MARKET NEWS 03August 2007

[حازم بن علي الغامدي]

JAPAN
Survey of household economy for June showed a 3.1% yoy increase in nominal total expenditure per household, which is quite strong after 1.0% in April and 0.6% in May. (UBS research)
FX –talk large 120.00 & some 118.50 vanillas exp today in NY- USD/JPY recovered from 118.60-65 to 119.35-40 on easing risk aversion across the board, before offers capped again o/n, investors remained sidelined ahead of today’s US payroll data ( mkt suggestions are that data within 100-145 only briefly would move the mkt, while below 100 or above 150 could trigger stronger reaction in either stocks or $), keeping pair on firm footing within 119.05-10 to 119.30-35 mkt also ignored hawkish source type wire story (suggest BOJ now in a position to hike rates either this month or in September & was prepared to tighten policy even if CPI showed a slight drop, and thought the economy on track for sustainable 2% growth. Also played down the credit situation, though admitted the BoJ watching the US mortgage market carefully) in Asia, it needs to hold above 118.90 & break past 119.50-70 to challenge 120.00-40 failure risking seatback towards 118.60-30 zone, support 118.90/118.60 & 118.30 res 119.50/119.70 & 120.00 -EUR/YEN continued to move in sync with stock mkts, it recovered from 162.05-10 all the way back to 163.45-50 before finally pausing & drifting lower o/n, took a well earned breather after a volatile week, trading within 163.15-20 to 163.50-55 with US Investment banks main buyers (incl. some stops), countered by Japanese offers in Asia, it needs to hold above 1.6295-163.05 & recover past 163.60-80 to challenge 164.05-25 failure risking setback towards 162.45-10, support 162.90/162.45 & 162.10 res 163.60/163.80 & 164.05 -YEN/CHF it topped out ard 1.0160-70 while holding lows ard 1.0090-00 o/n, its trading within 1.0080-1.0110 in Asia, while below 1.0170 risk is now towards break of 1.0080 to test 1.0050-00, only back above could challenge 1.0200-40 zone, support 1.0080/1.0050 & 1.0000 res 1.0170/1.0200 & 1.0240
EUROPE/US
Ard 06.20 gmt ECB Trichet said to be interviewed by French Radio
07.00 gmt Spain industrial out put we exp 2.2%
07.45 gmt Italy service PMI we exp 58.5
07.50 gmt France service PMI we exp 59.0
07.55 gmt German service PMI we exp 58.0
08.00 gmt EU service PMI we exp 58.1
09.00 gmt EU retail sales we exp 0.5/1.1%%
12.30 gmt US non farm payroll/UR we exp 125k/4.6% (last 132k/4.5% and mkt consensus is 125k/4.5%) & average hourly earnings we exp unchanged at 0.3%
14.00 gmt US non MFG ISM we exp 59.0 (last 60.7)
17.00 gmt US Tsy Swagel holds briefing to review last month economic indicators & discuss state of the US economy
20.30 gmt US Tsy Paulson in celebration lunch event in Idaho
FX –EUR/USD chopped within 1.3650-55 to 1.3700-05 & got a small boost from ECB Trichet comments (using phrase strong vigilance, pointing to September rate hike & largely price into mkt already & did not touch credit mkts or financials) & buoyant Wallstreet o/n, it traded firm on back of euryen demand & stop loss chasing but lacked follow through at 1.3710-15 highs & drifted back to 1.3695-00 in Asia, a clear break above 1.3730 needed to challenge 1.3750-80 failure & drop back below 1.3675-85 risking fresh setback towards 1.3650-30 or 1.3600 zone, support 1.3670/1.3650 & 1.3630, res 1.3730/1.3750 & 1.3780
Recap-Although the ECB yesterday left the refi rate unchanged at 4%, as expected, the surprise move to call a press conference signalled the Council's increasing propensity to hike rates again. Indeed, President Trichet's use of the key words “strong vigilance” with regard to the bank's anti-inflationary stance makes a 25bp hike at the Sept. 6 meeting now very likely. We maintain our call for further ECB hikes up to a maximum of 4.75% by next year. (UBS Research)
ECB council member Bini Smaghi warned in Il Sole that inflation risks needed to be 'fought' and that in his view the Euro zone still faced a series of upside inflation threats. Those risks, he said, needed to be countered. (UBS FI Strategy)
The Fed's latest custody data revealed foreign central banks bought a net $1.68 bln of Tsys in the week through August 1st.
