 59.0 vs. 64.4 expected and 68.0 prior
• NZ Q2 Avg. Hourly Earnings out at +1.2% q/q vs. 0.8% expected and revised 0.4% prior
• JP Jul. Monetary Base out at +15.0% y/y vs. 17.0% prior
• AU Q2 House Price Index out at -0.1% q/q, -1.9% y/y vs. -1.0%/-3.0% expected and revised -1.1%/flat prior resp.
• JP Jun. Labour Cash Earnings out at -0.8% y/y vs. 0.5% expected and revised 1.0% prior
• AU Jun. Building Approvals out at -3.5% m/m, -15.5% y/y vs. +3.0%/-10.3% expected and revised -6.3%/-13.3% prior resp.
• AU RBA leaves cash target rate unchanged at 4.75%, as expected

Upcoming Economic Calendar Highlights
(All Times GMT)

• Norway PMI (0700)
• Swiss Retail Sales (0715)
• Swiss PMI Manufacturing (0730)
• UK PMI Construction (0830)
• EU Euro-zone PPI (0900)
• US Personal Income/Spending (1230)
• US PCE Deflator (1230)
• SI PMI (1330)

Source: www.tradingfloor.com