USB FI update - US Treasuries have dropped back in Asia, as the market returns to the familiar bonds vs equities payoff. The Sept 10-year was last 107-11, down 4/32 so far (and 2/32 easier from Europe's close). Volume average for the time of day, with 18k lots turned over. Wall Street's recover over the last couple of days, and generally better performances from Asian indices (save the Nikkei) draining power from the Treasury market. Note much curve action so far - 2/10 swaps 37.8bp from 37.6bp yesterday (though somewhat flatter on the week, having started at 46.5bp). Back to Thursday and it was a day-long grind back up from Asian/European lows. Starting the Chicago session a quarter point adrift, Sept 10's hit the bell dead flat on the day. Probably the most interesting feature of the day was GECC's $2 bln 30-year - the first signs of corporate issuance for quite a while given market conditions. - September Bunds are seen opening 3 ticks better at 112.57 - Sept JGB's up 21 ticks at 133.39
Swiss
SNB yesterday did not add Liquidity due to market closure- The 3-month LIBOR fixed at 2.70333% (vs. 2.69500%)
Swiss CPI for July at -0.6% m/m and +0.7% y/y exactly in line of expectations. As had to be expected the decline in CPI was largely due to clothing prices down -13.2% (m/m). The bulk of other components including food and restaurants also added negatively to the headline reading confirming that inflation is not really much of an issue for the Swiss economy. At this stage the only factor adding some inflation is oil products. (UBS Research)
FX –USD/CHF recovery attempts run into solid offers ard 1.2080-85 while pullbacks held ard 1.2025-30 o/n, it continues to respect its range & trading within 1.2025-30 to 1.2045-50 in Asia, bids still said ard 1.2000 & offers ard 1.2070-80 zone, it needs to hold above 1.2020-00 & recover past 1.2085 to challenge 1.2100-20 or 1.2165 failure risking setback towards 1.1980-60 or 1.1920 area, support 1.2000/ 1.1980 & 1.1960, resistance 1.2085/1.2100 & 1.2120– EUR/CHF also steadily recovered on slightly subsiding risk aversion & helped by ECB Trichet comments as well as s-term stop loss activity, bouncing from 1.6440-45 to 1.6515-20 before profit taking & solid usdchf 1.2080-85 offers capped & it drifted back o/n, it traded within 1.6480-85 to 1.6500-05 in Asia, it needs clear break past 1.6530 to challenge 1.6560-00 failure risking setback towards 1.6465 to test 1.6435-15, support 1.6465/1.6435 & 1.6415 res 1.6530/1.6560 & 1.6600
UK
Recap-The BoE's MPC has left the repo rate unchanged at 5.75%, as expected. No statement, as normal on an unchanged decision. Next up from the BoE is the August quarterly inflation report next Wednesday (Aug. 8). The minutes to this week's meeting will be published on August 15. The next BoE MPC meeting takes place on Sept. 5/6 (UBS FI Strategy)
FX– talk good size 2.0400 vanilla exp today in NY- GBP/USD after number of wild session there was finally a return to normality, it also stabilised on calming stocks, bouncing from 2.0280-85 to highs ard 2.0375-80 but lacked follow through & drifted off o/n, it consolidated within 2.0350-55 to 2.0370-75 with talk of real money offering, versus East European demand in Asia, it needs to hold above 2.0330-00 & recover past 2.0380 to challenge 2.0425-85 failure risking setback towards 2.0280-50 or 2.0200-2.0180 zone, support 2.0330/2.0300 & 2.0280, res 2.0380/2.0425 & 2.0450- EUR/GB topped out ard 0.6730-35 while pullback held ard 0.6720-25 o/n, its stuck within 0.6725-35 in Asia, it needs to hold above 0.6720 & recover past 0.6755 to challenge 0.6770-85 failure risking setback towards 0.6705-0.6680 zone, support 0.6720/0.6705 & 0.6680 resistance 0.6755/0.6770 & 0.6785 -GBP/CHF recovered from 2.4400-10 to 2.4550-60 before drifting lower o/n, it traded within 2.4480-90 to 2.4530-40 in Asia, it needs clear break of 2.4565 to challenge 2.4600-50 or 2.4690-00 zone failure & drop back below 2.4400 risking fresh setback towards 2.43/2.42 zone, support 2.4400/2.4350 & 2.4300, res 2.4565/2.4605 & 2.4650- GBP/JPY it recovered from 240.10-20 to highs ard 243.10-20 but lacked follow through & drifted back o/n, it consolidated within 242.40-243.00 in Asia, a clear break above 243.20 needed to challenge 244.00-35 or 245 zone failure & drop back below 241.80-50 risking setback towards 240.50/239.70, support 241.80/240.50 & 239.70 res 243.20/244.00 & 244.35


STOCKS
US equities have put Tuesday's upset behind them, and recovered all that lost ground and more. The DJIA closed Thursday 100 points or 0.76% better for its highest finish in over a week. The Nasdaq gained 22 points or 0.87%, while the S&P added a modest 6 points or 0.44%. As had been the case Wednesday, much of the stock strength actually came over the last hour of so of the day, which signalled program involvement. While models may be responsible for late-leaps, it's fundamental earnings that are really providing the underlying support. Weight Watchers added a whopping 10% on the back of a $58 mln Q2 net income. Disney put on 1.6% on across the board earnings and sales growth. (UBS FI Strategy)
UBS Technical update - Nikkei 225 daily chart: following up on yesterday's hammer close and backed by rising momentum conditions, today's gap up bodes well for further recovery towards 17500 (which if sustainable may set up major reversal pattern). Huge gap at 17500/700 to be filled next and clearance of 17700 would confirm bull leg resumption towards 20000 targets. To reinforce the significance of yesterday's daily candle, this is the second time it has rebounded off the rising weekly moving average (in red). The first time it bounced off was at 14045, June 2006 and that triggered the reversal towards 18300, the March 2007 high. --- DJIA hourly chart shows a potential inverted head-and-shoulder formation underway. Sustained break of 13700 key resistances would resume longer-term bull leg over recent peak at 14021.
AUD/NZD/CAD/EM/GOLD/OIL
07.00 gmt Czech CB meeting minutes & Q2 inflation report
07.30 gmt S. Africa SARB Mboweni briefs parliament’s finance committee
12.30 gmt Canada building permits (lat 21.4%)
12.30 gmt Brazil IP (last 1.3%)
13.30 gmt Turkey CPI (last -0.24/8.6) & PPI (last -0.11/2.89)
14.00 gmt Canada Ivey PMI (last 67.4)
Australia-talk large 0.8415 vanilla exp today in NY- The AUD and NZD rates markets are a bit heavier today ahead of payrolls and amid little liquidity. UBS traders price a 75% chance of a rate hike for next week's RBA meeting and think they will deliver after recent strong data and higher CPI, despite the credit/subprime worries. In NZD, they still see good interest to pay the back-end OIS, while the short end stays steady at elevated levels (UBS S-term rates) - AUD/USD steadily recovered from 0.8525-30 to 0.8600-05 on solid demand from US custodial BK /UK clearer & rate hike expectations o/n, it consolidated in quiet Asia session within 0.8560-65 to 0.8585-90 range, it would need to recover past 0.8605-20 to challenge 0.8650-75 failure risking setback towards 0.8550-25 & if broken 0.8490-45 zone, support 0.8550/0.8525 & 0.8490 res 0.8605/0.8620 & 0.8650
New Zealand- Finmin Cullen quoted saying that he did not expect moves to change CB act & no thought to widening of RBNZ's inflation target - NZD/USD recovery from 0.7620-25 run out of stem ard 0.7715-20 o/n, Asia mkt was calm for a change without much activity ahead of today’s US payroll data, pair traded within 0.7665-70 to 0.7685-90 range, it needs to hold above 0.7650 & recover past 0.7730 to challenge 0.7760-0.7800 failure risking setback towards 0.7625-00, support 0.7650/0.7625 & 0.7600, res 0.7730/0.7760 & 0.7800
Canada –talk decent 1.0550 & 1.0600 vanillas exp today in NY- USD/CAD topped out ard 1.0595-00 & dropped on less volatile equity mkt & decent selling by Canadian, US & German houses to lows ard 1.0505-10 before fixing demand supported o/n, it consolidated within 1.0525-30 to 1.0540-45 range in Asia, bids seem at 1.0520 & offers ard 1.0570 zone, it needs to hold above 1.0500 & recover past 1.0570 to challenge 1.0600-40 failure risking fresh setback towards 1.0470-50, support 1.0500/1.0470 & 1.0450 res 1.0570/1.0600 & 1.0640
S. Africa- SARB Mboweni comments made at a dinner for South African Oxford and Cambridge alumni today: on risks to the inflation outlook. He notes that despite the drivers behind the increase in CPIX to date being largely confined to food and fuel price increases, stripping these out, core inflation has also been trending higher. He also comments on the appropriate monetary policy response to the oil price shock, concluding that monetary policy must be set on the best assessment of the second round impact of such a shock, particularly on the cost of production and wages. On food prices, Mboweni notes that they are a 'cause for concern', and that the recent reprieve from easing meat prices is likely to reverse as stocks are rebuilt. This has been a theme of ours for a long time and underpins our view that meat inflation is going to be a concern through H2 2008. With a larger weighting in the overall basket than grains (in fact the largest food weighting is for meat in CPIX), this may negatively affect food prices in general. We forecast a 50 bp rate hike at the August 15-16 MPC meeting, bringing the repo rate to 10.0% (UBS Research)
China- USDCNY fixed at 7.5683 vs previous close at 7.5718
Gold- opened on the highs ard $666/667, but traded in a very quiet fashion. The lows ard $663/664 came courtesy of lower stocks, but a turn for the better in the wake of ECB President Trichet signalling a hike in September, which supported the euro, too, it closed ard $665/666 in NY, its trading firmly within $665-667 in Asia, needs to hold above $663-659 & recover past $669 to challenge $672-675, failure risking setback towards $656-653, support $663/659 & 656, res $669/672 & 675
Base Metal- As equity markets stabilised overnight, nickel broke 30000 from another inventory increase, aluminium saw funds sell Dec11 and 3s and buy nearby puts at cheap vol 16%, copper was flat, lead jumped to 3300 and nearby spreads tightening again
Oil- NYMEX September crude future seen choppy trading session, first down to lows ard $75.52, then surging back up on OPEC source commenting that there was not need for output hike as Q4 adequately supplied & short covering to highs ard $77.44, before closing ard $76.86 in NY, its trading flat in Asia ard $76.85, it needs to hold above $76.00 & recover past $77.50 to challenge $78.10-80 failure risking re-test of $75.50 & if broken $74.60, support $76.00/75.50 & 74.60, res $77.50/78.10 & 78.80


UBS Investment Bank TRADERS SENTIMENT

...have a look at UBS Investment Bank's FXWeb for all technical updates

EUR/USD - TRADERS favour buy dip 1.3680 target 1.3750 stop below 1.3640
USD/CHF - TRADERS favour play 1.12010 to 1.2085 range
EUR/CHF - TRADERS favour buy dip 1.6475 target 1.6525 stop below 1.6450
GBP/USD – TRADERS favour play 2.0250 to 2.0300 range
USD/YEN - TRADERS favour buy dip in 119.00 to 119.50 range
EUR/YEN – TRADERS favour play 163 to 164 range

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